<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission file number 1-496
HERCULES INCORPORATED
A DELAWARE CORPORATION
I.R.S. EMPLOYER IDENTIFICATION NO. 51-0023450
HERCULES PLAZA
1313 NORTH MARKET STREET
WILMINGTON, DELAWARE 19894-0001
TELEPHONE: 302-594-5000
Securities registered pursuant to Section 12(b) of the Act
(Each class is registered on the New York Stock Exchange, Inc.)
Title of each class
Common Stock ($25/48 Stated Value)
8% Convertible Subordinated Debentures due August 15, 2010
9.42% Trust Originated Preferred Securities ($25
liquidation amount), issued by Hercules Trust I
and guaranteed by Hercules Incorporated
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
___ ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ____
As of March 15, 2000, registrant had outstanding 106,951,188 shares of
common stock, $25/48 stated value ("Common Stock"), which is registrant's only
class of common stock.
The aggregate market value of registrant's Common Stock held by
non-affiliates based on the closing price on March 15, 2000 was approximately
$1.5 billion.
DOCUMENTS INCORPORATED BY REFERENCE
(SPECIFIC PAGES INCORPORATED ARE IDENTIFIED UNDER THE
APPLICABLE ITEM HEREIN.)
Portions of the registrant's definitive Proxy Statement dated March 24,
2000 (the "Proxy Statement") are incorporated by reference in Part III of this
Report. Other documents incorporated by reference in this report are listed in
the Exhibit Index (see page 62).
<PAGE> 2
PART I
ITEM 1. BUSINESS:
Hercules Incorporated manufactures chemical specialties used in a variety
of home, office and industrial products. We are focused on sustaining long-term
growth in shareholder value, driven by new product development, continuous
improvement in manufacturing costs and responsive customer service. Our
principal products are performance (also referred to as functional) and process
paper chemicals, water treatment chemicals, water-soluble polymers, food
ingredients, resins and polypropylene and polyethylene fibers. The primary
markets we serve include pulp and paper, petroleum refineries, food processors
and manufacturers, paint manufacturers, construction materials, adhesives,
pharmaceutical companies and personal care product manufacturers.
Our products have a low cost impact on the end-users but frequently possess
characteristics important to the functionality of the finished product or the
efficient operation of the manufacturing process. Examples of our products in
consumer end uses include the paper coating and strengthener in writing paper,
the tackifier (which provides stickiness) in adhesive for labels and tapes, the
fibers in inner and outer linings of disposable diapers and the thickeners in
products such as jams, jellies, toothpaste, shampoos and water-based paints.
Examples of our products in industrial end uses include chemicals that improve
manufacturing processes, chemicals that improve the water quality in
manufacturing processes, tile cements used in building materials and resins used
in industrial adhesives. Industrial and commercial uses for our fibers include
decorative fabrics and automotive trim.
In the early 1990s, we were focused primarily on increasing our return on
equity and reducing our costs of operations. Although these objectives are still
important, growth has become our primary deliverable. Accordingly, since 1995,
we have implemented internal and external initiatives to achieve growth and have
disposed of a number of businesses that did not fit our portfolio and acquired
other businesses that better fit our strategy and our current businesses.
Internally, we have committed substantial resources to our research and
development efforts. Through these efforts, since 1995, we have increased sales
of products which are less than five years old. Externally, we consummated five
acquisitions in 1998, the largest of which was the acquisition of BetzDearborn
Inc. These businesses added approximately $1.5 billion of revenue in 1999.
Additionally, the integration of these acquisitions resulted in significant
synergies for us in 1999.
RECENT EVENTS
On February 22, 2000, we announced a new corporate strategy focused on cash
generation, debt reduction and growth of the core businesses: Pulp and Paper,
BetzDearborn and Aqualon. As part of this strategy, we will monetize our
investment in our Food Gums business through the formation of a joint venture
with Lehman Brothers Merchant Banking Partners II L.P. This new venture has
entered into an agreement to acquire the Kelco biogums business from Monsanto.
The Lehman Brothers partnership will own approximately 72% of the new entity and
we will own approximately 28%. We expect that the new entity will have annual
revenues of approximately $450 million.
Further, we have expressed our intention to monetize our Resins business
and we are beginning to explore alternatives regarding our FiberVisions
business. There can be no assurance that we will successfully consummate the
monetization of Food Gums, Resins or FiberVisions.
The Food Gums, Resins and FiberVisions businesses account for approximately
$900 million of our 1999 revenues.
In addition to monetizing assets, we will be concentrating on improving our
asset utilization, working capital management and reducing debt and corporate
overhead costs. These actions may result in restructuring charges in 2000 as
exit plans are finalized.
We are also investigating the possibility of joining a consortium of
chemical and energy companies in a new online network, to be called Envera
Corp., that would provide its members access to business-to-business Internet
commerce. Our possible participation could range from an equity investment to
trading member status.
REPORTABLE SEGMENTS
Our reportable segments are: Process Chemicals and Services (comprised of
Pulp and Paper and BetzDearborn); Functional Products (comprised of Aqualon and
Food Gums); and Chemical Specialties (comprised of Resins and FiberVisions).
<PAGE> 3
The financial information regarding our segments, which includes net sales and
profit from operations for each of the three years ended December 31, 1999 and
capital employed as of December 31, 1999, 1998 and 1997, is provided in Note 26
to the Consolidated Financial Statements. See Part II, Item 8.
PROCESS CHEMICALS AND SERVICES (PULP AND PAPER AND BETZDEARBORN)
Products and services in this segment are designed to enhance the
manufacturing processes, reduce the operating costs or improve the quality of
the end products of our customers. At the same time, we help our customers meet
their environmental objectives and regulatory requirements. Pulp and Paper and
BetzDearborn sell each other's products to their customers and Pulp and Paper
also sells Aqualon's products to its customers.
In August 1999, we completed the acquisition of the Scriptset water soluble
polymer resin business from Solutia Inc. Since 1991, Hercules had an exclusive
license to sell Solutia's products in North America to the paper industry.
In January 2000, this segment and United States Filter Corporation, a
Vivendi Water Company, a global provider of commercial, industrial, municipal
and residential water and wastewater systems, entered into an alliance to sell
jointly USFilter's capital and chemical feed equipment and Hercules' water and
process treatment chemicals.
<TABLE>
<CAPTION>
DIVISION PRINCIPAL PRODUCTS PRIMARY MARKETS
- -------- ------------------ ---------------
<S> <C> <C>
PULP AND PAPER Performance chemicals: Makers of tissues,
Wet strength, dry strength and sizing paper towels,
packaging, beverage
Process treatment chemicals: containers, newsprint,
Deposit control, biofouling control, papers for magazines and
foam control, clarification, retention/drainage, books, printing and
felt conditioning, deinking, fiber recovery, water writing paper and
closure and crepe and release aids other stationery items
such as labels and
Water treatment chemicals: envelopes
Influent water, effluent water, cooling towers
and boiler systems
BETZDEARBORN Water treatment: Industrial, commercial
Influent water, boilers, cooling towers and and institutional
wastewater establishments;
petroleum refineries,
Process treatment: chemical plants,
Petroleum refining, chemical processing, metals manufacturers of metals,
processing and finishing, automotive assembly, automobile assembly
sugar and alcohol production and mineral plants and makers of food
processing and beverages
</TABLE>
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FUNCTIONAL PRODUCTS (AQUALON AND FOOD GUMS)
Products in this segment modify the physical properties of aqueous
(water-based) and non-aqueous systems, are principally derived from natural
resources and are sold as key ingredients to other manufacturers. A broad range
of industries use our products for a variety of applications, including the
world's processed food industry (to stabilize and gel foods), construction
materials manufacturers (for tile cement) and paint manufacturers (to thicken
paints). Aqualon sells products produced by Food Gums to Aqualon's personal care
product customers, while Pulp and Paper and Food Gums sell Aqualon products to
their customer bases.
On December 10, 1999, we announced our intention to close our
nitrocellulose operations due to economic conditions brought on by a persistent
worldwide over-supply. Since that time, we have entered into a non-binding
letter of intent to sell this product line to an undisclosed buyer. We cannot
assure you that the sale of this product line will be consummated.
In December 1999, we sold our 70% interest in Algas Marinas, our Chilean
agar business.
On February 22, 2000, we announced our intention to contribute our Food
Gums division to a newly organized business venture with Lehman Brothers
Merchant Banking Partners II L.P. See "Recent Events" on page 1.
<TABLE>
<CAPTION>
DIVISION PRINCIPAL PRODUCTS PRIMARY MARKETS
- -------- ------------------ ---------------
<S> <C> <C>
AQUALON Water-soluble polymers: Manufacturers of interior and
Hydroxyethylcellulose (HEC), exterior water-based paints,
Carboxymethylcellulose (CMC), oilfield service companies for
Methylcellulose (MC) and derivatives oil and gas exploration, paper
and Hydroxypropylcellulose (HPC) mills, construction material
manufacturers and makers of
oral hygiene products, cosmetics
and dairy and bakery products
Solvent-soluble polymers: Producers of furniture lacquer,
Pentaerythritol (PE) and printing inks and aviation
Ethylcellulose (EC) and fluids
Nitrocellulose (NC)
FOOD GUMS Pectin: ingredient for jams and jellies, Multi-national and regional
yogurt fruit preparations, confectionery, manufacturers and processors
dairy applications, bakery products and of food products
low-fat and no-fat foods
Carrageenan: ingredient for dairy, meat,
poultry and fish products, bakery glazings
and toothpaste
</TABLE>
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CHEMICAL SPECIALTIES (RESINS AND FIBERVISIONS)
In this segment, we manufacture hydrocarbon and rosin-based resins. We are
the only global manufacturer to make both of these resins. We are also the
largest manufacturer of thermal bond polypropylene staple fibers used in
products like disposable diapers.
In August 1999, Hercules acquired the water soluble polymer resin business
of Solutia Inc. In addition, to its use in the paper industry, these products
are sold in the adhesive and other industrial specialty markets.
In September 1999, FiberVisions and Chisso Corporation announced their
plans to establish a joint venture to develop and market bicomponent fibers for
use in hygienic and other applications.
In the fourth quarter of 1999, Hercules announced its intention to
discontinue manufacture of pure dicumyl peroxide at the Beringen, Belgium
facility.
<TABLE>
<CAPTION>
DIVISION PRINCIPAL PRODUCTS PRIMARY MARKETS
- -------- ------------------ ---------------
<S> <C> <C>
RESINS Hydrocarbon resins: for adhesives and Makers of consumer
graphic arts and industrial products
such as masking,
Rosin resins: for adhesives, food, packaging, arts and duct
rubber and plastics tape, construction
materials, beverages,
Terpene resins: for chewing gum chewing gum, wire and
and adhesives cables, plastics,
fragrances and flavors,
Peroxides: for wire and cable insulation, printing inks and copier
plastics and rubber toner
Terpene specialties: for flavor and fragrance
in household and industrial products
FIBER VISIONS Polypropylene and polyethylene Makers of disposable
Monocomponent fibers and bicomponent products, feminine care
(PE/PP) fibers: for disposable hygiene products products, upholstered
fabrics, automotive
Textile fibers: for automotive, decorative textiles and
and industrial applications agricultural fabrics
</TABLE>
RAW MATERIALS AND ENERGY SUPPLY
Raw materials and supplies are purchased from a variety of industry
sources, including agricultural, forestry, mining, petroleum, and chemical
industries.
Important raw materials for the Process Chemicals and Services segment
are cationic and anionic polyacrylarnides and emulsions, biocides, amines,
surfactants, rosin, adipic acid, epichlorohydrin, fumaric acid, stearic acid,
diethylenetriamine, phosphorus trichloride, wax and starch.
Raw materials important to the Functional Products segment are
acetaldehyde, fatty acids, chemical cotton, woodpulp, ethyl chloride, alcohols,
chlorine, ethylene oxide, propylene oxide, monochloroacetic acid, methyl
chloride, caustic, inorganic acids, guar splits, seaweed, terpenes and citrus
peel.
The important raw materials for the Chemical Specialties segment are
ketones, alcohols, phenol, adipic acid, epichlorohydrin, fumaric acid, stearic
acid, diethylenetriamine, phosphorus trichloride, wax, casein, starch, pigments,
antioxidants, d-limonene, turpentine, crude tall oil, rosin, pine wood stumps,
aromatic and aliphatic resin fonners, cumene, catalysts, pure monomers, toluene,
clay, process oils, polyethylene resin and polypropylene resin.
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Major requirements for key raw materials and fuels are typically
purchased pursuant to multi-year contracts. Hercules is not dependent on any one
supplier for a material amount of its raw material or fuel requirements, but
certain important raw materials are obtained from sole-source or a few major
suppliers.
While temporary shortages of raw materials and fuels may occur
occasionally, these items are currently readily available. However, their
continuing availability and price are subject to domestic and world market and
political conditions as well as to the direct or indirect effect of governmental
action or regulations. The impact of any future raw material and energy
shortages on our business as a whole or in specific world areas cannot be
accurately predicted. Operations and products may, at times, be adversely
affected by governmental action, shortages or international or domestic events.
COMPETITION
The specialty chemicals industry is highly fragmented and its
participants offer a broad array of product lines and categories, representing
many different products designed to meet specific customer requirements.
Individual product or service offerings compete on a global, regional and local
level due to the nature of the businesses and products, as well as the
end-markets and customers served. The industry has become increasingly global as
participants focus on establishing and maintaining leadership positions in
relatively narrow market niches. Many of our businesses face the competitive
pressures discussed above, including industry consolidation, pricing pressures
and competing technologies. In Pulp and Paper, for example, our end-markets are
consolidating and many of our competitors are attempting to enhance their
product offerings on a worldwide basis through alliances and distributor
arrangements. In addition, certain of our businesses are subject to intense
pricing pressures in various product lines, such as fibers in our hygiene
products line and carrageenan in our food ingredients line. FiberVisions, as a
fibers manufacturer for carded applications, faces competition from spunbond
(SB) and spunbond/melt blown/spunbond (SMS) technologies. SB/SMS products may
offer cost savings compared to the products of FiberVisions; however,
FiberVisions believes that its carded products provide improved softness and
acquisition and distribution properties preferred by certain segments of the
disposable diaper and other hygiene products markets.
PATENTS AND TRADEMARKS
Patents covering a variety of products and processes have been issued
to us and our assignees. We are licensed under certain other patents held by
other parties covering our products and processes. Our rights under these
patents and licenses constitute a valuable asset.
We or our wholly owned subsidiaries also have many global trademarks
covering our products. Some of the more significant trademarks include:
Aquapel(R) sizing agent, Hercon(R) sizing emulsions, Aqualon(R) water-soluble
polymers, Natrosol(R) hydroxyethylcellulose, Culminal(R) methylcellulose,
Klucel(R) hydroxypropylcellulose, Natrosol FPS(R) water-soluble polymer
suspension, Precis(R) sizing agent, Novus(R) polymer, Dianodic(R) cooling water
products, Continuum(R) cooling water products, Kymene(R) resin, Regalrez(R)
resin, Slendid(R) fat replacer and Herculon(R) fiber.
We do not consider any individual patent, license or trademark to be of
material importance to Hercules taken as a whole.
RESEARCH AND DEVELOPMENT
Research and development efforts are directed toward the discovery and
development of new products and processes, the improvement and refinement of
existing products and processes, the development of new applications for
existing products and cost improvement initiatives. For example, in 1999 we
entered into an agreement with a biotechnology research and development company
to develop new proprietary industrial enzymes for use in new product and process
development. We spent $85 million on research activities during 1999, as
compared to $61 million in 1998 and $53 million in 1997.
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Process Chemicals and Services currently focuses its research and
development efforts on growth (innovative new product development), technical
sales and services (incremental improvements to existing products and services)
and cost reduction programs to meet diverse customer needs worldwide. Our
state-of-the-art facilities located in Europe and the U.S. are large and
sophisticated research and development laboratories with pilot plant
capabilities that simulate actual operating conditions in our customer
facilities. This allows an accurate assessment of the potential impact of new
products on plant performance.
New product development for performance chemicals is focused on
improving end-use properties. Understanding the product end uses is a critical
step in the development of strength additives and internal and surface sizes, as
well as in the design of products for tissue creping, release and softeners.
In four regional operations centers located in Europe, Asia Pacific,
South America and the U.S., our scientists conduct research and customer
optimization studies focused on solving water and process treatment challenges
by using sophisticated techniques and equipment to provide high level analytical
testing and advanced technical support to customers worldwide.
Aqualon focuses its research and development efforts on targeted,
market-oriented technology programs, process technology and responsive technical
service to customers.
Food Gums focuses its advanced process technology programs on pectin
and carrageenan extraction yield improvement, cheaper peel sources for pectin,
lower cost processes for carrageenan and faster quality control methods.
We have a number of Applications and Development Laboratories
positioned in Europe, Asia and the Americas that provide technical support to
our major customers. At these laboratories, teams work as a network to develop
products, identify new product applications and solve customer problems.
Resins focuses a significant portion of its research and development
efforts primarily on cost improvement techniques in production processes and the
procurement of raw materials. It also engages in new product development (such
as resins for new adhesive systems) and modifying existing products for new
applications.
FiberVisions' major focus in its hygiene product unit is to improve
fiber strength while enhancing product properties for loft, softness and
stretch, thereby creating a competitive platform that is equal to or better than
spunbond. Other research is directed toward the binding, dusting and bonding
functions of bicomponent fibers. The textile product unit is investigating the
use of specific fibers for new applications in the upholstery, automotive,
industrial and decorative fabric industries. The research and development effort
is primarily geared toward the development of new fibers and new applications
for existing markets.
FiberVisions has research and development facilities in the U.S. and
Europe designed to serve the business needs of its customers. Pilot spinning and
processing lines are used to examine new polymers and processing concepts
such as monocomponent or bicomponent fibers from single filament spinning to
full-scale production facilities.
ENVIRONMENTAL MATTERS
We believe that we are in compliance in all material respects with
applicable federal, state, and local environmental laws and regulations.
Expenditures relating to environmental cleanup costs have not materially
affected, and are not expected to materially affect, capital expenditures or
competitive position. Additional information regarding environmental matters is
provided in Item 3.
EMPLOYEES
As of December 31, 1999, we had 11,347 employees worldwide.
Approximately 6,600 were located in the United States, and, of these employees,
about 14% were represented by various local or national unions.
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INTERNATIONAL OPERATIONS
Information on net sales and long-lived assets by geographic areas, for
each of the three years ended December 31, 1999, appears in Note 26 to the
Consolidated Financial Statements. See Part II, Item 8. Direct export sales from
the United States to unaffiliated customers were $342 million, $319 million, and
$309 million for 1999, 1998, and 1997, respectively. Our operations outside the
United States are subject to the usual risks and limitations related to
investments in foreign countries, such as fluctuations in currency values,
exchange control regulations, wage and price controls, employment regulations,
effects of foreign investment laws, governmental instability (including
expropriation or confiscation of assets) and other potentially detrimental
domestic and foreign governmental policies affecting United States companies
doing business abroad.
ITEM 2. PROPERTIES:
Our corporate headquarters and major research center are located in
Wilmington, Delaware, while the administrative headquarters of BetzDearborn is
located in Trevose, Pennsylvania. We also own a number of plants and facilities
worldwide, in locations strategic to the source of raw materials or to our
customers.
All of our principal properties are owned by us, except for our
corporate headquarters, which is leased.
The following are our major worldwide plants:
Process Chemicals and Services - BETZDEARBORN - Addison, Illinois;
Bakersfield, California; Beaumont, Texas; Buenos Aires, Argentina;
Chalon, France; Crissey, France; Edmonton, Alberta, Canada;
Ferentino, Italy; Garland, Texas; Helsingborg, Sweden; Herentals,
Belgium; Houston, Texas; Hsin Chu Hsien, Taiwan; Iksan City, Korea;
Ingelburn, Australia; Jurong Town, Singapore; Kilafors, Sweden;
Langhorne, Pennsylvania; Macon, Georgia; Mississauga, Ontario,
Canada; New Philadelphia, Ohio; Orange, Texas; Point-Claire, Quebec,
Canada; Pudahuel, Santiago, Chile; Qualiano, Italy; Reserve,
Louisiana; Santafe de Bogota, Colombia; Santiago, Chile; Sara,
Mexico; Sorocaba, Brazil; Stonehouse, Gloucester, United Kingdom;
Surabaya, Indonesia; Valencia, Venezuela; Washougal, Washington;
Widnes, Cheshire, United Kingdom; and PULP AND PAPER - Aberdeen,
Scotland; Beringen, Belgium; Burlington, Ontario, Canada; Busnago,
Italy; Chicopee, Massachusetts; Franklin, Virginia; Hattiesburg,
Mississippi; Kalamazoo, Michigan; Kim Cheon, Korea; Lilla Edet,
Sweden; Mexico City, Mexico; Milwaukee, Wisconsin; Nantou, Taiwan;
Pandaan, Indonesia; Paulinia, Brazil; Pendlebury, England; Portland,
Oregon; St. Jean, Quebec, Canada; Sandarne, Sweden; Savannah,
Georgia; Shanghai, China; Sobernheim, Germany; Tampere, Finland;
Tarragona, Spain; Traun, Austria; Voreppe, France; and Zwijndrecht,
The Netherlands.
Functional Products - AQUALON - Alizay, France; Doel, Belgium;
Hopewell, Virginia; Kenedy, Texas; Louisiana, Missouri; Parlin, New
Jersey; Zwijndrecht, The Netherlands; and FOOD GUMS - Cebu, The
Philippines; Grossenbrode, Germany; Lille Skensved, Denmark; and
Limeira, Brazil.
Chemical Specialties - FIBERVISIONS L.L.C. - Athens, Georgia;
Covington, Georgia; Suzhou, China; and Varde, Denmark; and RESINS -
Beringen, Belgium; Brunswick, Georgia; Burlington, Ontario, Canada;
Franklin, Virginia; Gibbstown, New Jersey; Hattiesburg, Mississippi;
Jefferson, Pennsylvania; Middelburg, The Netherlands; Portland,
Oregon; San Juan del Rio, Mexico; Savannah, Georgia; Tokushima,
Japan; and Uruapan, Mexico.
Our plants and facilities, which are continually added to and
modernized, are generally considered to be in good condition and adequate for
business operations. From time to time we discontinue operations at, or dispose
of, facilities that have for one reason or another become unsuitable. For
example, we have decided to close our nitrocellulose operations due to economic
conditions brought on by a persistent worldwide over-supply.
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We have initiated the following major expansion projects designed to
strengthen our market position in key growth areas, while continuing to improve
our manufacturing efficiencies:
- a 15,000 metric ton capacity expansion of long spin staple
fiber in China;
- a 7,000 metric ton methylcellulose capacity increase in
Belgium;
- a 2,200 metric ton pectin capacity increase in Germany;
- a 400 metric ton hydroxypropylcellulose capacity increase in
Virginia; and
- a 700 metric ton capacity plant for the manufacture of
high-performance paper chemicals in China.
ITEM 3. LEGAL PROCEEDINGS:
ENVIRONMENTAL
General
Hercules has been identified as a potentially responsible party (PRP) by
U.S. federal and state authorities, or by private parties seeking contribution,
for the cost of environmental investigation and/or cleanup at numerous sites.
The estimated range of the reasonably possible share of costs for the
investigation and cleanup is between $60 million and $230 million. The actual
costs will depend upon numerous factors, including the number of parties found
responsible at each environmental site and their ability to pay; the actual
methods of remediation required or agreed to; outcomes of negotiations with
regulatory authorities; outcomes of litigation; changes in environmental laws
and regulations; technological developments; and the amount of time of remedial
activity required, which could range from 0 to 30 years.
Hercules becomes aware of sites in which it may be named a PRP in
investigatory and/or remedial activities through correspondence from the U.S.
Environmental Protection Agency, or other government agencies, or through
correspondence from previously named PRPs, who either request information or
notify us of our potential liability. We have established procedures for
identifying environmental issues at our plant sites. In addition to
environmental audit programs, we have environmental coordinators who are
familiar with environmental laws and regulations and act as a resource for
identifying environmental issues.
United States v. Vertac Corporation, USDA No. LR-C-92-137 (E.D. Ark.)
Litigation over liability at Jacksonville, Arkansas, the most significant
site, has been pending since 1980. As a result of a pretrial Court ruling in
October 1993, Hercules has been held jointly and severally liable for costs
incurred, and for future remediation costs, at the Jacksonville site by the
District Court, Eastern District of Arkansas (the Court).
Other defendants in this litigation have either settled with the government
or, in the case of the Department of Defense (DOD), have not been held liable.
We appealed the Court's order finding the DOD not liable. On January 1, 1995,
the Eighth Circuit Court of Appeals upheld the Court's order. We filed a
petition to the U.S. Supreme Court requesting review and reversal of the Eighth
Circuit Court ruling. This petition was denied on June 26, 1995, and the case
was remanded to the District Court for further proceedings.
On May 21, 1997, the Court issued a ruling that Uniroyal is liable and that
Standard Chlorine is not liable to Hercules for contribution. Through the filing
of separate summary judgment motions, Hercules and Uniroyal raised a number of
defenses to the United States' ability to recover its costs. On October 23,
1998, the Court denied those motions and granted the United States' summary
judgment motion, ordering Hercules and Uniroyal to pay the United States
approximately $103 million plus any additional response costs incurred or to be
incurred after July 31,
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1997. Trial testimony on the issue of allocation between Hercules and Uniroyal
was completed on November 6, 1998.
On August 6, 1999, the Court issued a final judgment in which it reduced
the $103 million from the previous ruling on summary judgment by approximately
$7 million (the amount received by the United States in previous settlements
with other parties) and added applicable interest to reach a final total
adjudged liability of approximately $100.5 million. This final judgment was
based on the Court's findings that (a) Hercules and Uniroyal were jointly and
severally liable for approximately $89 million plus any additional response
costs incurred or to be incurred after May 31, 1998, and (b) Hercules was solely
liable for an additional amount of approximately $11 million. This judgment
finalizes the Court's 1993 and 1997 non-final orders in which Hercules and
Uniroyal were held jointly and severally liable for past and future remediation
costs at the site. Hercules appealed these rulings to the United States Court of
Appeals for the Eighth Circuit on December 16, 1999.
On February 8, 2000, the Court issued a final judgment on the allocation
between Uniroyal and Hercules, finding Uniroyal liable for 2.6 percent and
Hercules liable for 97.4 percent of the costs at issue. Hercules appealed that
judgment on February 10, 2000. That appeal has been docketed and consolidated
with the earlier mentioned appeal. Oral argument before the United States Court
of Appeals for the Eighth Circuit is presently scheduled for mid-2000. Neither
of the Court's final judgments has changed our outlook on the potential outcome
of this matter.
Hercules Incorporated v. Aetna Casualty & Surety Company, et al.,
Del. Super., C.A. No. 92C-10-105 and 90C-FE-195-1-CV (consolidated)
In 1992, Hercules brought suit against its insurance carriers for past and
future costs for cleanup of certain environmental sites. In April 1998, the
trial regarding insurance recovery for the Jacksonville, Arkansas site (see
discussion above) was completed. The jury returned a "Special Verdict Form" with
findings that, in conjunction with the Court's other opinions, were used by the
Court to enter a judgment in August 1999. The judgment determined the amount of
Hercules' recovery for past cleanup expenditures and stated that Hercules is
entitled to similar coverage for costs incurred since September 30, 1997 and in
the future. Hercules has not included any insurance recovery in the estimated
range of costs above. Since entry of the Court's August 1999 order, Hercules has
entered into settlement agreements with several of its insurance carriers and
has recovered certain settlement monies. Pursuant to the settlement agreements,
the terms of those settlements and amounts recovered are confidential.
Brunswick, Georgia Consent Order and Related Matters
In December 1997, Hercules received notice of an enforcement action by the
State of Georgia, Environmental Protection Department (EPD). In the notice, EPD
requested that Hercules enter into a proposed Consent Order, alleged violations
of the Resource Conservation and Recovery Act (RCRA) and sought a civil penalty
of $250,000. Hercules, without admitting liability, entered into a Consent Order
with the State of Georgia settling those claims. The Consent Order was finalized
and became effective in January 1999. The Consent Order requires Hercules to pay
a fine of $80,000, install 3 aquaria in the Brunswick, Georgia community,
maintain the aquaria for 10 years and remediate certain soils that are located
at Hercules Brunswick, Georgia plant. That penalty was timely paid, and Hercules
is currently in compliance with that Consent Order. In February 1999, the
Brunswick, Georgia plant was subject to a multi-media inspection conducted
jointly by the U.S. Environmental Protection Agency (EPA) and EPD. As a result
of that inspection, several potential areas of non-compliance with applicable
environmental laws were identified. We have already addressed many of these
potential areas of non-compliance, and are working with both EPA and EPD to
address the others. In March 2000, EPD sent a proposed Consent Order to Hercules
which included a proposed penalty of $330,000. We are presently in negotiations
with EPD regarding the terms of the proposed Consent Order and the amount of the
proposed penalty.
In addition to the multi-media inspection at the Brunswick, Georgia plant
referred to above, the Hattiesburg, Mississippi plant was also subject to a
multi-media inspection. As a result of that inspection several potential areas
of non-compliance with applicable environmental laws were identified. We have
already addressed many of these potential areas of non-compliance, and are
working with both EPA and the Mississippi Department of Environmental Quality
(DEQ) to address others. In March 2000, DEQ sent a proposed Consent Order to
Hercules which included a proposed penalty of $232,500. We are presently in
negotiations with DEQ regarding the terms of the proposed Consent Order and the
amount of the proposed penalty.
******
At December 31, 1999, the accrued liability of $60 million for
environmental remediation represents management's best estimate of the probable
and reasonably estimable costs related to environmental remediation. The extent
of liability is evaluated quarterly. The measurement of the liability is
evaluated based on currently available information, including the process of
remedial investigations at each site and the current status of negotiations with
regulatory authorities regarding the method and extent of apportionment of costs
among other PRPs. Hercules does not anticipate that its financial condition will
be materially affected by environmental
9
<PAGE> 11
remediation costs in excess of amounts accrued, although quarterly or annual
operating results could be materially affected.
Litigation
Current Litigation
Hercules is a defendant in numerous lawsuits that arise out of, and are
incidental to, the conduct of its business. In these legal proceedings, no
specifically identified director, officer, or affiliate is a party or a named
defendant. These suits concern issues such as product liability, contract
disputes, labor-related matters, patent infringement, environmental proceedings
(discussed above), property damage, and personal injury matters.
Hercules is a defendant in numerous asbestos-related personal injury
lawsuits and claims which typically arise from alleged exposure to products
which were sold by a former subsidiary of Hercules, or from alleged exposure to
asbestos contained in facilities owned or operated by Hercules. In December
1999, Hercules entered into a settlement agreement to resolve the majority of
these matters. In connection with that settlement, Hercules entered into an
agreement with several of its insurance carriers pursuant to which a majority of
the amounts paid will be insured. The terms of both agreements are confidential.
In June 1998, Hercules, along with Georgia-Pacific and AlliedSignal, were
sued in Georgia State Court by 423 plaintiffs for alleged personal injuries and
property damage. This litigation is captioned Coley, et al. v. Hercules
Incorporated, et al., No. 98 VSO 140933 B (Fulton County, Georgia). Plaintiffs
allege they were damaged by the discharge of hazardous waste from the companies'
plants. This case is in the early stages of motion practice and discovery. We
have denied liability and intend to vigorously defend.
In August 1999, Hercules was sued in an action styled as Cape Composites,
Inc. v. Mitsubishi Rayon Co., Ltd., Case No. 99-08260 (U.S. District Court,
Central District of California), one of a series of similar class action
lawsuits brought on behalf of purchasers of carbon fiber and carbon prepreg in
the United States (excluding the government) from the named defendants from
January 1, 1993 through January 31, 1999. In these lawsuits, plaintiffs allege
violations of Section 1 of the Sherman Antitrust Act for alleged price fixing.
In September 1999, these lawsuits were consolidated by the Court into a case
captioned Thomas & Thomas Rodmakers v. Newport Adhesives and Composites, Case
No. CV-99-07796-GHK (U.S. District Court, Central District of California), with
all related cases ordered dismissed. This lawsuit is in the early stages of
motion practice and discovery. Hercules, which is named in connection with its
former Composites Products Division, which division was sold to Hexcel
Corporation in 1996, has denied the material allegations set forth in the
consolidated complaint. Hercules intends to vigorously defend this action.
In December 1999, an action was filed in the U.S. District Court for the
Eastern District of Pennsylvania on behalf of two classes of individuals: (1)
veterans of the South Korean military who claim they were exposed to Agent
Orange and other chemical defoliants used in the demilitarized zone between
North and South Korea between 1967 and 1970 and (2) veterans of the United
States military who also claim to have been similarly exposed. This case is
captioned Chank Ok-Lee, Individually and as Representative of a Class, and
Thomas Wolfe, Individually and as Representative of a Class v. Dow Chemical Co.,
et al., Civil Action No. 99-6127 (U.S. District Court, Eastern District of
Pennsylvania). The case is in the earliest stages of motion practice, including
a motion to transfer venue to the Eastern District of New York, where Agent
Orange related lawsuits have previously been consolidated.
Litigation Resolved in 1999
Hercules was a defendant in three Qui Tam (Whistle Blower) lawsuits in the
U.S. District Court for the Central District of Utah, brought by former
employees of the Aerospace business sold to Alliant Techsystems Inc. in March
10
<PAGE> 12
1995. The first suit (United States of America ex. rel. Katherine A. Colunga v.
Hercules Incorporated, et al., Civil No. 89-C-954B(U.S. District Court, Central
District of Utah) was dismissed in July 1998.
United States of America ex. rel. Benny D. Hullinger, et al., Civil No.
92-CV-085 (U.S. District Court, Central District Utah)
The parties to this second lawsuit reached a tentative settlement, subject
to approval of the Court, in August 1998. Although it did not intervene in the
case, the U.S. Department of Justice ("DOJ") objected to approval of the
tentative settlement, arguing that we should only be released from claims that
the government contended were actually investigated. The DOJ further argued that
the proposed allocation of settlement proceeds between False Claims Act claims
and wrongful termination claims should be revised to attribute a higher
percentage of recovery to claims arising under the False Claims Act. On February
9, 1999, the Court entered a judgment to approve the settlement and dismiss the
lawsuit. On April 12, 1999 the DOJ's 60-day period to appeal the judgment
expired without the DOJ having filed a Notice of Appeal. Eight days later, on
April 20, 1999, the DOJ filed a Motion to Extend Time for Filing Notice of
Appeal. We and the plaintiffs opposed the motion, arguing that the DOJ had not
made the showing of excusable neglect required by the rules for such an
extension. On May 4, 1999, the Court denied the DOJ's motion. On May 21, 1999,
the DOJ determined that they would not appeal further. The Court's judgment
dismissing the lawsuit became final on May 28, 1999.
United States of America ex. rel. P. Robert Pratt v. Alliant Techsystems,
Inc. and Hercules Incorporated, Civil No. 95-4812 SVW (U.S. District Court,
Central District of California)
In March 1995, we sold our Aerospace business to Alliant Techsystems, Inc.
As part of the sale, we received an ownership interest in Alliant. In March
1997, Alliant and Hercules received a partially unsealed complaint that named
both as defendants, initiated on an unknown date, and filed in an undisclosed
federal court, in a Qui Tam action by a former employee alleging violations of
the False Claims Act. The action was subsequently identified as United States of
America ex. rel. P. Robert Pratt v. Alliant Techsystems, Inc and Hercules
Incorporated. The action alleged labor mischarging at Alliant's Bacchus Works
facility in Magna, Utah, and contained a claim for wrongful termination. Damages
were not specified, and Alliant and Hercules agreed to share equally the cost of
defense until such time as a determination was made as to the applicability of
the indemnification provisions of the Purchase and Sale Agreement between
Alliant and Hercules. In February 1998, the parties reached a tentative
settlement, which has since been finalized, under which all claims alleging
mischarging to the Intermediate Nuclear Forces Contract were settled. The
settlement was recognized in the fourth quarter 1997. Other portions of the
complaint, which included allegations of mischarging to other government
contracts and claims for wrongful termination of employment were not resolved by
the settlement. The government did not intervene in these other matters. In
August 1998, the parties reached a tentative settlement of the remaining
portions of the complaint, subject to approval of the Court. The DOJ objected to
approval of the tentative settlement, arguing that we should only be released
from claims that the government contended were actually investigated, and that
the settlement agreement should have contained certain provisions preventing
Alliant from recovering certain costs under its government contracts. On
February 17, 1999, the Court entered a judgment approving the settlement and
dismissing the lawsuit. On March 23, 1999, the DOJ filed a Notice of Appeal. In
subsequent discussions with DOJ's counsel, Hercules and Alliant agreed to amend
the settlement agreement to include provisions that prevent Alliant from
recovering under its government contracts the costs that had been the subject of
prior discussions with the DOJ. Following such agreement, the DOJ withdrew its
appeal. At this point, the dismissal of the lawsuit became final. The amendment
to the settlement agreement was submitted to the Court for its approval on
August 2, 1999. The Court subsequently approved the amendment to the settlement
agreement.
Jeffrey Shelton Jr., et al. v. Hercules Incorporated, Civil No. LR-C-97-131
(E.D. Ark. 1997)
This lawsuit involved two individuals seeking medical monitoring and
damages for loss of recreational opportunities. They brought a Resource
Conservation and Recovery Act (RCRA) citizens suit against us seeking an
injunction which would require us to fund or perform various environmental and
health studies and pay for any required remediation to the Bayou Meto.
Plaintiffs and Hercules filed motions for summary judgment. In October 1999, the
Court granted Hercules' motion for summary judgment and the time for any appeal
by the plaintiffs has expired.
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<PAGE> 13
Gary Graham, et al. v. Vertac Chemical Corporation and Hercules
Incorporated, Civil No. LR-C-98-678 (U.S. District Court, Eastern District
of Arkansas).
In addition to the Vertac litigation described above in this Item 3 under
"Environmental," this lawsuit was filed by a group of 19 individuals seeking
damages for personal injuries and diminution of property value as a result of
alleged dioxin contamination from the Jacksonville, Arkansas site. This case was
dismissed without prejudice on technical grounds on August 2, 1999. The time to
appeal has run.
Acosta, et al. v. Betz Laboratories, et al., No. BC 161 669 (1996); Adams,
et al. v. Betz Laboratories, et al., No. BC 113 000 (1994); Aguilar, et al.
v. Betz Laboratories, et al., No. BC 158 588 (1996); and Aguayo et al. v.
Betz Laboratories, et al., No. BC 123 749 (1995).
BetzDearborn, along with Pacific Gas and Electric (PG&E), is a defendant in
these four lawsuits involving in the aggregate approximately 2,350 plaintiffs
pending in the Superior Court of Los Angeles County, California (the lawsuits).
BetzDearborn maintained insurance coverage for the purpose of securing
protection against alleged product and other liabilities, and certain of the
insurance carriers have undertaken to pay the cost of the defense of the
lawsuits subject to various reservations of rights.
In October 1999, BetzDearborn, several of its insurance carriers, and
plaintiffs engaged in a mediation, which led to a settlement of plaintiffs'
claims against BetzDearborn, which settlement was approved by the court in
February 2000. BetzDearborn also reached a settlement with many of its insurance
carriers with respect to these cases. All of these settlement agreements are
confidential.
******
At December 31, 1999, the consolidated balance sheet reflects a current
liability of approximately $101 million for litigation and claims. Estimated
insurance recoveries of approximately $46 million have been reflected in current
assets. These amounts represent management's best estimate of the probable and
reasonably estimable losses and recoveries related to litigation or claims. The
extent of the liability and recovery is evaluated quarterly. While it is not
feasible to predict the outcome of all pending suits and claims, the ultimate
resolution of these matters could have a material effect upon the financial
position of Hercules, and the resolution of any of the matters during a specific
period could have a material effect on the quarterly or annual operating results
for that period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matter was submitted to a vote of security holders during the fourth
quarter of 1999, through the solicitations of proxies or otherwise.
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<PAGE> 14
PART II
ITEM 5. MARKET FOR HERCULES' COMMON STOCK AND RELATED STOCKHOLDER MATTERS:
Our common stock is listed on the New York Stock Exchange (ticker symbol
HPC), The Stock Exchange, London, and the Swiss Stock Exchange. It is also
traded on the Philadelphia, Midwest, and Pacific Exchanges.
The approximate number of holders of record of common stock ($25/48 stated
value) as of March 15, 2000, was 19,434.
<TABLE>
<CAPTION>
Period High Low
------ ---- ---
<S> <C> <C>
1998
First Quarter............................................... 51 3/8 45 3/16
Second Quarter.............................................. 50 1/2 40 1/2
Third Quarter............................................... 41 1/4 24 5/8
Fourth Quarter.............................................. 35 1/2 24 15/16
1999
First Quarter............................................... 29 3/8 25 1/4
Second Quarter.............................................. 40 11/16 24
Third Quarter............................................... 40 3/8 27 1/16
Fourth Quarter.............................................. 29 1/16 22 3/8
</TABLE>
On December 31, 1999, the closing price of the common stock was $27 7/8.
Hercules has declared quarterly dividends as follows:
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998 ................................. $0.27 $0.27 $0.27 $0.27
1999 ................................. $0.27 $0.27 $0.27 $0.27
</TABLE>
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<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA:
A summary of selected financial data for Hercules for the years and year
ends specified is set forth in the table below.
<TABLE>
<CAPTION>
(Dollars and shares in millions, except per share)
- --------------------------------------------------------------------------------------------------------------------
FOR THE YEAR 1999 1998* 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $3,248 $2,145 $1,866 $2,060 $2,427
Profit from operations 480 192 228 441 363
Income before effect of change in
accounting principle 168 9 324 325 333
Net income 168 9 319 325 333
Dividends 111 104 98 95 95
Per share of common stock
Basic:
Earnings before effect of change in
accounting principle 1.63 .10 3.27 3.10 2.98
Earnings 1.63 .10 3.22 3.10 2.98
Diluted:
Earnings before effect of change in
accounting principle 1.62 .10 3.18 2.98 2.87
Earnings 1.62 .10 3.13 2.98 2.87
Dividends 1.08 1.08 1.00 .92 .84
Total assets 5,896 5,833 2,411 2,386 2,493
Long-term debt 1,777 3,096 419 345 298
Company-obligated preferred securities of
subsidiary trust 992 200 -- -- --
</TABLE>
* 1998 includes significant acquisitions (see Note 1.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
This discussion should be read in connection with the information
contained in the Consolidated Financial Statements and Notes thereto. All
references to individual Notes refer to Notes to the Consolidated Financial
Statements.
ACQUISITIONS, DIVESTITURES, AND UNUSUAL ITEMS
In 1999, we incurred $39 million of integration charges ($3 million
reflected in cost of sales), primarily for employee incentive and retention,
consulting, legal and other costs associated with the BetzDearborn Inc.
acquisition, partly offset by a $4 million restructuring charge reversal (see
Note 13). Integration charges are not anticipated to be significant in 2000.
During the fourth quarter of 1999, we decided to exit the nitrocellulose
business, part of the Functional Products segment, and to take steps to address
the performance of some of our specialty product lines in the Chemical
Specialties segment. As a result of these decisions, we incurred $28 million of
pre-tax costs, consisting of $25 million of asset write-downs and disposal costs
($9 million related to the Functional Products segment and $16 million related
to the Chemical Specialties segment), and $3 million of severance benefits for
approximately 20 manufacturing employees at a Chemical Specialties segment plant
(see
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<PAGE> 16
Notes 13 and 16). The 1999 Profit from operations also includes a net $5 million
charge related to legal and environmental matters (see Notes 16 and 24).
Additionally, a production facility fire, a works accident, and the impact of
Hurricane Floyd added approximately $8 million to cost of sales, and an
executive transition agreement increased selling, general and administrative
expense by $8 million. In 1999, we sold our Chilean Agar business, part of the
Functional Products segment, for a pre-tax gain of $16 million (see Notes 16 and
23).
In 1998, Hercules made five major acquisitions for an aggregate purchase
price of approximately $3,620 million, primarily in cash and assumed debt. These
acquisitions were accounted for using the purchase method of accounting, and
were financed with borrowed funds (see Note 1).
The largest of these acquisitions was the purchase of BetzDearborn, a
global specialty chemical company providing water and process treatment to a
variety of commercial and industrial processes. Additionally, the company
acquired Houghton International's paper chemicals group; Citrus Colloids, a
pectin manufacturer; Alliance Technical Products, a manufacturer of resins
serving the water-based adhesives industry; and the 49% share of FiberVisions
owned by Hercules' joint venture partner, making it a wholly owned subsidiary of
Hercules. This business is the world's largest producer of thermal-bond fiber
for disposable diapers and other hygienic products.
The results of operations of the acquired businesses are included in the
Consolidated Financial Statements from the dates of acquisition. In 1999 and
1998, these businesses added approximately $1,537 million and $363 million of
revenue, respectively. Selling, general and administrative expenses increased in
1999 and 1998 as a result of the amortization of goodwill and intangible assets
acquired, while interest and debt expense increased in both years as a result of
increased debt required to fund the acquisitions.
As a result of the 1998 acquisitions, Hercules incurred charges of $232
million before taxes ($197 million net of income taxes) in the fourth quarter of
1998; $215 million is reflected in Profit from operations and $17 million,
primarily related to termination costs of interest rate swaps on extinguished
debt, is reflected in Other income (expense) (see Note 18). The largest portion
of the charges reflected in Profit from operations was $130 million for
purchased in-process research and development related to the acquisition of
BetzDearborn (see Note 15). The remainder of the charges are primarily related
to the company's plans and actions to integrate the operations of BetzDearborn
and improve the efficiencies of its existing operations and support activities.
The charges include $31 million of employee termination benefits ($12 million
related to the Process Chemicals and Services segment, $7 million related to the
Functional Products segment, $5 million related to the Chemical Specialties
segment and $7 million related to corporate infrastructure), $5 million of exit
costs primarily related to facility closures in the Process Chemicals and
Services segment and $29 million of asset write-downs ($15 million related to
the Functional Products segment, $8 million related to the Chemical Specialties
segment and $6 million related to the Process Chemicals and Services segment)
resulting from adverse business negotiations, the BetzDearborn acquisition, and
the loss of a customer (see Notes 13 and 16). Additionally, we incurred
approximately $11 million of integration expenses related to the acquisition and
other expenses of $9 million. These actions are anticipated to yield cost
savings and productivity improvements of approximately $165 million before taxes
on an annual basis. Other income (expense) in 1998 also included a $62 million
charge from the settlements of long-standing "whistle-blower" lawsuits related
to the divested Aerospace business (see Notes 18 and 24).
The acquisition of BetzDearborn also resulted in the inclusion of a $94
million liability, subsequently adjusted to $98 million, as part of the purchase
price allocation. The adjustment reflects $8 million in additional exit costs,
net of a $4 million reduction in employee severance benefits. This liability
included approximately $74 million related to employee termination benefits and
$24 million for office and facility closures, relocation of BetzDearborn
employees and other related exit costs, all of which relate to the Process
Chemicals and Services segment (see Notes 1 and 13).
With respect to the termination benefits and exit costs incurred in 1998
($31 million in termination benefits and $5 million in exit costs charged to
other operating expenses and $98 million in termination benefits and exit costs
charged to goodwill), cumulative cash payments totaled $59 million through 1999
(see Notes 13 and 16).
Other operating expenses in 1997 reflected charges of $167 million
primarily associated with reorganization of management and the adoption of new
competitive strategies, and other costs (see Note 16). Included in these charges
were $24 million of termination benefits ($3 million in the Chemical Specialties
segment, $7 million in the
15
<PAGE> 17
Functional Products segment and $14 million for corporate infrastructure), asset
write-offs and other charges of $27 million ($3 million in Process Chemicals and
Services, $4 million in Functional Products, $13 million in Chemical Specialties
and $7 million related to corporate items), and asset impairments of $95 million
($66 million in the Chemicals Specialties segment, $24 million in the Functional
Products segment and $5 million in the Process Chemicals and Services segment).
The remaining $21 million is related to environmental expenses and executive
retirement benefits. Cash payments for termination benefits totaling $21 million
have been made through 1999 and the remaining $3 million is expected to be paid
in 2000 (see Notes 13 and 16). The asset impairments were the result of changes
in the marketplace and the implementation of alternative strategies which
culminated in the realignment of assets in order to reduce costs. Additionally,
Other income (expense) in 1997 reflects the following items: a $20 million
charge related to acquisition activity; a $32 million charge for legal
settlements; and a $368 million gain from the monetization of Hercules'
investment in Tastemaker (see Notes 18 and 23).
The impairment losses recognized in all three years are calculated
pursuant to our policy for accounting for long-lived assets (see Summary of
Significant Accounting Policies).
The above mentioned unusual items, excluding the $98 million
BetzDearborn purchase price allocation, are primarily included in Reconciling
items in each of the respective years in the segment footnote disclosure (see
Note 26).
In June 1997, we completed a joint venture of our polypropylene fibers
business (see Note 23).
SUBSEQUENT EVENTS
On February 22, 2000, we announced a new corporate strategy focused on cash
generation, debt reduction and growth of the core businesses: Pulp and Paper,
BetzDearborn, and Aqualon. As part of this strategy, we will monetize our
investment in our Food Gums business through the formation of a joint venture
with Lehman Brothers Merchant Banking Partners II L.P. This new venture will
subsequently acquire the Kelco biogums business from Monsanto. The Lehman
Brothers partnership will own approximately 72% of the new entity and we will
own approximately 28%. We expect that the new entity will have annual revenues
of approximately $450 million (see Note 22).
Further, we have entered into discussions with a third party to monetize
our Resins business and we are beginning to explore alternatives regarding our
FiberVisions business (see Note 22).
These three businesses account for approximately $900 million of our 1999
revenues.
In addition to monetizing assets, we will be concentrating on improving our
asset utilization, working capital management and reducing corporate overhead
costs. The above actions may result in restructuring charges in 2000 as exit
plans are finalized.
16
<PAGE> 18
RESULTS OF OPERATIONS
(All comparisons are with the previous year, unless otherwise stated.)
1999 VS. 1998:
Consolidated revenues increased $1,103 million or 51% primarily from the
full year revenue impact of the 1998 acquisition of BetzDearborn and
FiberVisions, as well as year-over-year volume improvements in all three
segments. These improvements were partially offset by pricing declines in all
segments due to competitive pressure and the negative effects of a stronger
dollar relative to foreign currencies. Consolidated profit from operations
increased $288 million or 150%. However, after adjusting for the unusual items
described in the previous section, consolidated profit from operations increased
$136 million or 34%. This increase is due to the full year operating profit
impact of the acquired businesses along with synergies realized, manufacturing
cost improvements and volume gains. Offsetting these increases were the negative
impact of pricing declines and the full year impact of goodwill and intangible
amortization expense.
Process Chemicals and Services segment revenues increased $988 million
or 138% primarily due to the full year impact of the acquired BetzDearborn
revenues and higher volumes, partly offset by lower pricing due to competitive
pressure and consolidation within the paper industry. A relatively stronger
dollar, particularly versus the Brazilian real, also negatively impacted the
revenue comparison. Profit from operations increased $207 million or 158%
reflecting a full year of BetzDearborn results in 1999, synergies realized and
manufacturing cost improvements. These improvements were offset by lower pricing
and higher supply chain costs.
Functional Products segment revenues were flat compared to 1998 as food
gums volume and pectin pricing improvements were offset by lower pricing due to
competitive pressure and over-capacity in various other markets and also by weak
demand in the oilfield markets. Profit from operations increased $3 million or
1%. However, excluding the costs primarily associated with a production facility
fire at the Parlin, New Jersey plant, operating profit increased $10 million or
5% primarily due to the recovery of the Asian currencies, particularly the
Japanese yen, relative to the dollar and manufacturing cost improvements.
Chemical Specialties segment revenues increased $119 million or 21%
primarily due to the full year effect of the FiberVisions acquisition and resins
volume improvements, partly offset by lower pricing due to competitive pricing
pressure and lower polymer costs, along with a stronger dollar relative to
foreign currencies. Profit from operations rose $14 million or 19%. Excluding
the third quarter 1999 impact of Hurricane Floyd on our resins production
facilities, operating profit increased $16 million or 21%. The increase in
operating profit is primarily due to the inclusion of FiberVisions results for
the full year 1999 and lower polymer cost offset by lower pricing.
1998 VS. 1997:
Consolidated revenues increased $279 million or 15% as the increase in
revenues from acquisitions was partially offset by the effects of the economic
crisis in Southeast Asia, the strength of the U.S. dollar, and competitive
pricing pressures. Consolidated profit from operations declined $36 million or
16%. However, after adjusting for the impact of the unusual items described in
the previous section, profit from operations increased $12 million or 3%, while
operating margins decreased from 21% in 1997 to 19% in 1998. These results are
due to the operating profit impact of the revenue variance noted above, coupled
with manufacturing cost improvement initiatives, partly offset by higher
selling, general, and administrative expenses.
Process Chemicals and Services segment revenues increased 62%, resulting
from acquisitions. Excluding acquisitions, revenues in this segment were
negatively impacted by competitive pricing pressures, the impact of the economic
crisis in Southeast Asia, and the weakness of foreign currencies relative to the
dollar. Profit from operations increased 31% as the favorable impact of
acquisitions was partly offset by the adverse revenue impacts described above,
higher raw material costs used in the production of wet strength products in
Europe, and higher selling, general, and administrative expenses.
Functional Products segment revenues declined 4% on lower volumes,
particularly in Asia and Eastern Europe, and also the U.S. oilfield markets,
along with the negative impact of weaker foreign currencies relative to
17
<PAGE> 19
the dollar, partly offset by acquired revenues and improved pectin pricing.
Profit from operations declined 4%. This was the result of volume declines and
the negative impact of the weaker foreign currencies offset by improved
manufacturing costs and pectin pricing.
Chemical Specialties segment revenues increased 8% as the additional
revenues from acquisitions were partly offset by lower pricing across the major
Resins product lines both in the U.S. and in Europe. Profit from operations rose
12% as the profit from acquisitions was partly offset by the pricing declines in
Resins.
Interest and debt expense and preferred security distributions of
subsidiary trusts increased as a result of the increased debt used to fund the
1998 acquisitions, amortization of debt issue costs and the subsequent
refinancing of this debt with equity-like securities (see Notes 6 and 7).
Equity in income of affiliated companies declined over the three year
period as a result of the monetization of Hercules' investment in Alliant
Techsystems in 1997 and 1998 and Hercules' investment in Tastemaker in 1997 (see
Note 23).
The provision for income taxes reflects effective tax rates of 31% in
1999, 88% in 1998, and 45% in 1997 (see Note 19). The 1999 rate was favorably
impacted by the utilization of a capital loss and other adjustments related to
prior years' assessments. Both the 1998 and 1997 rates are significantly higher
than the federal statutory income tax rate of 35%. The 1998 rate is high because
the charges for purchased in-process research and development and goodwill
amortization are not deductible for income tax purposes. The impact of these
nondeductible items was reduced by favorable state tax settlements relating to a
prior year's sale of an investment and favorable federal tax adjustments related
to prior years' assessments. The 1997 rate reflects the relatively higher tax
rate on the monetization of the Tastemaker and Alliant Techsystems investments,
along with required increases to tax reserves related to anticipated assessments
from federal, state, and foreign authorities. The 2000 tax rate is anticipated
to be approximately 36%.
FINANCIAL CONDITION
Liquidity and financial resources: Net cash flow from operations was
$280 million in 1999, $181 million in 1998, and $187 million in 1997. The 1999
increase reflects higher profit from operations, primarily from businesses
acquired and lower tax payments offset by higher interest payments, cash
expenditures for integration, termination benefits and other exit costs, along
with higher working capital requirements. 1998 included higher interest payments
related to increased debt and higher payments of legal settlements, offset by
lower income tax payments and cash flow from acquired businesses.
As noted above, during 1998, the company completed five acquisitions for
approximately $3,620 million, primarily in cash and assumed debt (see Notes 1
and 6). The company financed the acquisitions and refinanced existing debt with
borrowings under a $3,650 million credit facility with a syndicate of banks. The
company's debt agreement contains restrictive covenants that require maintenance
of certain financial covenants, including leverage, net worth, and interest
coverage, and provides that the entry of a judgment or judgments involving
aggregate liabilities of $50 million or more be vacated, discharged, stayed, or
bonded within 60 days of entry of such judgment or judgments.
During the second quarter of 1999, we amended our credit agreement to
allow for borrowing in euros, as well as in U.S. dollars. Approximately $950
million of U.S. dollar denominated debt was converted to euro indebtedness.
In September 1998, we filed a shelf registration to increase accessible
securities from $300 million to $3,000 million. The registration allowed for
issuance of equity, equity-like, and debt securities.
In November 1998, Hercules Trust V, a wholly owned subsidiary trust of
Hercules, completed a private placement of $200 million Redeemable Hybrid INcome
Overnight Shares (RHINOS). The RHINOS are guaranteed by Hercules (see Note 7).
Pursuant to amendments to the RHINOS agreements executed on February 9, 2000:
(I) the interest rate on the RHINOS was reduced to London Interbank Offered Rate
(LIBOR) plus 1.5%, and (2) the RHINOS can be remarketed at any time at the
option of the holder. If the holder elects to initiate a remarketing,
18
<PAGE> 20
Hercules has the right to redeem the RHINOS. Upon a successful remarketing, the
redemption date of the RHINOS will be extended for an additional year. If the
RHINOS are not remarketed, they will be redeemed by Hercules on February 9, 2002
(see Note 7).
In March 1999, another wholly owned subsidiary trust commenced a public
offering, under the registration statement noted above, and sold $362 million of
Trust Originated Preferred Securities (TOPrS) (see Note 7). Proceeds of the
offering were used to repay long-term debt. The Trust's obligations are
guaranteed by Hercules.
In July 1999, we completed a public offering of 5,000,000 shares of our
common stock, which provided us with net proceeds of $171.5 million (see Note
9). On the same date, we also completed a public offering of 350,000 CRESTS
Units with Hercules Trust II, a wholly owned subsidiary trust (see Note 7). This
transaction provided net proceeds to Hercules and Trust II of $340.4 million. We
used the proceeds from both offerings to repay long-term debt.
Each CRESTS Unit consists of one preferred security of Trust II and one
warrant to purchase 23.4192 shares of Hercules common stock at an initial
exercise price of $1,000 (equivalent to $42.70 per share). The warrants may be
exercised, subject to certain conditions, at any time before March 31, 2029,
unless there is a reset and remarketing event. Trust II used the proceeds from
the sale of its preferred securities to purchase junior subordinated deferrable
interest debentures of Hercules. Hercules will pay interest on the debentures
while Trust II will pay distributions on its preferred securities. Both are paid
quarterly at an annual rate of 6 1/2% of the scheduled liquidation amount of
$1,000 per debenture and/or preferred security.
On December 23, 1999, we completed a private placement of 170,000
Floating Rate Preferred Securities (Floating Rate Preferred) with Hercules Trust
VI, a wholly owned subsidiary trust (see Note 7). The Floating Rate Preferred
are guaranteed by Hercules. This transaction provided net proceeds to Hercules
and Trust VI of approximately $170 million. We used the proceeds to repay
long-term debt.
During the second quarter of 1999, we entered into a financing
agreement with a bank, which provided for the sale of promissory notes in the
principal amount of up to $20 million at any one time. The agreement, which
expired in December 1999, provided for commitments by the bank and Hercules
under which the bank purchased promissory notes denominated in a number of
foreign currencies in exchange for U.S. dollars. The notes were repayable only
to the extent that Hercules had sufficient foreign currency revenue. Neither
Hercules nor the bank could cancel their obligations under the agreement.
Transaction gains and losses related to the notes were deferred and recognized
as an adjustment to the revenue supporting the note repayment.
As of December 31, 1999, the company has $564 million available under
the revolving credit agreement and $254 million of short-term lines of credit.
Capital Structure and Commitments: Total capitalization (stockholders'
equity, company obligated preferred securities of subsidiary trusts, and debt)
decreased to $4.3 billion at December 31, 1999, from $4.4 billion in the prior
year. The ratio of debt-to-total capitalization decreased to 57% at December 31,
1999 from 83% at December 31, 1998 as a result of the Floating Rate Preferred
offering in December 1999, the CRESTS Units and common stock offerings during
the third quarter and the TOPrS offering during the first quarter. The amount
accessible under our shelf registration is $1,763 million.
As noted earlier, in February 2000 we announced a new strategy that will
be focused on cash generation and debt reduction primarily through monetization
of assets and better asset utilization. We expect to generate in excess of $1
billion of cash through these actions. The cash will be used to pay down debt,
reduce interest expense by approximately $75 million annually and reduce the
ratio of debt to total capitalization to approximately 40%.
A quarterly dividend has been paid without interruption since 1913, the
company's first year of operation. The annual dividend was $1.08 per share
during 1999 and 1998.
Capital expenditures during 1999 were $196 million, with 28% of the
expenditures related to increased production capacity, compared with 27% in 1998
and 38% in 1997. The remainder mostly relates to cost-savings projects, capacity
maintenance, and regulatory requirements. The increase in capital expenditures
of $39 million in
19
<PAGE> 21
1999 over 1998 is primarily due to higher spending in the Functional Products
segment due to the methylcellulose expansion in Doel, Belgium and the pectin
expansion in Grossenbrode, Germany. The increase in 1998 capital expenditures of
approximately $38 million over 1997 is primarily from companies acquired in 1998
and higher spending in the Functional Products segment. Capital expenditures are
expected to approximate $185 million during 2000. This includes funds for
continuing or completing existing projects, including the methylcellulose
expansion in Doel, Belgium mentioned earlier and to fund new projects.
YEAR 2000
The company recognized the need to ensure that its operations and
relationships with its business partners would not be adversely affected by the
Year 2000 problem, and thus developed and implemented a comprehensive project
that addressed those areas of vulnerability. A cross-functional Year 2000
Program Office was created by the company at the corporate level to coordinate
and provide policies, guidance, and support for its Year 2000 initiatives. Site
compliance teams were formed at all major sites worldwide.
In addition to its other Year 2000 activities, the company is engaged in
a major project to implement SAP R/3(TM) software. All vendor-supplied SAP code
is Year 2000 compliant. The resulting systems comprise the company's core
business systems, including sales and distribution, inventory and purchasing,
finance and control, product costing, human resources and payroll, and fixed
assets.
The company believes that the Year 2000 problem has been successfully
addressed through its Year 2000 initiatives.
The company did not experience any difficulties related to the Year
2000 problem on December 31, 1999 and has not experienced any such difficulties
that the company is aware of since that date. The company's operations have not,
to date, been adversely affected by any difficulties experienced by any of our
suppliers or customers in connection with the Year 2000 problem, and the company
will continue to monitor its systems for potential difficulties through the
remainder of calendar year 2000.
The total cost of the company's Year 2000 project was approximately $12
million. These costs do not include the cost to upgrade or replace process
control equipment. These costs were expensed as incurred and were funded through
operating cash flow.
RISK FACTORS
Market Risk - Fluctuations in interest and foreign currency exchange
rates affect the company's financial position and results of operations. The
company uses several strategies to actively hedge interest rate and foreign
currency exposure and minimize the effect of such fluctuations on reported
earnings and cash flow. (See "Foreign Currency Translation" and "Financial
Instruments and Hedging" in the Summary of Significant Accounting Policies and
Notes 18 and 21.) Sensitivity of the company's financial instruments to selected
changes in market rates and prices, which are reasonably possible over a
one-year period, are described below. Market values are the present value of
projected future cash flows based on the market rates and prices chosen. The
market values for interest rate risk are calculated by the company utilizing a
third-party software model that utilizes standard pricing models to determine
the present value of the instruments based on the market conditions as of the
valuation date.
The company's derivative and other financial instruments subject to
interest rate risk consist of debt instruments, interest rate swaps, and
currency swaps. At December 31, 1999 and 1998, net market value of these
combined instruments was a liability of $3.32 billion and $3.66 billion,
respectively. The sensitivity analysis assumes an instantaneous 100-basis point
move in interest rates from their levels, with all other variables held
constant. A 100-basis point increase in interest rates at December 31, 1999 and
1998 would result in an $80 million and $36 million decrease in the net market
value of the liability, respectively. A 100-basis point decrease in interest
rates at December 31, 1999 and 1998 would result in a $92 million and $45
million increase in the net market value of the liability, respectively. The
change in the sensitivity level from year-end 1998 is primarily from the fixed
distribution rate associated with the Trust Originated Preferred Securities
issued in 1999 (see Note 7).
20
<PAGE> 22
Our financial instruments, subject to changes in equity price risk
including the warrants component of the CRESTS Units issued in 1999 (see Note
7), represent a net obligation of $29 million, and an asset of $22 million at
December 31, 1999 and 1998, respectively. The sensitivity analysis assumes an
instantaneous 10% change in valuation with all other variables held constant. A
10% increase in market values at December 31, 1999 and 1998 would increase the
net obligation by $15 million, and the asset portion by $2 million, while a 10%
decrease would reduce the net obligation by $12 million and the asset portion by
$2 million, respectively. The change in equity price risk from year-end 1998 is
primarily from the warrants component of the CRESTS unit issued in 1999.
Our financial instruments, subject to foreign currency exchange risk,
consist of foreign currency forwards, options, and foreign currency debt and
represent a net liability position of $885 million, and a net asset position of
$6 million at December 31, 1999 and 1998, respectively. The following
sensitivity analysis assumes an instantaneous 10% change in foreign currency
exchange rates from year-end levels, with all other variables held constant. A
10% strengthening of the U.S. dollar versus other currencies at December 31,
1999 and 1998 would result in an $89 million decrease in the net liability
position, and a $63 million increase in the net asset position, while a 10%
weakening of the dollar versus all currencies would result in an $88 million
increase in the net liability and a $78 million decrease in the net asset
position, respectively. The change in the sensitivity level from year-end 1998
is primarily from replacing cross currency swaps with foreign currency debt to
hedge exposure to increased investments in foreign subsidiaries, primarily as a
result of the BetzDearborn acquisition.
Foreign exchange forward and option contracts are used to hedge the
company's firm and anticipated foreign currency cash flows. Thus, there is
either an asset or cash flow exposure related to all the financial instruments
in the above sensitivity analysis for which the impact of a movement in exchange
rates would be in the opposite direction and substantially equal to the impact
on the instruments in the analysis. There are presently no significant
restrictions on the remittance of funds generated by the company's operations
outside the United States.
Environmental - Hercules has been identified by U.S. federal and state
authorities as a "potentially responsible party" for environmental cleanup at
numerous sites. The estimated range of reasonably possible costs for remediation
is between $60 million and $230 million. The company does not anticipate that
its financial condition will be materially affected by environmental remediation
costs in excess of amounts accrued, although quarterly or annual operating
results could be materially affected (see Note 24).
Environmental remediation expenses are funded from internal sources of
cash. Such expenses are not expected to have a significant effect on the
company's ongoing liquidity. Environmental cleanup costs, including capital
expenditures for ongoing operations, are a normal, recurring part of operations
and are not significant in relation to total operating costs or cash flows.
Litigation - Hercules is a defendant in numerous lawsuits that arise out
of, and are incidental to, the conduct of its business. These suits concern
issues such as product liability, contract disputes, labor-related matters,
patent infringement, environmental proceedings, property damage, and personal
injury matters. While it is not feasible to predict the outcome of all pending
suits and claims, the ultimate resolution of these matters could have a material
effect upon the financial position of Hercules, and the resolution of any of the
matters during a specific period could have a material effect on the quarterly
or annual operating results for that period (see Note 24).
FORWARD-LOOKING STATEMENT
This Annual Report on Form 10-K 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 Hercules' inability to
generate cash and reduce debt, business climate, economic and competitive
uncertainties, Hercules' inability to monetize certain of its identified
businesses, higher manufacturing costs, reduced level of customer orders,
ability to integrate BetzDearborn, changes in strategies, risks in developing
new products and technologies, environmental and safety regulations and clean-up
costs, foreign exchange rates, adverse legal and regulatory developments, and
adverse changes in economic and political climates around the world.
Accordingly, there can be no assurance that the company will meet analysts'
earnings estimates. 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.
21
<PAGE> 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
For discussion of quantitative and qualitative disclosures about
market risk, see the caption "Risk Factors" under Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
REQUIRED SUPPLEMENTARY DATA
HERCULES INCORPORATED
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS Page
----
<S> <C>
Report of Independent Accountants................................................................ 23
Consolidated Statement of Income for the Years Ended December 31, 1999, 1998, and
1997.......................................................................................... 24
Consolidated Balance Sheet as of December 31, 1999 and 1998...................................... 25
Consolidated Statement of Cash Flow for the Years Ended December 31, 1999, 1998, and
1997.......................................................................................... 26
Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 1999,
1998, and 1997................................................................................ 27
Consolidated Statement of Comprehensive Income (Loss) for the Years Ended December 31,
1999, 1998, and 1997.......................................................................... 28
Accounting Policies and Notes to Consolidated Financial Statements............................... 29
SUPPLEMENTARY DATA
Summary of Quarterly Results (Unaudited)......................................................... 55
Subsidiaries of Registrant....................................................................... 56
</TABLE>
22
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Directors of
Hercules Incorporated
Wilmington, Delaware
In our opinion, the consolidated financial statements listed in the foregoing
index present fairly, in all material respects, the financial position of
Hercules Incorporated and subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 14(a)(2)
on page 60 presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 25 to the financial statements, in 1997, the Company
changed its method of accounting for costs incurred in connection with its
enterprise software installation.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 24, 2000
23
<PAGE> 25
<TABLE>
<CAPTION>
HERCULES INCORPORATED
CONSOLIDATED STATEMENT OF INCOME (Dollar in millions, except per share)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales ............................................................. $ 3,248 $ 2,145 $ 1,866
------- ------- -------
Cost of sales ......................................................... 1,770 1,287 1,169
Selling, general, and administrative expenses ......................... 787 377 248
Research and development .............................................. 85 61 53
Goodwill and intangible asset amortization ............................ 79 22 3
Purchased in-process research and development (Note 15) ............... -- 130 --
Other operating expenses, net (Note 16) ............................... 47 76 165
------- ------- -------
Profit from operations ................................................ 480 192 228
Equity in income of affiliated companies .............................. 1 10 30
Interest and debt expense (Note 17) ................................... 185 101 39
Preferred security distributions of subsidiary trusts ................. 51 2 --
Other income (expense), net (Note 18) ................................. (2) (22) 374
------- ------- -------
Income before income taxes and effect of change in accounting principle 243 77 593
Provision for income taxes (Note 19) .................................. 75 68 269
------- ------- -------
Income before effect of change in accounting principle ................ 168 9 324
Effect of change in accounting principle (Note 25) .................... -- -- (5)
------- ------- -------
Net income ............................................................ $ 168 $ 9 $ 319
======= ======= =======
Earnings per share (Note 20)
Basic:
Earnings before effect of change in accounting principle ........ $ 1.63 $ .10 $ 3.27
Effect of change in accounting principle ........................ -- -- (.05)
------- ------- -------
Earnings per share .............................................. $ 1.63 $ .10 $ 3.22
======= ======= =======
Diluted:
Earnings before effect of change in accounting principle ........ $ 1.62 $ .10 $ 3.18
Effect of change in accounting principle ........................ -- -- (.05)
------- ------- -------
Earnings per share .............................................. $ 1.62 $ .10 $ 3.13
======= ======= =======
</TABLE>
The accompanying accounting policies and notes are an integral part of the
consolidated financial statements.
24
<PAGE> 26
<TABLE>
<CAPTION>
HERCULES INCORPORATED
CONSOLIDATED BALANCE SHEET (Dollars in millions)
December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ................................................. $ 63 $ 68
Accounts receivable, net (Note 2) ......................................... 766 663
Inventories (Note 3) ...................................................... 380 416
Deferred income taxes (Note 19) ........................................... 129 93
------- -------
Total current assets ...................................................... 1,338 1,240
Property, plant, and equipment, net (Note 12) ................................... 1,321 1,438
Investments (Note 4) ............................................................ 47 51
Goodwill (net of accumulated amortization - 1999, $91; 1998, $28) ............... 2,390 2,356
Other intangible assets (net of accumulated amortization - 1999, $39;
1998, $22) ................................................................... 180 192
Prepaid pension (Note 14) ....................................................... 217 218
Deferred charges and other assets ............................................... 403 338
------- -------
Total assets .............................................................. $ 5,896 $ 5,833
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .......................................................... $ 320 $ 270
Short-term debt (Note 5) .................................................. 678 566
Accrued expenses (Note 12) ................................................ 561 481
------- -------
Total current liabilities ................................................. 1,559 1,317
Long-term debt (Note 6) ......................................................... 1,777 3,096
Deferred income taxes (Note 19) ................................................. 287 225
Other postretirement benefits (Note 14) ......................................... 129 136
Deferred credits and other liabilities .......................................... 289 300
------- -------
Total liabilities ......................................................... 4,041 5,074
Company-obligated preferred securities of subsidiary trusts (Note 7) ............ 992 200
Stockholders' equity
Series preferred stock (Note 8) ........................................... -- --
Common stock, $25/48 par value (Note 9) ................................... 83 81
(shares issued: 1999 - 159,976,730; 1998 - 154,823,496)
Additional paid-in capital ................................................ 757 504
Unearned compensation (Note 10) ........................................... (123) (130)
Other comprehensive losses ................................................ (44) (13)
Retained earnings ......................................................... 2,125 2,068
------- -------
2,798 2,510
Reacquired stock, at cost (shares: 1999 - 53,587,365; 1998 - 53,995,692) ........ 1,935 1,951
------- -------
Total stockholders' equity ................................................ 863 559
------- -------
Total liabilities and stockholders' equity ................................ $ 5,896 $ 5,833
======= =======
</TABLE>
The accompanying accounting policies and notes are an integral part of the
consolidated financial statements.
25
<PAGE> 27
<TABLE>
<CAPTION>
HERCULES INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOW (Dollars in millions)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
NET INCOME .............................................................................. $ 168 $ 9 $ 319
Adjustments to reconcile net income to net cash provided from
operations:
Depreciation ..................................................................... 144 86 73
Amortization ..................................................................... 106 22 3
Write-off in-process research and development .................................... -- 130 --
Nonoperating gain on disposals ................................................... (23) (23) (398)
Noncash charges (credits) ........................................................ (13) 38 92
Other ............................................................................ -- (6) 15
Accruals and deferrals of cash receipts and payments:
Affiliates' earnings in excess of dividends received ...................... (1) (6) (25)
Accounts receivable ....................................................... (69) 26 (41)
Inventories ............................................................... (7) (14) (6)
Accounts payable and accrued expenses ..................................... (27) (72) 137
Noncurrent assets and liabilities ......................................... 2 (9) 18
------- ------- -----
Net cash provided by operations ....................................... 280 181 187
------- ------- -----
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures .................................................................... (196) (157) (119)
Proceeds of investment and fixed asset disposals ........................................ 50 600 295
Acquisitions, net of cash acquired ...................................................... (10) (3,109) --
Other, net .............................................................................. (37) (25) (34)
------- ------- -----
Net cash (used in) provided by investing activities ................... (193) (2,691) 142
------- ------- -----
CASH FLOW FROM FINANCING ACTIVITIES:
Long-term debt proceeds ................................................................. 279 3,111 343
Long-term debt repayments ............................................................... (1,360) (247) (130)
Change in short-term debt ............................................................... 22 (228) (35)
Payment of debt issuance costs and underwriting fees .................................... (19) (66) --
Proceeds from issuance of subsidiary trusts' preferred securities ....................... 792 200 --
Proceeds from issuance of warrants ...................................................... 90 -- --
Common stock issued ..................................................................... 182 10 38
Common stock reacquired ................................................................. (3) (114) (458)
Proceeds from issuance of subsidiary preferred stock .................................... 12 -- --
Dividends paid .......................................................................... (83) (104) (98)
------- ------- -----
Net cash (used in) provided by financing activities ................... (88) 2,562 (340)
Effect of exchange rate changes on cash ................................................. (4) (1) (2)
------- ------- -----
Net increase (decrease) in cash and cash equivalents .................................... (5) 51 (13)
Cash and cash equivalents at beginning of year .......................................... 68 17 30
------- ------- -----
Cash and cash equivalents at end of year ................................................ $ 63 $ 68 $ 17
======= ======= =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) ............................................. $ 184 $ 100 $ 37
Distributions on trust preferred securities ...................................... 36 -- --
Income taxes paid, net ........................................................... 79 117 152
Noncash investing and financing activities:
Conversion of notes and debentures ............................................... 2 8 31
ESOP and incentive plan stock issuances .......................................... 8 196 15
Accounts payable for common stock acquisitions ................................... -- -- 5
Investment in long-term notes .................................................... -- -- 504
Accounts receivable from sale of investment/asset disposals ...................... -- -- 8
Assumed debt of acquired businesses .............................................. -- 307 --
</TABLE>
The accompanying accounting policies and notes are an integral part of the
consolidated financial statements.
26
<PAGE> 28
<TABLE>
<CAPTION>
HERCULES INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Dollars in millions)
Other
Compre-
Unearned hensive
Common Paid-in Compen- Income Retained Reacquired
Stock Capital sation (Loss) Earnings Stock
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997 $79 $493 $ -- $45 $1,942 $1,672
(Common shares: issued 152,269,076;
reacquired, 50,866,562)
Net income -- -- -- -- 319 --
Common dividends, $1.00 per common share -- -- -- -- (98) --
Foreign currency translation adjustment -- -- -- (47) -- --
Purchase of common stock, 9,536,619 shares -- -- -- -- -- 455
Issuance of common stock:
Incentive plans, net, 2,113,805 shares
From reacquired stock -- (19) -- -- -- (72)
Conversion of notes and debentures,
2,087,939 shares 1 30 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997 $80 $504 $ -- $(2) $2,163 $2,055
(Common shares: issued 154,357,015;
reacquired, 58,289,376)
Net income -- -- -- -- 9 --
Common dividends, $1.08 per common share -- -- -- -- (104) --
Foreign currency translation adjustment -- -- -- (11) -- --
Purchase of common stock, 2,361,390 shares -- -- -- -- -- 109
Issuance of common stock:
Incentive plans, net, 764,201 shares
From reacquired stock -- (7) -- -- -- (27)
ESOP, 5,890,873 shares from reacquired
Stock -- -- (130) -- -- (186)
Conversion of notes and debentures,
466,481 shares 1 7 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1998 $81 $504 $(130) $(13) $2,068 $1,951
(Common shares: issued 154,823,496;
reacquired, 53,995,692)
Net income -- -- -- -- 168 --
Common dividends, $1.08 per common share -- -- -- -- (111) --
Foreign currency translation adjustment -- -- -- (31) -- --
Impact of allocation of shares held by ESOP -- -- 7 -- -- --
Purchase of common stock, 126,893 shares -- -- -- -- -- 3
Warrants issued in connection with CRESTS
Units offering (Note 7) -- 88 -- -- -- --
Issuance of common stock:
Incentive plans, net, 535,220 shares
From reacquired stock -- -- -- -- -- (19)
Conversion of notes and debentures,
153,234 shares -- 2 -- -- -- --
Public offering, 5,000,000 shares 2 163 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1999 $83 $757 $(123) $(44) $2,125 $1,935
(Common shares: issued 159,976,730
reacquired, 53,587,365)
</TABLE>
The accompanying accounting policies and notes are an integral part of the
consolidated financial statements.
27
<PAGE> 29
<TABLE>
<CAPTION>
HERCULES INCORPORATED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Dollars in millions)
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Income $168 $ 9 $319
Foreign currency translation, net of tax (31) (11) (47)
------ ---- ------
Comprehensive income (loss) $137 $ (2) $272
==== ===== ====
</TABLE>
The accompanying accounting policies and notes are an integral part of the
consolidated financial statements.
28
<PAGE> 30
HERCULES INCORPORATED
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of Hercules
Incorporated and all majority-owned subsidiaries where control exists. Following
the acquisition of BetzDearborn, the company continued BetzDearborn's practice
of using a November 30 fiscal year-end for certain former BetzDearborn non-U.S.
subsidiaries, excluding Canada, to expedite the year-end closing process.
Investments in affiliated companies with a 20% or greater ownership interest are
accounted for using the equity method of accounting and, accordingly,
consolidated income includes Hercules' share of their income.
USE OF ESTIMATES
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.
REVENUE RECOGNITION
Revenue is recognized generally upon shipment of goods and passage of title.
Service revenue is recognized as services are performed.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that pertain to current operations or future revenues
are expensed or capitalized according to the company's capitalization policy.
Expenditures for remediation of an existing condition caused by past operations
that do not contribute to current or future revenues are expensed. Liabilities
are recognized for remedial activities when the cleanup is probable and the cost
can be reasonably estimated.
CASH AND CASH EQUIVALENTS
Cash in excess of operating requirements is invested in short-term,
income-producing instruments. Cash equivalents include commercial paper and
other securities with original maturities of 90 days or less. Book value
approximates fair value because of the short maturity of those instruments.
INVENTORIES
Inventories are stated at the lower of cost or market. Domestic inventories are
valued predominantly on the last-in, first-out (LIFO) method. Foreign and
certain domestic inventories, which in the aggregate represent 59% of total
inventories at December 31, 1999, are valued principally on the average-cost
method.
PROPERTY AND DEPRECIATION
Property, plant, and equipment are stated at cost. The company changed to the
straight-line method of depreciation, effective January 1, 1991, for newly
acquired processing facilities and equipment. Assets acquired before then
continue to be depreciated by accelerated methods. The company believes
straight-line depreciation provides a better matching of costs and revenues over
the lives of the assets. The estimated useful lives of depreciable assets are as
follows: buildings - 30 years; plant, machinery and equipment - 15 years; other
machinery and equipment - 3 to 15 years.
Maintenance, repairs, and minor renewals are charged to income; major renewals
and betterments are capitalized. Upon normal retirement or replacement, the cost
of property (less proceeds of sale or salvage) is charged to income.
29
<PAGE> 31
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and Other intangible assets are amortized on a straight-line basis over
the estimated future periods to be benefited, generally 40 years for goodwill
and 5 to 15 years for other intangible assets.
LONG-LIVED ASSETS
The company reviews its long-lived assets, including goodwill and other
intangibles, for impairment on an exception basis whenever events or changes in
circumstances indicate carrying amounts of the assets may not be recoverable
through undiscounted future cash flows. If an impairment loss has occurred based
on expected future cash flows (undiscounted), the loss is recognized in the
income statement. The amount of the impairment loss is the excess of the
carrying amount of the impaired asset over the fair value of the asset. The fair
value represents expected future cash flows from the use of the assets,
discounted at the rate used to evaluate potential investments.
FOREIGN CURRENCY TRANSLATION
With the exception of operations in countries with highly inflationary
economies, the financial statements of Hercules' non-U.S. entities are
translated into U.S. dollars using current rates of exchange, with gains or
losses included in the Other comprehensive income (loss) component of the
stockholders' equity section of the balance sheet. The related allocation for
income taxes is not significant. For operations in countries with highly
inflationary economies, financial statements are translated at either current or
historical exchange rates, as appropriate. These adjustments, along with gains
and losses on currency transactions (denominated in currencies other than local
currency), are reflected in net income.
FINANCIAL INSTRUMENTS AND HEDGING
Derivative financial instruments are used to hedge risk caused by fluctuating
currency and interest rates. The company enters into forward-exchange contracts
and currency swaps to hedge foreign currency exposure. Decisions regarding
hedging are made on a case-by-case basis, taking into consideration the amount
and duration of the exposure, market volatility, and economic trends. The
company uses the fair-value method of accounting, recording realized and
unrealized gains and losses on these contracts quarterly. They are included in
other income (expense), net, except for gains and losses on contracts to hedge
specific foreign currency commitments, which are deferred and accounted for as
part of the transaction. Gains or losses on instruments used to hedge the value
of investments in certain non-U.S. subsidiaries are accounted for under the
deferral method and are included in the foreign currency translation adjustment.
It is the company's policy to match the term of financial instruments with the
term of the underlying designated item. If the designated item is an anticipated
transaction no longer likely to occur, gains or losses from the instrument
designated as a hedge are recognized in current period earnings. The company
does not hold or issue financial instruments for trading purposes. In the
Consolidated Statement of Cash Flow, the company reports the cash flows
resulting from its hedging activities in the same category as the related item
that is being hedged. Net investment hedges, requiring cash receipts or payments
from borrowed foreign currencies not identified with any specific cash flows,
are classified as financing activities.
The company uses interest rate swap agreements to manage interest costs and
risks associated with changing rates. The differential to be paid or received is
accrued as interest rates change and is recognized in interest expense over the
life of the agreements. Counterparties to the forward exchange, currency swap,
and interest rate swap contracts are major financial institutions. Credit loss
from counterparty nonperformance is not anticipated.
STOCK-BASED COMPENSATION
Compensation costs attributable to stock option and similar plans are recognized
based on any difference between the quoted market price of the stock on the date
of grant in excess of the amount the employee is required to pay to acquire the
stock (the intrinsic-value method under Accounting Principles Board (APB)
Opinion 25). Such amount, if any, is accrued over the related vesting period, as
appropriate. Statement of Financial Accounting Standard (SFAS) No. 123,
"Accounting for Stock-Based Compensation," requires companies electing to
continue to use the intrinsic-value method to make pro forma disclosures of net
income and earnings per share as if the fair-value-based method of accounting
had been applied.
30
<PAGE> 32
NEW ACCOUNTING STANDARDS
Effective January 1, 1999, we adopted the American Institute of Certified Public
Accountants Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). As a result of this
adoption, such costs will be amortized over a period of 5 to 10 years.
PENDING ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
This statement, as amended by Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The company has not yet determined the impact
that the adoption of SFAS 133 will have on its earnings or statement of
financial position.
RECLASSIFICATIONS
Certain amounts in the 1998 and 1997 consolidated financial statements and notes
have been reclassified to conform to the 1999 presentation.
31
<PAGE> 33
HERCULES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ACQUISITIONS
All acquisitions have been accounted for under the purchase method. The results
of operations of the acquired businesses are included in the Consolidated
Financial Statements from the dates of acquisition.
BetzDearborn - On October 15, 1998, the company acquired all of the
outstanding shares of BetzDearborn Inc., a global specialty chemical company
engaged in the treatment of water and industrial process systems, for $2,235
million in cash and $186 million in common stock exchanged for the shares held
by the BetzDearborn ESOP Trust. The shares were valued using the quoted market
price of the stock at the time of exchange. In addition, the company assumed
debt with a fair value of $117 million and repaid $557 million of other
long-term debt held by BetzDearborn. This acquisition was financed with
borrowings under a $3,650 million credit facility with a syndicate of banks (see
Note 6).
During 1999, we completed the BetzDearborn purchase price allocation and
increased goodwill by $96 million, to $2,170 million. The increase to goodwill
results from adjustments to the fair value of net tangible assets acquired,
completion of the evaluation of pre-acquisition contingencies related to
litigation and claims, finalization of plans to exit BetzDearborn activities and
foreign currency translation adjustments, net of related tax effects. Goodwill
is determined as follows:
<TABLE>
<CAPTION>
(Dollars in millions)
<S> <C>
Cash paid, including transaction costs $2,235
Common stock exchanged for ESOP trust shares 186
Fair value of debt assumed 117
Payment of BetzDearborn long-term debt 557
------
$3,095
Less: Fair value of net tangible assets acquired 650
Fair value of identifiable intangible assets acquired 145
Purchased in-process research and development 130
------
BetzDearborn goodwill as of the date of acquisition $2,170
======
</TABLE>
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. Goodwill is amortized over 40 years on a
straight line basis. Identified intangibles are amortized over 10 to 12 years,
on a straight line basis. Additionally, approximately $130 million of the
purchase price was allocated to purchased in-process research and development
and was charged to expense at the date of acquisition (see Note 15).
As of the acquisition date, the company began to formulate plans to
combine the operations of BetzDearborn and Hercules. We formed a program office,
engaged outside consultants and established several functional integration teams
to formulate and implement the plan and capture anticipated synergies. At
December 31, 1998, the company had identified and approved various actions such
as personnel reductions, consolidation of operations and support functions,
closure of redundant or inefficient offices and facilities, and relocation of
former BetzDearborn employees. Accordingly, the company included a $98 million
liability as part of the purchase price allocation. The liability included
approximately $74 million related to employee termination benefits and $24
million for office and facility closures, relocation of BetzDearborn employees
and other related exit costs (see Note 13).
FiberVisions L.L.C. - In July 1998, the company completed the
acquisition of the 49% share of FiberVisions L.L.C. owned by its joint venture
partner Jacob Holm & Sons A/S for approximately $230 million in cash, plus
assumed debt of $188 million. The allocation of the purchase price resulted in
$188 million of goodwill, which is being amortized over its estimated useful
life of 40 years.
32
<PAGE> 34
The following unaudited pro forma information presents a summary of
consolidated results of operations of the company as if the BetzDearborn and
FiberVisions acquisitions had occurred at the beginning of each of the periods
presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997
---- ----
<S> <C> <C>
Net sales $3,276 $3,366
Income (loss) before effect of change in accounting
Principle (70) 237
Net income (loss) (70) 226
Net earnings per share:
Basic
Earnings before effect of change in accounting
Principle $(.69) $2.25
Earnings per share (.69) 2.15
Diluted
Earnings before effect of change in accounting
Principle $(.69) $2.21
Earnings per share (.69) 2.11
</TABLE>
The pro forma results of operations are for comparative purposes only
and reflect increased amortization and interest expense resulting from the
acquisitions described above, but do not include any potential cost savings from
combining the acquired businesses with the company's operations. Consequently,
the pro forma results do not reflect the actual results of operations had the
acquisitions occurred on the dates indicated, and are not intended to be a
projection of future results or trends.
Other - The company also made three other acquisitions in 1998 for an
aggregate purchase price of approximately $105 million in cash. These
acquisitions included the worldwide paper chemicals group of Houghton
International, Inc. and Citrus Colloids Ltd., a pectin manufacturer, in April
1998, and Alliance Technical Products, Ltd., a rosin dispersions company, in
September 1998. Allocations of the purchase prices for these acquisitions
resulted in approximately $67 million of goodwill, which is being amortized over
estimated useful lives ranging from 30 to 40 years.
2. ACCOUNTS RECEIVABLE, NET
<TABLE>
<CAPTION>
Accounts receivable, net, consists of: (Dollars in millions)
1999 1998
---- ----
<S> <C> <C>
Trade $639 $598
Other 143 78
---- ----
Total 782 676
Less allowance for doubtful accounts 16 13
---- ----
$766 $663
==== ====
</TABLE>
At December 31, 1999, net trade accounts receivable from customers
located in the United States, Europe, the Americas, and Asia were $426 million,
$151 million, $35 million, and $11 million, respectively.
3. INVENTORIES
<TABLE>
<CAPTION>
The components of inventories are: (Dollars in millions)
1999 1998
---- ----
<S> <C> <C>
Finished products $187 $218
Materials, supplies, and work in process 193 198
---- ----
$380 $416
==== ====
</TABLE>
33
<PAGE> 35
Inventories valued on the LIFO method were lower than if valued under the
average-cost method, which approximates current cost, by $31 million and $33
million at December 31, 1999 and 1998, respectively.
4. INVESTMENTS
Total equity investments in affiliated companies were $10 million at December
31, 1999, and $9 million at December 31, 1998.
Other investments, at cost or less, were $37 million and $42 million at
December 31, 1999 and 1998, respectively. Included in these amounts are
non-current marketable securities aggregating $32 million and $31 million for
the corresponding years, classified as "available for sale." The value of these
investments, based on market quotes, approximates book values.
5. SHORT-TERM DEBT
<TABLE>
<CAPTION>
A summary of short-term debt follows: (Dollars in millions)
1999 1998
---- ----
<S> <C> <C>
Banks $26 $80
Current maturities of long-term debt 652 486
---- ----
$678 $566
==== ====
</TABLE>
Bank borrowings represent primarily foreign overdraft facilities and
short-term lines of credit, which are generally payable on demand with interest
at various rates. Book values of bank borrowings approximate market value
because of their short maturity period.
At December 31, 1999, Hercules had $254 million of unused lines of
credit that may be drawn as needed, with interest at a negotiated spread over
lenders' cost of funds. Lines of credit in use at December 31, 1999, were $26
million. Weighted-average interest rates on short-term borrowings at December
31, 1999 and 1998, were 6.04% and 5.61%, respectively.
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
A summary of long-term debt follows: (Dollars in millions)
1999 1998
---- ----
<S> <C> <C>
6.15% notes due 2000 $ 100 $ 100
6.60% notes due 2027 (a) 100 100
7.85% notes due 2000 25 25
6.625% notes due 2003 (b) 125 125
8% convertible subordinated debentures due 2010 (c) 3 3
Term loan tranche A due in varying amounts through 2003 (d) 1,187 1,250
Term loan tranche B due 1999 (d) -- 470
Term loan tranche C due 2000 (d) 318 1,000
Revolving credit agreement due 2003 (d) 336 288
ESOP debt (e) 106 110
Term notes at various rates from 4.44% to 9.60% due in varying
amounts through 2006 (f) 80 102
Variable rate loans 41 --
Other 8 9
------ ------
2,429 3,582
Current maturities of long-term debt (652) (486)
------ ------
Net long-term debt $1,777 $3,096
====== ======
</TABLE>
(a) 30-year debentures with a 10-year put option, exercisable by
bondholder at a redemption price equal to principal amount.
34
<PAGE> 36
(b) Par value of $125 million issued June 1993.
(c) Subordinated debentures are convertible into common stock at $14.90
per share and are redeemable at the option of the company at varying rates. The
annual sinking fund requirement of $5 million, beginning in 1996, has been
satisfied through conversions of debentures.
(d) The BetzDearborn acquisition was financed with borrowings under a
$3,650 million credit facility with a syndicate of banks, and was consummated on
October 15, 1998. The syndication included three tranches of varying maturity
term loans totaling $2,750 million, of which $1,505 million is outstanding at
year end 1999, and a $900 million revolving credit agreement of which $336
million is outstanding at year end 1999. On April 19, 1999, a revised and
amended credit agreement was issued to allow borrowings in euros, as well as
U.S. dollars. Approximately U.S. $950 million of term loan tranche A domestic
borrowings were converted into indebtedness denominated in euros during the
second quarter 1999. The facility currently bears interest at London Interbank
Offered Rate (LIBOR) plus .75%. In addition, a Canadian subsidiary of ours can
borrow up to U.S. $100 million from select lenders in Canada in Canadian dollars
that currently bears interest at Bankers' Acceptances Rate plus .75%. Interest
rates are reset for one, three, or six months periods at the company's option.
The company's debt agreement contains various restrictive covenants that, among
other things, require maintenance of certain financial covenants: leverage, net
worth, and interest coverage, and provides that the entry of judgment or
judgments involving aggregate liabilities of $50 million or more be vacated,
discharged, stayed, or bonded pending appeal within 60 days of entry. Issuance
costs related to the financing are included in Deferred charges and other assets
and are being amortized over the term of the loans, using the effective interest
method. As of December 31, 1999, $564 million of the $900 million multicurrency
revolver is available for use.
(e) The company assumed a $94 million loan related to the BetzDearborn
ESOP Trust. The proceeds of the loan were originally used by the ESOP Trust for
the purchase of BetzDearborn preferred shares which, upon acquisition by
Hercules, were converted into equivalent shares of Hercules common stock (see
Note 10). The loan was recorded at a fair market value of $110 million at the
date of acquisition, and the $16 million fair value step-up is being amortized
over the term of the debt. The loan and guarantee, which bears interest at
8.96%, matures in June 2009.
(f) Debt assumed in conjunction with the acquisition of FiberVisions
L.L.C. (see Note 1), less repayments through December 31, 1999.
Long-term debt maturities during the next five years are $652 million in
2000, $344 million in 2001, $348 million in 2002, $863 million in 2003, and $22
million in 2004.
7. COMPANY-OBLIGATED PREFERRED SECURITIES OF SUBSIDIARY TRUST
Redeemable Hybrid Income Overnight Shares
In November 1998, Hercules Trust V, our wholly owned subsidiary ("Trust
V"), completed a private placement of $200 million Redeemable Hybrid INcome
Overnight Shares (RHINOS). At the same time as the private placement of the
RHINOS, we entered into a forward underwriting agreement to issue $200 million
of our common stock upon remarketing of the RHINOS. RHINOS are short-term
auction-rate reset Preferred Securities of Trust V, which used the proceeds from
the RHINOS sale to purchase junior subordinated notes of Hercules. We used these
proceeds to partially repay loans under our credit facility. Hercules pays
interest on the junior subordinated notes, and Trust V pays distributions on the
RHINOS at a floating rate, initially equal to LIBOR plus 1.75%, which is reset
on a quarterly basis. The RHINOS are guaranteed by Hercules.
We expected to remarket the RHINOS within twelve months of their
issuance; however, we amended the RHINOS agreements in July 1999 to eliminate
this requirement. Additionally in July 1999, we issued $175 million of our
common stock in an underwritten public offering. In October 1999, the RHINOS
agreements were amended to extend the redemption date to January 2000.
Pursuant to amendments to the RHINOS agreements executed on February 9,
2000: (1) the interest rate on the RHINOS was reduced to LIBOR plus 1.5%, and
(2) the RHINOS will be remarketed at any time at the option of the holder. If
the holder elects to initiate a remarketing, Hercules has the right to redeem
the RHINOS. Upon a successful remarketing, the redemption date of the RHINOS
will be extended for an additional year. If the RHINOS are not remarketed, they
will be redeemed by Hercules on February 9, 2002.
35
<PAGE> 37
Trust Originated Preferred Securities
In March 1999, Hercules Trust I, our wholly owned subsidiary trust
("Trust I"), completed a $362 million underwritten public offering of 14,500,000
shares of 9.42% Trust Originated Preferred Securities. Trust I invested the
proceeds from the sale of the Preferred Securities in an equal principal amount
of 9.42% Junior Subordinated Deferrable Interest Debentures of Hercules due
March 2029. We used these proceeds to repay long-term debt.
Trust I distributes quarterly cash payments it receives from Hercules on
the Debentures to Preferred Security holders at an annual rate of 9.42% on the
liquidation amount of $25 per Preferred Security. We may defer interest payments
on the Debentures at any time, for up to 20 consecutive quarters. If this
occurs, Trust I will also defer distribution payments on the Preferred
Securities. The deferred distributions, however, will accumulate distributions
at a rate of 9.42% per annum.
Trust I will redeem the Preferred Securities when the Debentures are
repaid at maturity on March 31, 2029. Hercules may redeem the Debentures, in
whole or, on or after March 17, 2004, in part, before their maturity at a price
equal to 100% of the principal amount of the Debentures redeemed, plus accrued
interest. When Hercules redeems any Debentures before their maturity, Trust I
will use the cash it receives to redeem Preferred Securities and common
securities as provided in the trust agreement. Hercules guarantees the
obligations of Trust I on the Preferred Securities.
CRESTS Units
In July 1999, we completed a public offering of 350,000 CRESTS Units
with Hercules Trust II, a wholly owned subsidiary trust ("Trust II"). This
transaction provided net proceeds to Hercules and Trust II of $340.4 million.
The preferred security component of the CRESTS Units was initially valued at
$741.46 per unit and the warrant component of the CRESTS Units was initially
valued at $258.54 per warrant. Each CRESTS Unit consists of one preferred
security of Trust II and one warrant to purchase 23.4192 shares of Hercules
common stock at an initial exercise price of $1,000 (equivalent to $42.70 per
share). The preferred security and warrant components of each CRESTS Unit may be
separated and transferred independently. The warrants may be exercised, subject
to certain conditions, at any time before March 31, 2029, unless there is a
reset and remarketing event. No reset and remarketing event will occur before
July 27, 2004, unless all of our common stock is acquired in a transaction that
includes cash for a price above a predetermined level. Trust II used the
proceeds from the sale of its preferred securities to purchase junior
subordinated deferrable interest debentures of Hercules ("debentures"). As of
December 31, 1999, no warrants had been exercised.
We pay interest on the debentures, and Trust II pays distributions on
its preferred securities. Both are paid quarterly at an annual rate of 6-1/2% of
the scheduled liquidation amount of $1,000 per debenture and/or preferred
security until the scheduled maturity date and redemption date of June 30, 2029,
unless there is a reset and remarketing event. We guarantee payments by Trust II
on its preferred securities. Trust II must redeem the preferred securities when
the debentures are redeemed or repaid at maturity.
We used the proceeds from the CRESTS Units offering to repay long-term
debt. Issuance costs related to the preferred security component of the CRESTS
Units are being amortized over the life of the security and costs related to the
warrants were charged to additional paid-in capital.
Floating Rate Preferred Securities
In December 1999, Hercules Trust VI, our wholly owned subsidiary trust
("Trust VI"), completed a $170 million private offering of 170,000 shares of
Floating Rate Preferred Securities. Trust VI invested the proceeds from the sale
of the preferred securities in an equal principal amount of Floating Rate Junior
Subordinated Deferrable Interest Debentures due 2000 of Hercules. We used these
proceeds to repay long-term debt.
Trust VI will distribute quarterly cash payments it receives from
Hercules on the debentures to preferred security holders at an annual rate of
LIBOR plus 2.45%, which is reset on a quarterly basis, on the liquidation amount
of $1,000 per preferred security. We may defer interest payments on the
debentures at any time during the
36
<PAGE> 38
term of the preferred securities. If this occurs, Trust VI will also defer
distribution payments on the preferred securities. The deferred distributions,
however, will accumulate distributions at a rate of LIBOR plus 2.45%.
Trust VI will redeem the preferred securities when the debentures are
repaid at maturity on December 29, 2000. Hercules guarantees the obligations of
Trust VI on the preferred securities.
8. SERIES PREFERRED STOCK
The series preferred stock is without par value and is issuable in series. There
are 2,000,000 shares authorized for issuance, none of which have been issued.
9. COMMON STOCK
Hercules common stock has a stated value of $25/48, and 300,000,000 shares are
authorized for issuance. At December 31, 1999, a total of 29,848,667 shares were
reserved for issuance for the following purposes: 773,784 shares for sales to
the Savings Plan Trustee; 13,814,399 shares for the exercise of awards under the
Stock Option Plan; 6,028,836 shares for awards under incentive compensation
plans; 184,206 shares for conversion of debentures and notes; 850,722 shares for
employee stock purchases; and 8,196,720 shares for exercise of the warrant
component of the CRESTS Units.
For the company's stock repurchase program, from its start in 1991
through year-end 1999, the Board authorized the repurchase of up to 74,650,000
shares of company common stock. Of that total, 6,150,000 shares were intended to
satisfy requirements of various employee benefit programs. During this period, a
total of 66,617,485 shares of common stock were purchased in the open market at
an average price of $37.31 per share.
In July 1999, we completed a public offering of 5,000,000 shares of our
common stock, which provided us with proceeds of $171.5 million, net of
underwriting fees of $3.5 million. We used the proceeds from the common stock
offering for the partial repayment of a term loan under our credit facility.
Issuance costs associated with the stock offering were charged to additional
paid-in capital.
10. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
In connection with the acquisition of BetzDearborn in 1998, the company acquired
its ESOP and related trust as a long-term benefit for substantially all of
BetzDearborn's U.S. employees. The plan is a supplement to BetzDearborn's 401(k)
plan. The ESOP trust had long-term debt of $93 million and $94 million at
December 31, 1999 and 1998, respectively, which is guaranteed by Hercules. Upon
acquisition, the debt had a fair value in excess of its recorded amount for
which a step-up was recorded to be amortized over the remaining term of the
debt. The fair value, included in long-term debt, was $106 million and $110
million at December 31, 1999 and 1998, respectively. The proceeds of the
original loan were used to purchase BetzDearborn convertible preferred stock,
which, at the date of acquisition, was converted into Hercules common stock.
Under the provisions of the BetzDearborn 401(k) program, employees may
invest 2% to 15% of eligible compensation. The company's matching contributions,
made in the form of Hercules common stock, are equal to 50% of the first 6% of
employee contributions, and fully vest to employees upon the completion of 5
years of service. The amount of the company's matching contributions are
included in ESOP expense. After satisfying the 401(k) matching contributions and
the dividends on allocated shares, all remaining shares of ESOP stock are
allocated to each eligible participant's account based on the ratio of each
eligible participant's compensation to total compensation of all participants.
The company's contributions and dividends on the shares held by the trust
are used to repay the loan, and the shares are allocated to participants as the
principal and interest are paid. Long-term debt is reduced as payments are made
on the third party financing. In addition, unearned compensation is also reduced
as the shares are allocated to employees. The unallocated shares held by the
trust are reflected in unearned compensation as a reduction in stockholders'
equity on the balance sheet for $123 million and $130 million at December 31,
1999 and 1998, respectively.
37
<PAGE> 39
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Allocated 1,807,976 1,776,338
Unallocated 3,814,749 4,052,556
--------- ---------
Total shares held by ESOP 5,622,725 5,828,894
========= =========
</TABLE>
The ESOP expense is calculated using the shares-allocated method and
includes net interest incurred on the debt of $5 million and $1 million for 1999
and 1998, respectively. The company is required to make quarterly contributions
to the plan which enable the trust to service its indebtedness. Net ESOP expense
is comprised of the following elements:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ESOP expense $13 $ 3
Common stock dividends (charged to retained
earnings) (6) (2)
--- ---
Net ESOP expense $ 7 $ 1
=== ===
ESOP Contributions $ 9 $ 2
=== ===
</TABLE>
11. LONG-TERM INCENTIVE COMPENSATION PLANS
The company's long-term incentive compensation plans provide for the grant of
stock options and the award of common stock and other market-based units to
certain key employees and non-employee directors. Through 1994, shares of common
stock awarded under these plans normally were either restricted stock or
performance shares. During the restriction period, award holders have the rights
of stockholders, including the right to vote and receive cash dividends, but
they cannot transfer ownership.
In 1995, Hercules changed the structure of the long-term incentive
compensation plans to place a greater emphasis on shareholder value creation
through grants of regular stock options, performance-accelerated stock options,
and Cash Value Awards (performance-based awards denominated in cash and payable
in shares of common or restricted stock, subject to the same restrictions as
restricted stock). Restricted stock and other market-based units are awarded
with respect to certain programs. The number of awarded shares outstanding was
926,689, 1,083,613, and 873,627 at December 31, 1999, 1998, and 1997,
respectively.
Under the company's incentive compensation plans, 6,028,836 shares of
common stock were available for grant as stock awards or stock option awards.
Stock awards are limited to approximately 15% of the total authorizations.
Regular stock options are granted at the market price on the date of grant and
are exercisable at various periods from one to five years after date of grant.
Performance-accelerated stock options are also granted at the market price on
the date of grant and are normally exercisable at nine and one-half years.
Exercisability may be accelerated based upon the achievement of predetermined
performance goals. Both regular and performance-accelerated stock options expire
10 years after the date of grant.
Restricted shares, options and performance-accelerated stock options are
forfeited and revert to the company in the event of employment termination,
except in the case of death, disability, retirement, or other specified events.
The company applies APB Opinion 25 in accounting for its plans.
Accordingly, no compensation cost has been recognized for the stock option
plans. The cost of stock awards and other market-based units, which are charged
to income over the restriction or performance period, amounted to $3 million for
1999, $5 million for 1998, and $4 million for 1997.
Below is a summary of outstanding stock option grants under the
incentive compensation plans during 1997, 1998, and 1999:
38
<PAGE> 40
<TABLE>
<CAPTION>
Regular Performance-Accelerated
Weighted-average Weighted-average
Number of Shares Price Number of Shares Price
---------------- ----- ---------------- -----
<S> <C> <C> <C> <C>
January 1, 1997 3,909,587 $32.49 3,075,806 $49.38
Granted 1,708,100 $40.14 810,125 $41.07
Exercised (1,611,449) $20.97 -- --
Forfeited (4,950) $56.26 (10,534) $53.07
- ----------------------------------------------------------------------------------------------------------------
December 31, 1997 4,001,288 $40.41 3,875,397 $47.63
Granted 2,696,215 $32.75 1,170,890 $41.09
Exercised (279,795) $24.93 -- --
Forfeited (66,430) $41.58 (15,035) $46.09
- ----------------------------------------------------------------------------------------------------------------
December 31, 1998 6,351,278 $37.83 5,031,252 $46.12
Granted 1,705,335 $37.49 1,079,455 $36.52
Exercised (94,275) $22.07 -- --
Forfeited (158,780) $37.80 (99,866) $44.41
- ----------------------------------------------------------------------------------------------------------------
December 31, 1999 7,803,558 $37.94 6,010,841 $44.42
</TABLE>
The weighted-average fair value of regular stock options granted during
1997, 1998, and 1999 was $10.13, $8.53, and $8.18 respectively. The
weighted-average fair value of performance-accelerated stock options granted
during 1997, 1998, and 1999 was $9.39, $9.24, and $7.82 respectively.
Following is a summary of regular stock options exercisable at December
31, 1997, 1998, and 1999, and their respective weighted-average share prices:
<TABLE>
<CAPTION>
Weighted-average
Number of Shares Exercise Price
---------------- --------------
<S> <C> <C>
Options exercisable
December 31, 1997 2,013,148 $38.54
Options exercisable
December 31, 1998 3,300,628 $41.57
Options exercisable
December 31, 1999 4,651,273 $39.95
</TABLE>
There were no performance-accelerated stock options exercisable at
December 31, 1997, 1998 and 1999.
Following is a summary of stock options outstanding at December 31,
1999:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
Number Weighted-average Weighted- Number Weighted-
Exercise Price Outstanding Remaining average Exercisable at average
Range at 12/31/99 Contractual Life Exercise Price 12/31/99 Exercise Price
----- ----------- ---------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
Regular Stock Options
- ---------------------
$11 - $20 225,013 1.84 $15.66 225,013 $15.66
$21 - $30 1,810,700 8.30 $25.52 751,305 $25.47
$31 - $40 3,553,945 8.06 $38.19 1,870,540 $38.63
$41 - $60 2,213,900 6.79 $49.97 1,804,415 $50.38
--------- ---------
7,803,558 4,651,273
========= =========
</TABLE>
39
<PAGE> 41
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
Number Weighted-average Weighted- Number Weighted-
Exercise Price Outstanding Remaining average Exercisable at average
Range at 12/31/99 Contractual Life Exercise Price 12/31/99 Exercise Price
----- ----------- ---------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
Performance-Accelerated Stock Options
- -------------------------------------
$25 - $40 2,125,621 8.69 $36.31 -- --
$41 - $50 3,081,420 6.83 $47.09 -- --
$51 - $61 803,800 6.08 $55.63 -- --
---------
6,010,841
=========
</TABLE>
The company estimates at December 31, 1999, 100% of
performance-accelerated stock options will eventually vest.
The company's Employee Stock Purchase Plan is a qualified
non-compensatory plan, which allows eligible employees to acquire shares of
common stock through systematic payroll deductions. The plan consists of
three-month subscription periods, beginning July 1 of each year. The purchase
price is 85% of the fair market value of the common stock on either the first or
last day of that subscription period, whichever is lower. Purchases may range
from 2% to 15% of an employee's base salary each pay period, subject to certain
limitations. Currently, 850,722 shares of Hercules common stock are registered
for offer and sale under the plan. Shares issued at December 31, 1999 and 1998,
were 949,464 and 573,445, respectively. The company applies APB Opinion 25 and
related interpretations in accounting for its Employee Stock Purchase Plan.
Accordingly, no compensation cost has been recognized for the Employee Stock
Purchase Plan.
Had compensation cost for the company's Stock-Based Incentive Plans and
Employee Stock Purchase Plan been determined on the basis of fair value
according to SFAS No. 123, the fair value of each option granted or share
purchased would be estimated on the grant date using the Black-Scholes option
pricing model.
The following weighted-average assumptions would be used in estimating
fair value for 1999, 1998, and 1997:
<TABLE>
<CAPTION>
Performance Accelerated Employee Stock Purchase
Assumption Regular Plan Plan Plan
---------- ------------ ----------------------- -----------------------
<S> <C> <C> <C>
Dividend yield 3.4% 3.5% 3.5%
Risk-free interest rate 5.84% 5.61% 5.02%
Expected life 7.4 yrs. 5 yrs. 3 mos.
Expected volatility 23.9% 25.5% 35.9%
</TABLE>
The company's net income and earnings per share for 1999, 1998, and 1997
would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
(Dollars in millions, except per share) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income
As reported $ 168 $ 9 $319
Pro forma $ 149 $ (5) $308
Basic earnings per share
As reported $1.63 $ .10 $3.22
Pro forma $1.45 $(.06) $3.10
Diluted earnings per share
As reported $1.62 $ .10 $3.13
Pro forma $1.44 $(.06) $3.04
</TABLE>
SFAS No. 123 does not apply to awards prior to 1995, and additional
awards in future years are anticipated.
40
<PAGE> 42
12. ADDITIONAL BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998
------ ----
<S> <C> <C>
Property, plant, and equipment
Land $ 58 $ 74
Buildings and equipment 2,785 2,837
Construction in progress 135 126
------ ------
Total 2,978 3,037
Accumulated depreciation and amortization 1,657 1,599
------ ------
Net property, plant, and equipment $1,321 $1,438
====== ======
Accrued expenses
Payroll and employee benefits $ 63 $ 63
Income taxes payable 35 15
Current portion of restructuring liability 66 119
Accrued interest payable 44 49
Legal accrual 101 15
Environmental accrual 29 18
Dividends payable 28 --
Other 195 202
------ ------
$ 561 $ 481
====== ======
</TABLE>
13. RESTRUCTURING
Pursuant to the plans in place to merge the operations of BetzDearborn with
Hercules and to rationalize the support infrastructure and other existing
operations, approximately 600 employees were terminated and several facilities
were closed during 1999. Cash payments during 1999 include $42 million for
severance benefits and $14 million for other exit costs. As a result of the
completion of plans to exit former BetzDearborn activities, additional exit
costs related to facility closures of $8 million and a $4 million reduction in
employee severance benefits were reflected in the finalization of the purchase
price allocation (see Note 1). We lowered the estimate of severance benefits
related to the termination of Hercules employees by $4 million. The lower than
planned severance benefits are the result of higher than anticipated attrition,
with such voluntary resignations not requiring the payment of termination
benefits. Additionally in 1999, we incurred $3 million in severance charges
related to a reduction in work force of approximately 20 manufacturing employees
within the Chemical Specialties segment (see Note 16). We estimate approximately
1,300 (approximately 1,000 related to the 1998 BetzDearborn acquisition)
employees will be terminated, of which approximately 990 employee terminations
have occurred since the inception of the plans.
In 1998, Hercules incurred restructuring liabilities of $130 million in
connection with the acquisition of BetzDearborn (see Notes 1 and 16). These
liabilities included charges of $31 million for employee termination benefits
and $5 million for exit costs related to facility closures. In addition, a $94
million liability was charged to goodwill as part of the purchase price
allocation related to the acquisition of BetzDearborn and included $78 million
for employee termination benefits and $16 million for office and facility
closures, relocation of BetzDearborn employees and other related exit costs.
Cash payments during 1998 included $15 million of severance benefits.
In 1997, we incurred $24 million in severance benefits related to the
reorganization of management and the adoption of new competitive strategies (see
Note 16). Cash payments of $2 million and $10 million are reflected in the table
below in 1999 and 1998, respectively. Remaining amounts to be paid, with respect
to this plan are $3 million at the end of 1999.
Severance benefits payments are based on years of service and generally
continue for 3 months to 24 months subsequent to termination. We expect to
substantially complete remaining actions under the plans in 2000. A
reconciliation of activity with respect to the liabilities established for these
plans is as follows:
41
<PAGE> 43
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998
----- -----
<S> <C> <C>
Balance at beginning of year $ 130 $ 15
Acquisition-related accrual -- 130
Cash payments (56) (15)
Additional termination benefits and exit costs 11 --
Reversals (8) --
----- -----
Balance at end of year $ 77 $ 130
===== =====
</TABLE>
14. PENSION AND OTHER POSTRETIREMENT BENEFITS
The company provides a defined benefit pension and postretirement benefit plans
to employees. The following chart lists benefit obligations, plan assets, and
funded status of the plans.
<TABLE>
<CAPTION>
(Dollars in millions) Other Postretirement
Pension Benefits Benefits
1999 1998 1999 1998
------- ------- ----- -----
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at January 1 $ 1,499 $ 1,114 $ 154 $ 141
Service cost 30 20 2 1
Interest cost 97 83 13 10
Amendments 6 -- 20 --
Assumption change (147) 52 (9) 3
Acquisition -- 284 -- 9
Translation difference (19) 8 -- --
Actuarial loss (gain) (8) 28 22 10
Benefits paid from plan assets (115) (90) (2) (2)
Benefits paid by company -- -- (19) (18)
------- ------- ----- -----
Benefit obligation at December 31 $ 1,343 $ 1,499 $ 181 $ 154
======= ======= ===== =====
CHANGE IN PLAN ASSETS
Fair value of plan assets at January 1 $ 1,589 $ 1,237 $ 8 $ 9
Actual return on plan assets 275 182 1 1
Acquisition -- 256 -- --
Company contributions (refund) 2 (2) -- --
Translation difference (19) 6 -- --
Benefits paid from plan assets (115) (90) (2) (2)
------- ------- ----- -----
Fair value of plan assets at December 31 $ 1,732 $ 1,589 $ 7 $ 8
======= ======= ===== =====
Funded status of the plans $ 389 $ 90 $(174) $(146)
Unrecognized actuarial loss (gain) (197) 89 44 34
Unrecognized prior service cost (benefit) 36 35 (19) (44)
Unrecognized net transition obligation (11) (25) -- --
Amount included in accrued expenses- other -- -- 20 20
------- ------- ----- -----
Prepaid (accrued) benefit cost $ 217 $ 189 $(129) $(136)
======= ======= ===== =====
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL
POSITION CONSIST OF:
Prepaid benefit cost $ 217 $ 218 -- --
Accrued benefit liability -- (29) (129) (136)
------- ------- ----- -----
$ 217 $ 189 $(129) $(136)
======= ======= ===== =====
ASSUMPTIONS AS OF DECEMBER 31
Weighted-average discount rate 8.00% 7.00% 8.00% 7.00%
Expected return on plan assets 9.25% 9.25% 9.25% 9.25%
Rate of compensation increase 4.50% 4.50% 4.50% 4.50%
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
Other Postretirement
Pension Benefits Benefits
1999 1998 1997 1999 1998 1997
----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 30 $ 20 $ 17 $ 2 $ 1 $ 1
Interest cost 97 83 78 13 10 10
Return on plan assets (expected) (134) (114) (103) (1) (1) (1)
Amortization and deferrals 3 12 5 (2) (4) (5)
Amortization of transition asset (14) (14) (14) -- -- --
----- ----- ----- ---- ---- ----
Benefit cost (credit) $ (18) $ (13) $ (17) $ 12 $ 6 $ 5
===== ===== ===== ==== ==== ====
</TABLE>
Pension
During 1997, the company recognized a charge of approximately $8 million
for special termination benefits.
Other Postretirement Benefits
The nonpension postretirement benefit plans are contributory health care
and life insurance plans. The assumed participation rate in these plans for
future eligible retirees was 60% for health care and 100% for life insurance. In
August 1993, a Voluntary Employees' Beneficiary Association (VEBA) Trust was
established and funded with $10 million of company funds. The company
periodically obtains reimbursement for union retiree claims, while other claims
are paid from company assets. The participant contributions are immediately used
to cover claim payments, and for this reason do not appear as contributions to
plan assets.
The assumed health care cost trend rate was 4.5% at December 31, 1999,
and was 5% for those under age 65 and 4.75% for those over age 65 at December
31, 1998. The assumed health care cost trend rate will be 8% in 2000 to reflect
recent experience, decreasing to 4.5% by 2004 and for all subsequent years.
A one-percentage point increase or decrease in the assumed health care
cost trend rate would increase or decrease the postretirement benefit obligation
by $7 million or $8 million, respectively, and would not have a material effect
on aggregate service and interest cost components.
15. PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
Purchased in-process research and development (IPR&D) represents the value
assigned in a purchase business combination to research and development projects
of the acquired business that were commenced but not yet completed at the date
of the acquisition, and which, if unsuccessful, have no alternative future use
in research and development activities or otherwise. Amounts assigned to
purchased IPR&D must be charged to expense at the date of consummation of the
purchase business combination. Accordingly, the company charged approximately
$130 million to expense during 1998 for IPR&D related to the BetzDearborn
acquisition (see Note 1).
The IPR&D projects were principally included in the water treatment and
paper process divisions of the acquired business. The former Water Management
Group (WMG) provided specialty water and process treatment programs for boiler,
cooling, influent, and effluent applications to markets such as refining,
chemical, paper, electric utility, food, industrial, commercial and
institutional establishments. Overall, the products are used to control
corrosion, scale, deposit formation, and microbiological growth, conserve energy
and improve efficiency. Additionally, the former Paper Process Group (PPG)
brought to market custom-engineered programs for the process-related problems
associated with paper production. These problems include deposition, corrosion,
microbiological fouling, foam control, deinking and felt conditioning.
Due to the uniqueness of each of the projects, the costs and effort required
were estimated based on the information available at the date of acquisition.
However, there is a risk that certain projects may not be completed successfully
for a variety of reasons, including change in strategies, inability to develop a
cost-efficient treatment, and changes in market demand or customer requirements.
The IPR&D valuation charge was measured by the stage of completion method,
primarily calculated by dividing the costs incurred to the date of acquisition
by the total estimated costs. These percentages were applied to
43
<PAGE> 45
the results of project-by-project discounted cash flow models that estimated the
present value of residual cash flows deemed attributable solely to the
underlying IPR&D.
The projected revenues, costs, and margins in the cash flow forecasts were
consistent with projections by management based on available historical data.
The revenue projections were based on an opportunity analysis for each project,
which takes into account market and competitive conditions, potential customers,
and strategic goals. The weighted-average cost of capital for the overall
business was estimated at 11% and the risk-adjusted discount rate used in the
IPR&D project valuation model was 13%.
16. OTHER OPERATING EXPENSES (INCOME), NET
Other operating expenses (income), net, in 1999 include integration charges of
$36 million, primarily for employee incentive and retention, consulting, legal
and other costs associated with the BetzDearborn acquisition. During 1999, the
company recognized charges of approximately $36 million related to a legal
settlement (see Note 24) and asset write-downs and disposal costs including
impairment losses of approximately $10 million in the Chemical Specialties
segment. Additionally, we recognized an additional $3 million of severance
benefits under a plan to terminate approximately 20 employees, primarily
manufacturing personnel (see Note 13). The asset write-down and severance
charges were incurred primarily as a result of our decisions to exit the
nitrocellulose business and rationalize assets in our resins business, which
will no longer be utilized. Also during 1999, we realized a $16 million gain on
the sale of our Agar business, a $6 million net environmental insurance
recovery, and a $4 million reversal of restructuring charges (see Note 13).
Other operating expenses in 1998 included $65 million in restructuring
charges and $11 million in integration charges associated with the acquisition
of BetzDearborn (see Note 1). The restructuring charges include employee
termination benefits of $31 million for approximately 350 employees, facility
closure costs of $5 million (see Note 13) and asset write-downs of $29 million
including impairment losses of $15 million in the Functional Products segment
and $6 million in the Chemical Specialties segment. The termination benefits,
exit costs, and facility closure costs relate primarily to the acquisition of
BetzDearborn during 1998 (see Note 1). Asset impairments in the Chemical
Specialties and Functional Products segments resulted from adverse business
negotiations, the BetzDearborn acquisition, and the loss of a customer.
Other operating charges in 1997 include $146 million, primarily
associated with the reorganization of management and the adoption of new
competitive strategies. The charges included $95 million in impairment losses
($66 million in the Chemical Specialties segment, $24 million in the Functional
Products segment, and $5 million in the Process Chemicals and Services segment)
and $27 million in rationalization charges primarily associated with certain
assets, which were no longer being utilized, and lease abandonment costs. Also
included was $24 million in severance benefits associated with a plan to
eliminate approximately 270 employees. There have been no significant
adjustments to this plan and cash payments of $9 million, $10 million and $2
million were made in 1997, 1998, and 1999, respectively (see Note 13). The plan
included reorganization of management, reductions in operating personnel at
certain domestic and foreign facilities, and the consolidation of certain
support functions. Other operating expenses in 1997 also include $13 million of
net environmental cleanup costs, principally for non-operating sites, and $8
million of executive retirement benefits.
17. INTEREST AND DEBT EXPENSE
Interest and debt costs are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
---- ---- ---
<S> <C> <C> <C>
Costs incurred $197 $112 $47
Amount capitalized 12 11 8
---- ---- ---
Amount expensed $185 $101 $39
==== ==== ===
</TABLE>
44
<PAGE> 46
18. OTHER INCOME (EXPENSE), NET
Other income (expense), net, consists of the following:
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
---- ----- -----
<S> <C> <C> <C>
Net gains on dispositions $ 10 $ 23 $ 398
Interest income 8 36 29
Acquisition costs -- -- (20)
Legal settlements and accruals (6) (66) (41)
Interest rate swap termination -- (13) --
Minority interests (2) -- --
Bank charges (2) (1) (2)
Miscellaneous income (expense), net (10) (1) 10
---- ----- -----
$ (2) $ (22) $ 374
==== ===== =====
</TABLE>
Net gains on dispositions include gains on the sale of real estate and
other investments of $10 million in 1999 and $11 million in 1998 and 1997,
respectively. Also, gains of $12 million and $19 million in 1998 and 1997,
respectively, were recorded from the sale of Alliant Techsystems common stock
held by Hercules (see Note 23). Additionally, 1997 includes a gain of $368
million on the completion of transactions that monetized the company's
investment of Tastemaker, a 50%-owned flavors joint venture. Interest income in
1998 and 1997 relates primarily to the $500 million note received upon
completion of the Tastemaker monetization. Acquisition costs in 1997 represent a
charge primarily related to the company's unsuccessful bid for Allied Colloids.
The 1998 legal settlements and accruals relate primarily to settlements of Qui
Tam ("Whistle Blower") lawsuits (see Note 24). The 1998 loss from terminated
interest rate swaps is related to the company's financing effort upon the
acquisition of BetzDearborn. Miscellaneous income (expense), net, includes a
foreign currency loss of $1 million in 1999 and foreign currency gains of $5
million and $19 million in 1998 and 1997, respectively.
19. INCOME TAXES
The domestic and foreign components of income before taxes and effect of change
in accounting principle are presented below:
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
----- ----- ----
<S> <C> <C> <C>
Domestic $ 4 $(147) $396
Foreign 239 224 197
----- ----- ----
$ 243 $ 77 $593
===== ===== ====
</TABLE>
A summary of the components of the tax provision follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 1997
----- ----- ----
<S> <C> <C> <C>
Currently payable
U.S. federal $ (25) $ (26) $169
Foreign 82 74 63
State (4) (4) 2
Deferred
Domestic 15 17 30
Foreign 7 7 5
----- ----- ----
Provision for income taxes $ 75 $ 68 $269
===== ===== ====
</TABLE>
45
<PAGE> 47
Deferred tax liabilities (assets) at December 31 consist of:
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998
----- -----
<S> <C> <C>
Depreciation $ 235 $ 153
Prepaid pension 84 76
Inventory 8 6
Investments 83 84
Other 51 46
----- -----
Gross deferred tax liabilities 461 365
----- -----
Postretirement benefits other than pensions (59) (64)
Accrued expenses (165) (126)
Loss carryforwards (24) (24)
Other (71) (31)
----- -----
Gross deferred tax assets (319) (245)
----- -----
Valuation allowance 16 12
----- -----
$ 158 $ 132
===== =====
</TABLE>
A reconciliation of the U.S. statutory income tax rate to the effective
rate follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. statutory income tax rate 35% 35% 35%
Purchased in-process research and development (Note 15) -- 59 --
Goodwill amortization 9 7 --
Foreign dividends net of credits 3 -- 2
State taxes (2) 2 --
Utilization of capital losses (7) -- --
Reserves (6) (17) 7
Other (1) 2 1
---- ---- ----
Effective tax rate 31% 88% 45%
==== ==== ====
</TABLE>
The net operating losses have indefinite carryforward periods, but may be
limited in their use in any given year.
The company provides taxes on undistributed earnings of subsidiaries and
affiliates included in consolidated retained earnings to the extent such
earnings are planned to be remitted and not reinvested permanently.
The undistributed earnings of subsidiaries and affiliates on which no
provision for foreign withholding or U.S. income taxes has been made amounted to
approximately $505 million at December 31, 1999. U.S. and foreign income taxes
that would be payable if such earnings were distributed may be lower than the
amount computed at the U.S. statutory rate because of the availability of tax
credits.
20. EARNINGS PER SHARE
The following table shows the amounts used in computing earnings per share and
the effect on income and the weighted-average number of shares of dilutive
potential common stock:
46
<PAGE> 48
<TABLE>
<CAPTION>
(Dollars and shares in millions, except per share) 1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Basic EPS computation:
Income before effect of change in accounting principle $ 168 $ 9 $ 324
Effect of change in accounting principle -- -- (5)
-------- -------- -------
Net income $ 168 $ 9 $ 319
======== ======== =======
Weighted-average shares outstanding 103.2 96.3 99.2
Earnings per share before effect of change in
Accounting principle $ 1.63 $ .10 $ 3.27
Effect of change in accounting principle -- -- (.05)
-------- -------- -------
Earnings per share $ 1.63 $ .10 $ 3.22
======== ======== ========
Diluted EPS computation:
Income before effect of change in accounting principle $ 168 $ 9 $ 324
Interest on convertible debentures -- -- 2
Effect of change in accounting principle -- -- (5)
-------- -------- -------
Net Income $ 168 $ 9 $ 321
======== ======== =======
Weighted-average shares outstanding 103.2 96.3 99.2
Options .4 .6 1.1
Convertible debentures .3 .5 2.1
-------- -------- -------
Adjusted weighted-average shares 103.9 97.4 102.4
======== ======== =======
Earnings per share before effect of change in
Accounting principle $ 1.62 $ .10 $ 3.18
Effect of change in accounting principle -- -- (.05)
-------- -------- -------
Earnings per share $ 1.62 $ .10 $ 3.13
======== ======== ========
</TABLE>
21. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Notional Amounts and Credit Exposure of Derivatives
The notional amounts of derivatives summarized below do not represent amounts
exchanged by the parties and, thus, are not a measure of the exposure of the
company through its use of derivatives. The amounts exchanged are calculated on
the basis of the notional amounts and the other terms of the derivatives, which
relate to interest rates or exchange rates.
Interest Rate Risk Management
During 1999, the interest rate swap portfolio went through a series of
adjustments to reflect the replacement of U.S. dollar debt with a variable euro
debt. The series of outstanding interest rate swap agreements at year end,
maturing from 2001 through September 2003, effectively converts floating-rate
debt into debt with a fixed rate ranging from 5.36% to 5.63% per year for U.S.
dollar debt and 2.76% to 3.18% per year for euro debt. These swaps act as a
hedge against the company's interest rate exposure on its outstanding variable
rate debt. For the years 1999 and 1998, these contracts resulted in a less than
1% change in the effective interest rate on the weighted-average notional
principal amounts outstanding. The aggregate notional principal amounts at the
end of 1999 and 1998 were $1.2 billion and $1.0 billion, respectively.
The following table indicates the types of swaps used and their weighted-average
interest rates:
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998
-------- --------
<S> <C> <C>
Pay fixed on swaps notional amount (at year-end) $ 1,160 $ 1,000
Average pay rate 4.0% 6.4%
Average receive rate 3.9% 5.5%
</TABLE>
47
<PAGE> 49
Foreign Exchange Risk Management
The company selectively uses foreign currency forward contracts and currency
swaps to offset the effects of exchange rate changes on reported earnings, cash
flow, and net asset positions. The primary exposures are denominated in euro,
Danish kroner, and the British pound sterling. Some of the contracts involve the
exchange of two foreign currencies, according to local needs in foreign
subsidiaries. The term of the currency derivatives is rarely more than one year.
At December 31, 1999 and 1998, the company had outstanding forward-exchange
contracts to purchase foreign currencies aggregating $59 million and $117
million and to sell foreign currencies aggregating $72 million and $320 million,
respectively. Non-U.S. dollar cross-currency trades aggregated $410 million and
$380 million at December 31, 1999 and 1998, respectively. Currency swap
agreements, used to hedge net investment positions, totaled $512 million at
December 31, 1998. The foreign exchange contracts outstanding at December 31,
1999 will mature during 2000.
Fair Values
The following table presents the carrying amounts and fair values of the
company's financial instruments at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
(Dollars in millions)
1999 1998
---- ----
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Investment securities (available for sale) $ 32 $ 32 $ 31 $ 31
Long-term debt (1,777) (1,759) (3,096) (3,101)
Company-obligated preferred securities of subsidiary trusts (992) (908) (200) (200)
Foreign exchange contracts 2 2 6* 6
Currency swaps -- -- 8* 8
Interest rate swap contracts -- 28 -- 1
</TABLE>
*The carrying amount represents the net unrealized gain or net interest payable
associated with the contracts at the end of the period.
Fair values of derivative contracts are indicative of cash that would
have been required had settlement been December 31, 1999.
Basis of Valuation
Investment securities: Quoted market prices.
Long-term debt: Present value of expected cash flows related to existing
borrowings discounted at rates currently available to the company for long-term
borrowings with similar terms and remaining maturities.
Company obligated preferred securities of subsidiary trusts: Year-end interest
rates and company common stock price.
Foreign exchange contracts: Year-end exchange rates.
Currency swaps: Year-end interest and exchange rates.
Interest rate swap contracts: Bank or market quotes or discounted cash flows
using year-end interest rates.
22. PENDING TRANSACTIONS
In February 2000, we announced plans to form a new business venture with Lehman
Brothers Merchant Banking Partners II L.P. The new business will include our
food gums division, along with the Kelco biogums unit, which will be purchased
from Monsanto by the new venture. The Lehman Brothers partnership will own 72%
of the new entity, and we will own the remaining 28%. We expect that the new
venture will have revenues of approximately $450 million.
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<PAGE> 50
Further, we have entered into discussions with a third party to
monetize our resins business and we are beginning to explore alternatives
regarding our FiberVisions business. These three businesses account for
approximately $900 million of our 1999 revenues.
23. DIVESTITURES
In December 1999, we sold our 70% interest in Algas Marinas, our Chilean Agar
business, for approximately $27 million. The transaction resulted in a pre-tax
gain of approximately $16 million. This unit was included in the Functional
Products segment and contributed approximately $24 million of revenue to this
segment in 1999.
In March 1997, the company completed transactions to monetize its
investment in Tastemaker for approximately $608 million, including $108 million
in cash and a $500 million, 6.2% interest-bearing five-year note. This note was
subsequently sold in 1998. Equity in income of affiliated companies included
Tastemaker earnings of $11 million in 1997.
In June 1997, the company completed a joint venture of its
polypropylene fiber business with Jacob Holm & Sons A/S (Denmark) in which
Hercules owned 51% of the joint venture, which was accounted for on the equity
method at that time. In July 1998, Hercules purchased its partner's 49% share of
the joint venture, with the operating results of FiberVisions being included in
Hercules' consolidated financial statements since the date of acquisition (see
Note 1).
Pursuant to a 1997 agreement, Hercules sold its remaining shares of
Alliant Techsystems Inc. for $12 million in 1998.
24. COMMITMENTS AND CONTINGENCIES
Leases
Hercules has operating leases (including office space, transportation, and data
processing equipment) expiring at various dates. Rental expense was $55 million
in 1999, $35 million in 1998, and $31 million in 1997.
At December 31, 1999, minimum rental payments under noncancelable
leases aggregated $282 million with subleases of $24 million. A significant
portion of these payments relates to a long-term operating lease for corporate
office facilities. The net minimum payments over the next five years are $39
million in 2000, $30 million in 2001, $22 million in 2002, $18 million in 2003,
and $17 million in 2004.
Environmental
Hercules has been identified as a potentially responsible party (PRP)
by U.S. federal and state authorities, or by private parties seeking
contribution, for the cost of environmental investigation and/or cleanup at
numerous sites. The estimated range of the reasonably possible share of costs
for the investigation and cleanup is between $60 million and $230 million. The
actual costs will depend upon numerous factors, including the number of parties
found responsible at each environmental site and their ability to pay; the
actual methods of remediation; outcomes of negotiations with regulatory
authorities; outcomes of litigation; changes in environmental laws and
regulations; technological developments; and the years of remedial activity
required, which could range from 0 to 30 years.
Hercules becomes aware of sites in which it may be named a PRP in
investigatory and/or remedial activities through correspondence from the U.S.
Environmental Protection Agency, or other government agencies, or through
correspondence from previously named PRPs, who either request information or
notify us of our potential liability. We have established procedures for
identifying environmental issues at our plant sites. In addition to
environmental audit programs, we have environmental coordinators who are
familiar with environmental laws and regulations and act as a resource for
identifying environmental issues.
Litigation over liability at Jacksonville, Arkansas, the most
significant site, has been pending since 1980. As a result of a pretrial Court
ruling in October 1993, Hercules has been held jointly and severally liable for
costs
49
<PAGE> 51
incurred, and for future remediation costs, at the Jacksonville site by the
District Court, Eastern District of Arkansas (the Court). The case is captioned
United States v. Vertac Corporation, USDA No. LR-C-92-137 (E.D. Ark.)
Other defendants in this litigation have either settled with the
government or, in the case of the Department of Defense (DOD), have not been
held liable. We 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.
We filed a petition to the U.S. Supreme Court requesting review and reversal of
the Eighth Circuit Court ruling. This petition was denied on June 26, 1995, and
the case was remanded to the District Court for further proceedings.
On May 21, 1997, the Court issued a ruling that Uniroyal is liable and
that Standard Chlorine is not liable to Hercules for contribution. Through the
filing of separate summary judgment motions, Hercules and Uniroyal raised a
number of defenses to the United States' ability to recover its costs. On
October 23, 1998, the Court denied those motions and granted the United States'
summary judgment motion, ordering Hercules and Uniroyal to pay the United States
approximately $103 million plus any additional response costs incurred or to be
incurred after July 31, 1997. Trial testimony on the issue of allocation between
Hercules and Uniroyal was completed on November 6, 1998.
On August 6, 1999, the Court issued a final judgment in which it
reduced the $103 million from the previous ruling on summary judgment by
approximately $7 million (the amount received by the United States in previous
settlements with other parties) and added applicable interest to reach a final
total of approximately $100.5 million. This final judgment was based on the
Court's findings that (a) Hercules and Uniroyal were jointly and severally
liable for approximately $89 million plus any additional response costs incurred
or to be incurred after May 31, 1998, and (b) Hercules was solely liable for an
additional amount of approximately $11 million. This judgment finalizes the
Court's 1993 and 1997 non-final orders in which Hercules and Uniroyal were held
jointly and severally liable for past and future remediation costs at the site.
Hercules appealed these rulings to the United States Court of Appeals for the
Eighth Circuit on December 16, 1999.
On February 8, 2000, the Court issued a final judgment on the
allocation between Uniroyal and Hercules, finding Uniroyal liable for 2.6
percent and Hercules liable for 97.4 percent of the costs at issue. Hercules
appealed that judgment on February 10, 2000. That appeal has been docketed and
consolidated with the earlier mentioned appeal. Oral argument before the United
States Court of Appeals for the Eighth Circuit is presently scheduled for early
April 2000. Neither of the Court's final judgments has changed our outlook on
the potential outcome of this matter.
In 1992, Hercules brought suit against its insurance carriers for past
and future costs for cleanup of certain environmental sites (Hercules
Incorporated v. The Aetna Casualty & Surety Company, et al., Del. Super., C.A.
No. 92C-10-105 and 90C-FE-195-CV (consolidated)). In April 1998, the trial
regarding insurance recovery for the Jacksonville, Arkansas site (see discussion
above) was completed. The jury returned a "Special Verdict Form" with findings
that, in conjunction with the Court's other opinions, were used by the Court to
enter a judgment in August 1999. The judgment determined the amount of Hercules'
recovery for past cleanup expenditures and stated that Hercules is entitled to
similar coverage for costs incurred since September 30, 1997, and in the future.
Hercules has not included any insurance recovery in the estimated range of costs
above. Since entry of the Court's August 1999 order, Hercules has entered into
settlement agreements with several of its insurance carriers and has recovered
certain settlement monies. The terms of those settlements and amounts recovered
are confidential.
At December 31, 1999, the accrued liability of $60 million for
environmental remediation represents management's best estimate of the probable
and reasonably estimable costs related to environmental remediation. The extent
of liability is evaluated quarterly. The measurement of the liability is
evaluated based on currently available information, including the process of
remedial investigations at each site and the current status of negotiations with
regulatory authorities regarding the method and extent of apportionment of costs
among other PRPs. Hercules does not anticipate that its financial condition will
be materially affected by environmental remediation costs in excess of amounts
accrued, although quarterly or annual operating results could be materially
affected.
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<PAGE> 52
Litigation
Hercules is a defendant in numerous lawsuits that arise out of, and are
incidental to, the conduct of its business. In these legal proceedings, no
specifically identified director, officer, or affiliate is a party or a named
defendant. These suits concern issues such as product liability, contract
disputes, labor-related matters, patent infringement, environmental proceedings,
property damage, and personal injury matters.
Hercules was a defendant in three Qui Tam (Whistle Blower) lawsuits in
the U.S. District Court for the Central District of Utah, brought by former
employees of the Aerospace business sold to Alliant Techsystems Inc. in March
1995. All of these actions were settled in 1999. We recognized a $62 million
charge in 1998 related to these settlements. There will be no future impacts to
our results of operations or financial condition as a result of these
settlements.
In addition to the Vertac litigation described above, two individuals
sued Hercules in a lawsuit captioned Jeffrey Shelton Jr., et al. v. Hercules
Incorporated, Civil No. LR-C-97-131 (E.D. Ark. 1997). These individuals sought
medical monitoring and damages for loss of recreational opportunities. They
brought a Resource Conservation and Recovery Act (RCRA) citizens suit against us
seeking an injunction which would require us to fund or perform various
environmental and health studies and pay for any required remediation to the
Bayou Meto. Plaintiffs and Hercules filed motions for summary judgment. In
October 1999, the Court granted Hercules' motion for summary judgment and the
time for any appeal by the plaintiffs has expired. Further, 19 individuals sued
Hercules in a matter entitled Gary Graham, et al. v. Vertac Chemical Corporation
and Hercules Incorporated, Civil No. LR-C-98-678 (U.S. District Court, Eastern
District of Arkansas). These individuals sought damages for personal injuries
and diminution of property value as a result of alleged dioxin contamination
from the Jacksonville, Arkansas site. This case was dismissed without prejudice
on technical grounds on August 2, 1999. The time to appeal has run out.
BetzDearborn, along with Pacific Gas and Electric (PG&E), is a
defendant in four lawsuits involving in the aggregate approximately 2,350
plaintiffs pending in the Superior Court of Los Angeles County, California (the
Lawsuits). BetzDearborn maintained insurance coverage for the purpose of
securing protection against alleged product and other liabilities, and certain
of the insurance carriers have undertaken to pay the cost of the defense of the
Lawsuits subject to various reservations of rights. The lawsuits are captioned
as follows: Acosta, et al. v. Betz Laboratories, et al., No. BC 161 669 (1996);
Adams, et al. v. Betz Laboratories, et al., No. BC 113 000 (1994); Aguilar, et
al. v. Betz Laboratories, et al., No. BC 158 588 (1996); and Aguayo et al. v.
Betz Laboratories, et al., No. BC 123 749 (1995).
In October 1999, BetzDearborn, several of its insurance carriers, and
plaintiffs engaged in a mediation, which led to a settlement of plaintiffs'
claims against BetzDearborn, which settlement was approved by the court in
February 2000. BetzDearborn also reached a settlement with many of its insurance
carriers with respect to these cases. The impact of the settlements resulted in
an adjustment to the BetzDearborn purchase price allocation. All of these
settlement agreements are confidential.
Hercules is a defendant in numerous asbestos-related personal injury
lawsuits and claims which typically arise from alleged exposure to products
which were sold by a former subsidiary of Hercules, or from alleged exposure to
asbestos contained in facilities owned or operated by Hercules. In December
1999, Hercules entered into a Settlement Agreement to resolve the majority of
these matters. In connection with that settlement, Hercules entered into an
agreement with several of its insurance carriers pursuant to which a majority of
the amounts paid will be insured. The net impact of these settlements was
reflected in the 1999 results of operations. The terms of both agreements are
confidential.
At December 31, 1999, the consolidated balance sheet reflects a current
liability of approximately $101 million for litigation and claims. Estimated
insurance recoveries of approximately $46 million have been reflected in current
assets. These amounts represent management's best estimate of the probable and
reasonably estimable losses and recoveries related to litigation or claims. The
extent of the liability and recovery is evaluated quarterly. While it is not
feasible to predict the outcome of all pending suits and claims, the ultimate
resolution of these matters could have a material effect upon the financial
position of Hercules, and the resolution of any of the matters during a specific
period could have a material effect on the quarterly or annual operating results
for that period.
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<PAGE> 53
25. CHANGE IN ACCOUNTING PRINCIPLE
In November 1997, FASB's Emerging Issues Task Force (EITF) reached a
final consensus on Issue 97-13, "Accounting for Costs Incurred in Connection
With a Consulting Contract That Combines Business Process Reengineering and
Information Technology Transformation." Activities deemed to be business process
reengineering include the following: current state assessments, configuring and
prototyping, process reengineering, and work force restructuring. The consensus
requires that the unamortized amounts of such costs previously capitalized as of
the beginning of the quarter which includes November 20, 1997, be charged during
that quarter as the cumulative effect of a change in accounting principle. The
company adopted the consensus during the fourth quarter of 1997 and recorded a
cumulative-effect adjustment of $5 million.
26. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
In 1998, Hercules adopted Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The statement establishes new standards for reporting information
about operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosure about products and services,
geographic area, and major customers. In compliance with SFAS 131 and with the
acquisition of BetzDearborn, the company has identified three reportable
segments and has restated prior years to conform with the 1998 presentation.
Process Chemicals and Services: (Pulp and Paper and BetzDearborn.)
Products and services in this segment are designed to enhance customers'
processes and improve their manufacturing costs or environmental impact.
Principal products and markets include performance additives and water and
process treatment chemicals and related on-site services for a wide variety of
industrial and commercial applications including pulp and paper mills,
refineries, chemical plants, metals manufacturers, automobile assembly plants,
and makers of food and beverages.
Functional Products: (Aqualon and Food Gums.) Products from this segment
are principally derived from natural resources and are sold as key raw materials
to other manufacturers. Principal products and markets include water-soluble
polymers and natural gums, used as thickeners, emulsifiers and stabilizers for
water-based paints, oil and gas exploration, building materials, dairy and
bakery products, and other processed food products such as jams, jellies, and
meats.
Chemical Specialties: (Resins and FiberVisions.) Products in this
segment provide low-cost, technology driven solutions to meet customer needs and
market demands. Principal products and markets include rosin and hydrocarbon
resins for adhesives used in nonwoven fabrics, textile fibers, and adhesive
tapes; thermal-bond polypropylene staple fiber for disposable diapers and other
hygienic products; and automotive textiles.
The company evaluates performance and makes decisions based primarily on
"Profit from Operations" and "Capital Employed." Consolidated capital employed
represents the total resources employed in the company and is the sum of total
debt, trust preferred securities, and stockholders' equity. Capital employed in
each reportable segment represents the net operating assets employed to conduct
business in that segment and generally includes working capital (excluding cash)
and property, plant and equipment. Other assets and liabilities, primarily
goodwill and other intangibles, not specifically allocated to business segments,
are reflected in "Reconciling Items" in the table below.
Hercules has no single customer representing greater than 10% of its
revenues.
GEOGRAPHIC REPORTING
For geographic reporting, no single country, outside the United States,
is material for separate disclosure. However, because the company has
significant foreign operations, revenues and long-lived assets are disclosed by
geographic region.
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<PAGE> 54
Revenues are reported on a "customer basis," meaning that net sales are
included in the geographic area where the customer is located. Long-lived assets
are included in the geographic areas in which the producing entities are
located.
Intersegment sales are eliminated in consolidation.
(Dollars in millions)
<TABLE>
<CAPTION>
PROCESS
CHEMICALS
INDUSTRY SEGMENTS AND FUNCTIONAL CHEMICAL RECONCILING
SERVICES PRODUCTS SPECIALTIES ITEMS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Net sales $1,705 $861 $685 $ (3) $3,248
Profit (loss) from operations 338 218 89 (165) (a) 480
Equity in income of affiliated companies 1
Interest and debt expense 185
Preferred security distributions of subsidiary
trusts 51
Other expense, net (2)
---- ---- ---- ------ ------
Income before income taxes 243
Capital employed (g) 735 372 379 2,824 (d) 4,310
Capital expenditures 51 74 39 38 202
Depreciation and amortization 66 33 30 121 250
- ------------------------------------------------------------------------------------------------------------------------------
1998
Net sales $717 $863 $566 $ (1) $2,145
Profit (loss) from operations 131 215 75 (229) (b) 192
Equity in income of affiliated companies 10
Interest and debt expense 101
Preferred security distributions of subsidiary
trusts 2
Other expense, net (22)
---- ---- ---- ------ ------
Income before income taxes 77
Capital employed (g) 756 392 388 2,885 (d) 4,421
Capital expenditures 44 53 36 24 157
Depreciation and amortization 22 32 19 35 108
- ------------------------------------------------------------------------------------------------------------------------------
1997
Net sales $443 $898 $526 $ (1) $1,866
Profit (loss) from operations 100 224 67 (163) (c) 228
Equity in income of affiliated companies 30
Interest and debt expense 39
Other income, net 374
---- ---- ---- ------ ------
Income before income taxes 593
Capital employed (g) 138 355 168 723 (d) 1,384
Capital expenditures 22 47 30 20 119
Depreciation and amortization 11 34 13 18 76
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 55
<TABLE>
<CAPTION>
UNITED
GEOGRAPHIC AREAS STATES EUROPE AMERICAS (e) ASIA PACIFIC TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Net sales $1,711 $1,052 $216 $269 $3,248
Long-lived assets (f) 2,264 948 529 150 3,891
1998
Net sales 944 785 258 158 2,145
Long-lived assets (f) 3,083 681 125 97 3,986
1997
Net sales 826 655 212 173 1,866
Long-lived assets (f) 387 309 19 16 731
</TABLE>
(a) Includes integration expenses, severance costs, asset write-downs, and
other charges net of litigation and insurance settlements, partially offset
by a gain on the sale of a subsidiary and the reversal of restructuring
charges (see Notes 13 and 16). Also included are amortization of goodwill
and intangibles, corporate research and development and other corporate
items not specifically allocated to business segments.
(b) Includes costs for purchased in-process research and development, facility
closures and contract terminations, employee termination benefits,
write-downs of property, plant and equipment, and other integration
expenses (see Notes 15 and 16). Also included are amortization of goodwill
and intangibles, corporate research and development and other corporate
items not specifically allocated to business segments.
(c) Primarily includes asset write-downs, impairments and severance costs (see
Note 16). Also included are amortization of goodwill and intangibles,
corporate research and development and other corporate items not
specifically allocated to business segments.
(d) Assets and liabilities not specifically allocated to business segments,
primarily goodwill, intangibles, and other long-term assets net of
liabilities.
(e) Ex-U.S.A.
(f) Long-lived assets include Property, plant and equipment, Goodwill, and
Other intangible assets. In 1998, the goodwill and other intangible assets
related to the BetzDearborn acquisition are reflected in the United States
region.
(g) Represents total segment assets net of operating liabilities.
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<PAGE> 56
Hercules Incorporated
Summary of Quarterly Results (Unaudited) (Dollars in millions, except per share)
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
---- ----- ---- ----- ----- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $791 $ 430 $817 $ 445 $ 813 $ 510 $ 827 $ 760 $ 3,248 $ 2,145
Cost of sales 423 262 440 267 445 323 462 435 1,770 1,287
Selling, general and administrative expenses 197 60 193 67 188 68 209 182 787 377
Research and development 21 13 20 12 21 17 23 19 85 61
Purchased in-process research and development -- -- -- -- -- -- -- 130 -- 130
Goodwill and intangible asset amortization 20 1 20 1 20 3 19 17 79 22
Other operating expenses (income), net 7 -- 6 (3) 1 (2) 33 81 47 76
---- ----- ---- ----- ----- ----- ----- ----- ------- -------
Profit (loss) from operations 123 94 138 101 138 101 81 (104) 480* 192*
Equity income 1 5 -- 5 -- -- -- -- 1 10
Interest and debt expense 60 11 47 13 38 18 40 59 185 101
Preferred security distributions of subsidiary 5 -- 12 -- 16 -- 18 2 51 2
trusts
Other income (expense), net 3 (44) 4 16 (2) 18 (7) (12) (2) (22)
---- ----- ---- ----- ----- ----- ----- ----- ------- -------
Income (loss) before income taxes 62 44 83 109 82 101 16 (177) 243 77
Income taxes 24 16 27 35 25 30 (1) (13) 75 68
---- ----- ---- ----- ----- ----- ----- ----- ------- -------
Net income (loss) $ 38 $ 28 $ 56 $ 74 $ 57 $ 71 $ 17 $(164) $ 168 $ 9
==== ===== ==== ===== ===== ===== ===== ===== ======= =======
Earnings per share**
Basic
Earnings (loss) per share $.37 $ .29 $.56 $ .78 $ .54 $ .75 $ .17 $(1.64) $ 1.63 $ .10
==== ===== ==== ===== ===== ===== ===== ===== ======= =======
Diluted:
Earnings (loss) per share $.37 $ .29 $.56 $ .77 $ .54 $ .74 $ .16 $(1.64) $ 1.62 $ .10
==== ===== ==== ===== ===== ===== ===== ===== ======= =======
</TABLE>
* Includes unusual charges of $62 million in 1999 (see Note 16) and $215
million in 1998 (see Notes 15 and 16).
** Earnings per share calculations for each of the quarters are based on the
weighted-average number of shares outstanding for each period. The sum of
the quarters may not necessarily be equal to the full year's earnings per
share amounts.
55
<PAGE> 57
PRINCIPAL CONSOLIDATED SUBSIDIARIES
ARGENTINA
BetzDearborn Argentina S.A.
AUSTRALIA
BetzDearborn Australia Pty Ltd.
AUSTRIA
BetzDearborn Ges.m.b.H.
BAHAMAS
Hercules International Trade Corporation Limited
BELGIUM
Hercules Beringen B.V.B.A.
Hercules Doel B.V.B.A.
Hercules Europe B.V.B.A.
Hercules Holding B.V./B.V.B.A.
BERMUDA
Curtis Bay Insurance Co. Ltd.
BRAZIL
Hercules do Brasil Produtos Quimicos Ltda.*
Hercules Limeira S.A.
CANADA
BetzDearborn Canada, Inc.
Hercules Canada Inc.
Hercules Canada (partnership)
CHILE
Hercules Quimica Chile Ltda
CHINA
FiberVisions (Suzhou) Nonwovens Products Co. Ltd.
FiberVisions (China) Textile Products Ltd.*
COLOMBIA
Hercules de Colombia S.A.
CURACO
BetzDearborn Caribbean N.V.
CZECH (REPUBLIC)
Hercules CZ S.R.O.
DENMARK
Hercules Copenhagen A/S
FiberVisions, A/S
Hercules Holding ApS
ECUADOR
BetzDearborn de Ecuador S.A.
FINLAND
BetzDearborn OY
FRANCE
Aqualon France B.V.
GERMANY
Abieta Chemie, GmbH*
Hercules Deutschland GmbH
Hercules GmbH
Pomosin GmbH
HONG KONG
Hercules China Limited
HUNGARY
BetzDearborn Hungary Kft
INDIA
Hercules Specialty Chemicals India Private Limited
INDONESIA
P.T. Hercules Mas Indonesia
IRELAND
BetzDearborn Ireland Limited
ITALY
BetzDearborn Srl
JAPAN
Hercules Japan Ltd.
Nippon BetzDearborn K.K.*
KOREA
BetzDearborn Korea, Ltd.
Hercules Korea Chemical Co. Ltd.
LIECHTENSTEIN
Organa Trust
LUXEMBOURG
Hercules Investment s.a.r.l.
MALAYSIA
Hercules Chemicals (Malaysia) Sdn. BHD
MEXICO
Quimica Hercules, S.A. de C.V.
Taloquimia S.A.*
MOZAMBIQUE
Genu Mozambique
NETHERLANDS
Aqualon France B.V.
Hercules B.V.
Hercules Holding B.V./B.V.B.A.
NORWAY
BetzDearborn Norge A/S
PAKISTAN
Pakistan Gum Industries Ltd.*
PERU
Hercules del Peru S.A.
PHILIPPINES
Genu Philippines Inc.*
Hercules Cebu, Inc.
POLAND
Hercules Polska Sp. Zo.o
PORTUGAL
BetzDearborn Portuguesa, Ltda.
SINGAPORE
Hercules Chemicals Singapore Pte Ltd.
SOUTH AFRICA
Hercules Chemicals South Africa (Pty) Ltd.
SPAIN
Hercules Quimica, S.A.
56
<PAGE> 58
SWEDEN
BetzDearborn AB
SWITZERLAND
Fibervisions A.G./Fibervisions Ltd.
TAIWAN
Hercules Chemicals (Taiwan) Co., Ltd.
TANZANIA
Zanea Seaweed Company Limited*
THAILAND
Hercules Chemicals (Thailand) Co., Ltd.
UNITED KINGDOM
Hercules GB Holding Ltd.
Hercules Investments Global
Hercules Limited
Hercules GB Holdings Limited
URUGUAY
BetzDearborn de Uruguay S.A.
UNITED STATES
Aqualon Company, Delaware
BetzDearborn Europe, Inc., Delaware
BetzDearborn Inc., Pennsylvania
BetzDearborn International, Inc., Pennsylvania
BL Technologies, Inc., Delaware
BLI Holdings, Inc., Delaware
DRC, Ltd., Delaware
East Bay Realty Services, Inc., Delaware
FiberVisions Incorporated, Delaware
FiberVisions, L.L.C., Delaware
FiberVisions Products, Inc., Georgia
Hercules Credit Inc., Delaware
Hercules Finance Company, Delaware
Hercules Flavor, Inc., Delaware
Hercules International Limited, Delaware
Hercules Shared Services Corporation, Delaware*
WSP, Inc., Delaware
VENEZUELA
BetzDearborn Venezuela C.A.
VIRGIN ISLANDS
Hercules Islands Corporation*
Hercules Overseas Corp.
* This entity is owned in part by Hercules with the remaining interest held by a
third party.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
None.
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<PAGE> 59
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
Information regarding directors and nominees for directors of Hercules is
included under the caption entitled "Re-election of Directors" on page 8 of the
Proxy Statement and is incorporated herein by reference. Information regarding
executive officers begins on page 16 of that report.
Disclosure of information for directors, officers and other persons not
meeting the timely reporting requirements under Section 16(a) of the Exchange
Act is contained in the Proxy Statement under the caption entitled "Compliance
with Section 16(a) Reporting" on page 21 and is incorporated herein by
reference.
EXECUTIVE OFFICERS OF THE REGISTRANT:
The name, age, and current position of each executive officer (as defined
by SEC rules) of Hercules as of March 15, 2000 are listed below. Each of the
officers has served in one or more executive capacities with Hercules and/or its
affiliates during the past five years. There are no family relationships among
executive officers.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
<S> <C> <C>
R. Keith Elliott(1) 58 Chairman
Vincent J. Corbo 56 President and Chief Executive Officer
Dominick W. DiDonna 51 Executive Vice President and President, Process Chemicals and Services
Segment
George MacKenzie 50 Executive Vice President, President, Chemical Specialties Segment and
Chief Financial Officer
Larry V. Rankin(2) 56 Executive Vice President and President, Functional Chemicals Segment
Harry J. Tucci(3) 59 Executive Vice President
June B. Barry 48 Executive Vice President and Chief Administrative Officer
Israel J. Floyd(4) 53 Executive Vice President, Secretary and General Counsel
Michael J. Scott 48 Vice President and Controller
Stuart C. Shears 49 Vice President and Treasurer
</TABLE>
- -----------------------
(1) Mr. Elliot is retiring from Hercules and will resign as Chairman on March
31, 2000.
(2) Mr. Rankin is retiring from Hercules on April 1, 2000.
(3) Mr. Tucci will retire from Hercules at the time the Food Gums divestiture is
consummated.
(4) Mr. Floyd is also responsible for strategic planning and corporate
development.
ITEM 11. EXECUTIVE COMPENSATION:
Information regarding executive compensation of Hercules' directors and
executive officers is included in the Proxy Statement under the caption entitled
"Board of Directors - Highlights" on page 13 and the caption entitled "Report of
the Compensation Committee" on pages 19 and 20, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
Information regarding beneficial ownership of the Common Stock by certain
beneficial owners and by management of Hercules is included under the caption
entitled "Stock Ownership of Directors and Officers" on page 21 of the Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
In 1999, no director or officer had an involvement in such transactions of a
nature or magnitude to require disclosure under the applicable SEC thresholds.
58
<PAGE> 60
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K:
(a) Documents filed as part of this Report:
1. Financial Statements
See Item 8 for an Index to the Consolidated Financial
Statements of Hercules Incorporated.
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts ..................... 60
All other schedules are omitted because they are not applicable,
not required, or the information required is either presented in the
Notes to Financial Statements or has not changed materially from that
previously reported.
3. Exhibits:
A complete listing of exhibits required is given in the
Exhibit Index which precedes the exhibits filed with this
Report.
(b) Reports on Form 8-K.
None.
59
<PAGE> 61
HERCULES INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (Dollars in millions)
<TABLE>
<CAPTION>
Col. A. Col. B Col. C Col. D Col. E
- -------------------------------------------------------------------------------------------------------------------
Additions
--------------------------------
Balance at
beginning of Charged to costs Charged to Balance at end
Description period and expenses other accounts Deductions of period
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year 1999
- ---------
Allowance for doubtful accounts $ 13 -- $ 3 (a) -- $ 16
Tax valuation allowance 12 -- 4 (a) -- 16
Year 1998
- ---------
Allowance for doubtful accounts $ 3 -- $ 10 (a) -- $13
Tax valuation allowance 12 -- -- -- 12
Year 1997
- ---------
Allowance for doubtful accounts $ 4 -- -- 1 (b) $ 3
Tax valuation allowance 15 -- -- 3 (c) 12
</TABLE>
(a) Primarily a result of 1998 acquisitions, including subsequent purchase
price allocation adjustments.
(b) Write-off of uncollectible accounts, net or recoveries.
(c) Utilization of net operating loss carryforwards.
60
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 29, 2000.
HERCULES INCORPORATED
By: /s/ George MacKenzie
___________________________________
George MacKenzie, Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on March 29, 2000.
PRINCIPAL EXECUTIVE DIRECTOR:
/s/ R. Keith Elliott
Chairman _________________________________
R. Keith Elliott
PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR:
/s/ Vincent J. Corbo
President and Chief Executive Office _________________________________
Vincent J. Corbo
PRINCIPAL FINANCIAL OFFICER:
Executive Vice President and /s/ George MacKenzie
Chief Financial Officer _________________________________
George MacKenzie
PRINCIPAL ACCOUNTING OFFICER: /s/ Michael J. Scott
Vice President and Controller _________________________________
Michael J. Scott
DIRECTORS:
/s/ R. Keith Elliott
___________________________________
R. Keith Elliott
/s/ Vincent J. Corbo
___________________________________ ___________________________________
Vincent J. Corbo Gaynor N. Kelley
/s/ John G. Drosdick /s/ Ralph L. MacDonald, Jr.
___________________________________ ___________________________________
John G. Drosdick Ralph L. MacDonald, Jr.
/s/ Richard M. Fairbanks, III
___________________________________ ___________________________________
Richard M. Fairbanks, III H. Eugene McBrayer
/s/ Peter McCausland
___________________________________ ___________________________________
Alan R. Hirsig Peter McCausland
/s/ John A. H. Shober
___________________________________ ___________________________________
Edith E. Holiday John A. H. Shober
/s/ Robert G. Jahn
___________________________________ ___________________________________
Robert G. Jahn Paula A. Sneed
61
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description Incorporated by Reference To
<S> <C> <C>
2-A Agreement and Plan of Merger among Hercules, Water Exhibit 2.1, BetzDearborn Inc. Current Report
Acquisition Company and BetzDearborn Inc., dated July 30, on Form 8-K, filed July 30, 1998
1998
3-A.1 Restated Certificate of Incorporation of Hercules, as Exhibit 3-A, Annual Report on form 10-K
revised and amended July 6, 1988 filed March 26, 1993
3-A.2 Certificate of Amendment to Hercules' Restated Exhibit 4.1a, Registration Statement on Form
Certificate of Incorporation as revised and amended S-3, filed September 15, 1998
October 24, 1995
3-B By-Laws of Hercules, as revised and amended October 30, Exhibit 3-B, Annual Report on Form 10-K filed
1991 March 26, 1993
4-A Junior Subordinated Debentures Indenture, dated November Exhibit 4-C, Annual Report on Form 10-K filed
12, 1998, between Hercules and The Chase Manhattan Bank, March 30, 1999
as trustee ("Chase")
4-B First Supplemental Indenture, dated November 12, 1998, Exhibit 4-D, Annual Report on Form 10-K, filed
between Hercules and Chase March 30, 1999
4-C Preferred Securities Guarantee Agreement, dated November Exhibit 4-E, Annual Report on form 10-K, filed
12, 1998, executed by Hercules and Chase, with respect to March 30, 1999
Hercules Trust V
4-D Amended and Restated Trust Agreement of Hercules Trust V, Exhibit 4-F, Annual Report on Form 10-K, filed
dated November 12, 1998 March 30, 1999
4-E Remarketing Agreement, dated November 12, 1998, among Exhibit 4-G, Annual Report on Form 10-K, filed
Hercules, Hercules Trust V and NationsBanc Montgomery March 30, 1999
Securities LLC
4-F Form of Junior Subordinated Debentures Indenture between Exhibit 4.4, Amendment No. 1 to Registration
Hercules, and Chase Statement on Form S-3, filed October 29, 1998
4-G Officers' Certificate, dated as of March 17, 1999, Exhibit 4.1, Current Report on Form 8-K dated
pursuant to the Junior Subordinated Debentures Indenture March 17, 1999
between Hercules and Chase
4-H Form of Preferred Securities Guarantee by Hercules and Exhibit 4.28, Amendment No. 1 to Registration
Chase, with respect to Hercules Trust I Statement on Form S-3, filed October 29, 1998
4-I Form of Amended and Restated Trust Agreement of Hercules Exhibit 4.13, Amendment No. 1 to Registration
Trust I Statement on Form S-3, filed October 29, 1998
4-J Form of 9.42% Trust Originated Preferred Securities of Exhibit 4.2, Current Report on Form 8-K, dated
Hercules Trust I March 17, 1999
</TABLE>
62
<PAGE> 64
<TABLE>
<CAPTION>
Number Description Incorporated by Reference To
<S> <C> <C>
4-K Form of 9.42% Junior Subordinated Deferrable Interest Exhibit 4.3, Current Report on Form 8-K, dated
Debentures due 2029 March 17, 1999
4-L Second Supplemental Indenture, dated July 6, 1999, to the Exhibit 4-A, Quarterly Report on Form 10-Q,
Junior Subordinated Debentures Indenture between Hercules filed August 16, 1999
and Chase
4-M Amendment dated as of July 6, 1999 to the Amended and Exhibit 4-B, Quarterly Report on Form 10-Q,
Restated Trust Agreement of Hercules Trust V filed August 16, 1999
4-N Termination Agreement, dated as of July 6, 1999, among Exhibit 4-C, Quarterly Report on Form 10-Q,
Hercules, Hercules Trust V and Banc of America Securities filed August 16, 1999
LLC
4-O Officer's Certificate, dated as of July 27, 1999, Exhibit 4.1, Current Report on Form 8-K, dated
pursuant to the Junior Subordinated Debentures Indenture July 27, 1999
between Hercules and Chase, dated as of November 12, 1998
4-P Amended and Restated Trust Agreement of Hercules Trust II Exhibit 4.2, Current Report on Form 8-K, dated
dated as of July 27, 1999, together with Annex I thereto July 27, 1999
4-Q Unit Agreement, dated July 27, 1999, among Hercules, Exhibit 4.3, Current Report on Form 8-K, dated
Hercules Trust II and The Chase Manhattan Bank, as unit July 27, 1999
agent
4-R Warrant Agreement, dated July 27, 1999, between Hercules Exhibit 4.4, Current Report on Form 8-K, dated
and The Chase Manhattan Bank, as warrant agent July 27, 1999
4-S Form of Series A Junior Subordinated Deferrable Interest Exhibit 4.5, Current Report on Form 8-K, dated
Debentures July 27, 1999
4-T Form of Trust II Preferred Securities Exhibit 4.6, Current Report on Form 8-K, dated
July 27, 1999
4-U Form of CRESTS Unit Exhibit 4.7, Current Report on Form 8-K, dated
July 27, 1999
4-V Form of Warrant Exhibit 4.8, Current Report on Form 8-K, dated
July 27, 1999
4-W Amendment No. 2, dated as of October 25, 1999, to the Exhibit 4-A, Quarterly Report on Form 10-Q,
Amended and Restated Trust Agreement of Hercules Trust V, filed November 15, 1999
as amended
4-X Third Supplemental Indenture, dated as of October 25, Exhibit 4-B, Quarterly Report on Form 10-Q,
1999, to the Junior Subordinated Debentures Indenture, as filed November 16, 1999
supplemented, between Hercules and Chase, dated as of
November 12, 1998
</TABLE>
63
<PAGE> 65
<TABLE>
<CAPTION>
Number Description Incorporated by Reference To
<S> <C> <C>
4-Y Fourth Supplemental Indenture, dated as of December 23,
1999, to the Junior Subordinated Debentures Indenture, as
supplemented, between Hercules and Chase, dated as of
November 12, 1998
4-Z Form of Amended and Restated Trust Agreement of Hercules
Trust VI
4-AA Form of Preferred Securities Guarantee by Hercules and
Chase, with respect to Hercules Trust VI
4-AB Form of Floating Rate Preferred Securities of Hercules Included as Exhibit A-1 to Exhibit 4-Z
Trust VI
4-AC Form of Floating Rate Junior Subordinated Deferrable Included as Exhibit A to Exhibit 4-Y
Interest Debentures due 2000
4-AD Amendment No. 3 dated as of January 24, 2000, to the
Amended and Restated Trust Agreement of Hercules Trust V,
as amended
4-AE Fifth Supplemental Indenture, dated as of January 24,
2000, to the Junior Subordinated Debentures Indenture, as
supplemented, between Hercules and Chase, dated
November 12, 1998
4-AF Amendment No. 4 dated as of February 9, 2000, to the
Amended and Restated Trust Agreement of Hercules Trust V,
as amended
4-AG Sixth Supplemental Indenture, dated as of February 9,
2000, to the Junior Subordinated Debentures Indenture, as
supplemented, between Hercules and Chase, dated
November 12, 1998
4-AH Remarketing and Contingent Purchase Agreement, dated as of
February 9, 2000, among and Banc of America Securities LLC
</TABLE>
Hercules is party to several long-term debt instruments under which in each case
the total amount of securities Authorized does not exceed 10% of the total
assets of Hercules. Hercules agrees to furnish a copy of such instruments to the
Securities and Exchange Commission upon request.
<TABLE>
<S> <C> <C>
10-A Hercules Executive Survivor Benefit Plan Exhibit 10-D, Annual Report on Form 10-K,
filed March 27, 1981*
10-B Hercules Phantom Stock Plan Exhibit E, Notice Annual Meeting and Proxy
Statement, dated February 14, 1986*
</TABLE>
64
<PAGE> 66
<TABLE>
<CAPTION>
Number Description Incorporated by Reference To
<S> <C> <C>
10-C Hercules Deferred Compensation Plan Exhibit 10-I, Annual Report on Form 10-K,
filed March 29, 1988*
10-D Hercules Annual Management Incentive Compensation Plan Exhibit 10-H, Annual Report on Form 10-K,
filed March 26, 1993
10-E Hercules 1993 Nonemployee Director Stock Accumulation Plan Exhibit 4.1, Registration Statement on Form
S-8, filed July 16, 1993
10-F Hercules Deferred Compensation Plan for Nonemployee Exhibit 10-J, Annual Report Form 10-K, filed
Directors March 26, 1993
10-G Hercules Employee Pension Restoration Plan Exhibit 10-L, Annual Report on Form 10-K,
filed March 26, 1993
10-H Form of Employment Contract between Hercules and certain Exhibit 10-J, Annual Report on Form 10-K,
of its officers filed March 29, 1988*
10-I Form of Indemnification Agreement between Hercules and Annex II, Notice of Annual Meeting and Proxy
certain officers and directors of Hercules Statement, dated February 19, 1987*
10-J Employment Agreement effective August 1, 1998, between Exhibit 10-T, Annual Report on Form 10-K,
Hercules and Vincent J. Corbo filed March 30, 1999
10-K Hercules Amended and Restated Long Term Incentive
Compensation Plan
10-L BetzDearborn Inc. Employee Stock Ownership and 401(k) Plan
10-M Amended and Restated Credit Agreement, dated April 19, Exhibit 10.2, Current Report on Form 8-K dated
1999, among Hercules, NationsBank, N.A., as April 19, 1999
Administrative Agent, and the lenders party thereto
10-N Forward Underwriting Agreement, dated November 12, 1998, Exhibit 10-R, Annual Report on Form 10-K,
between NationsBanc Montgomery Securities and Hercules filed March 30, 1999
10-O Underwriting Agreement, dated March 12, 1999, among Exhibit 1.1, Current Report on Form 8-K, dated
Hercules, Hercules Trust I and the Underwriters named March 17, 1999
therein
10-P CRESTS Underwriting Agreement, dated July 21, 1999, among Exhibit 1.1, Current Report on Form 8-K, dated
Hercules, Hercules Trust II and the Underwriters named July 27, 1999
therein
10-Q Common Stock Underwriting Agreement, dated July 21, 1999, Exhibit 1.2, Current Report on Form 8-K, dated
among Hercules and the Underwriters named therein July 27, 1999
</TABLE>
65
<PAGE> 67
<TABLE>
<CAPTION>
Number Description Incorporated by Reference To
<S> <C> <C>
21 Subsidiaries of Registrant See Part II, Item 8 on page 56 of this 1999
Form 10-K
23-A Consent of Independent Accountants
27 Financial Data Schedule
</TABLE>
* Previously filed as indicated and incorporated herein by reference. Exhibits
incorporated by reference should be located in SEC File No. 1-496.
66
<PAGE> 1
EXHIBIT 4-Y
FOURTH SUPPLEMENTAL INDENTURE
between
HERCULES INCORPORATED,
as Issuer
and
THE CHASE MANHATTAN BANK,
as Trustee
Dated as of December 23, 1999
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1.01. Definition of Terms................................................................................2
ARTICLE 2
GENERAL TERMS AND CONDITIONS OF THE SUBORDINATED DEBENTURES
SECTION 2.01. Designation and Principal Amount...................................................................5
SECTION 2.02. Maturity...........................................................................................5
SECTION 2.03. Form and Payment; Minimum Transfer Restriction.....................................................5
SECTION 2.04. Exchange and Registration of Transfer of Securities; Restrictions on
Transfers; Depository...........................................................................6
SECTION 2.05. Interest...........................................................................................8
ARTICLE 3
REDEMPTION OF THE SUBORDINATED DEBENTURES
SECTION 3.01. Redemption.........................................................................................9
SECTION 3.02. No Sinking Fund....................................................................................9
ARTICLE 4
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.01. Extension of Interest Payment Period...............................................................9
SECTION 4.02. Notice of Extension...............................................................................10
ARTICLE 5
EXPENSES
SECTION 5.01. Payment of Expenses...............................................................................10
SECTION 5.02. Payment upon Resignation or Removal...............................................................11
ARTICLE 6
NOTICE
SECTION 6.01. Notice by the Company.............................................................................11
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 7
CONVERSION OF SUBORDINATED DEBENTURES
SECTION 7.01. Conversion Rights.................................................................................12
ARTICLE 8
FORM OF SUBORDINATED DEBENTURES
SECTION 8.01. Form of Subordinated Debenture....................................................................12
ARTICLE 9
ORIGINAL ISSUE OF SUBORDINATED DEBENTURES
SECTION 9.01. Subordinated Debentures...........................................................................12
ARTICLE 10
EVENTS OF DEFAULT; ACCELERATION
SECTION 10.01. Events of Default................................................................................12
SECTION 10.02. Acceleration.....................................................................................12
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Ratification of Base Indenture; Fourth Supplemental Indenture Controls...........................13
SECTION 11.02. Trustee Not Responsible for Recitals.............................................................13
SECTION 11.03. Governing Law....................................................................................13
SECTION 11.04. References to Co-Chief Executive Officer.........................................................13
SECTION 11.05. Severability.....................................................................................13
SECTION 11.06. Counterparts.....................................................................................13
</TABLE>
EXHIBIT A-1 - Form of Subordinated Debenture
-ii-
<PAGE> 4
FOURTH SUPPLEMENTAL INDENTURE, dated as of December 23, 1999 (the
"FOURTH SUPPLEMENTAL INDENTURE"), between Hercules Incorporated, a Delaware
corporation (the "COMPANY"), and The Chase Manhattan Bank, a New York banking
corporation, as trustee (the "TRUSTEE") under the Junior Subordinated Debentures
Indenture dated as of November 12, 1998 between the Company and the Trustee (the
"BASE INDENTURE" and together with this Fourth Supplemental Indenture, the
"INDENTURE").
WHEREAS, the Company executed and delivered the Base Indenture to the
Trustee to provide for the future issuance of the Company's unsecured junior
subordinated debentures (the "DEBENTURES") to be issued from time to time in one
or more series as might be determined by the Company under the Base Indenture,
in an unlimited aggregate principal amount which may be authenticated and
delivered as provided in the Base Indenture;
WHEREAS, pursuant to the terms of the Indenture, the Company desires to
provide for the establishment of a new series of its Debentures to be known as
its Floating Rate Junior Subordinated Deferrable Interest Debentures due 2000
(the "SUBORDINATED DEBENTURES"), the form and substance of such Subordinated
Debentures and the terms, provisions and conditions thereof to be set forth as
provided in the Base Indenture and this Fourth Supplemental Indenture;
WHEREAS, Hercules Trust VI, a Delaware statutory business trust (the
"TRUST"), has offered to J.P. Morgan Securities Inc., as initial purchaser (the
"INITIAL PURCHASER"), $170,000,000 aggregate liquidation amount of its Floating
Rate Preferred Securities (the "PREFERRED SECURITIES"), representing undivided
beneficial interests in the assets of the Trust, for resale to "qualified
institutional buyers" under Rule 144A, and proposes to invest the proceeds from
such offering, together with the proceeds of the issuance and sale by the Trust
to the Company of $5,258,000 aggregate liquidation amount of its Common
Securities, in $175,258,000 aggregate principal amount of the Subordinated
Debentures; and
WHEREAS, the Company has requested that the Trustee execute and
deliver this Fourth Supplemental Indenture, and all requirements necessary to
make this Fourth Supplemental Indenture a valid instrument in accordance with
its terms, and to make the Subordinated Debentures, when executed by the Company
and authenticated and delivered by the Trustee, the valid obligations of the
Company, have been performed, and the execution and delivery of this Fourth
Supplemental Indenture has been duly authorized in all respects.
NOW THEREFORE, in consideration of the purchase and acceptance of the
Subordinated Debentures by the Holder thereof, and for the purpose of setting
forth, as provided in the Indenture, the form and substance of the Subordinated
Debentures and the terms, provisions and conditions thereof, the Company
covenants and agrees with the Trustee as follows:
<PAGE> 5
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definition of Terms. For all purposes of this Fourth
Supplemental Indenture, except as otherwise expressly provided or unless the
context otherwise requires:
(a) the terms which are defined in the Base Indenture have the
same meanings when used in this Fourth Supplemental Indenture;
(b) the terms defined in this Article have the meaning
assigned to them in this Article and include the plural as well as the
singular;
(c) all other terms used herein which are defined in the Trust
Indenture Act, whether directly or by reference therein, have the
meanings assigned to them therein;
(d) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP, and, except as
otherwise herein expressly provided, the term "GAAP" with respect to
any computation required or permitted hereunder shall mean such
accounting principles as are generally accepted in the United States of
America at the date of such computation;
(e) a reference to a Section or Article is to a Section or
Article of this Fourth Supplemental Indenture;
(f) the words "herein" "hereof" and "hereunder" and other
words of similar import refer to this Fourth Supplemental Indenture as
a whole and not to any particular Article, Section or other
subdivision;
(g) headings are for convenience of reference only and do not
affect interpretation; and
(h) the following terms have the meanings given to them in the
Trust Agreement:
ADMINISTRATIVE TRUSTEE
AFFILIATE
COMMON SECURITIES
DELAWARE TRUSTEE
LIKE AMOUNT
LIQUIDATION AMOUNT
PERSON
PORTAL MARKET
PROPERTY TRUSTEE
PURCHASE AGREEMENT
RULE 144A
SECURITIES ACT.
2
<PAGE> 6
"ADDITIONAL INTEREST" has the meaning set forth in Section 2.05(d).
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which banking institutions in The City of New York or Wilmington, Delaware
are authorized or required by law, regulation or executive order to close;
provided, however, that with respect to LIBOR interest determinations,
calculations and payments, such day is also a London Banking Day.
"CALCULATION AGENT" means The Chase Manhattan Bank or in the event of
resignation by or removal of The Chase Manhattan Bank, any replacement as
Calculation Agent appointed by the Company.
"CREDIT AGREEMENT" means the Amended and Restated Credit Agreement
dated as of April 19, 1999 among the Company, certain subsidiaries of the
Company from time to time parties thereto, the several lenders from time to time
parties thereto, NationsBank, N.A., as Administrative Agent, Bank of America
Canada, as Canadian Administrative Agent, and The Chase Manhattan Bank, Morgan
Guaranty Trust Company of New York and Citibank, N.A., as Co-Syndication Agents,
as amended, supplemented, modified or superseded from time to time.
"DEPOSITORY" has the meaning set forth in the Base Indenture.
"DETERMINATION DATE" means two London Banking Days prior to the
applicable Interest Payment Date.
"DISSOLUTION EVENT" means the dissolution of the Trust pursuant to
Section 8.1 of the Trust Agreement, and the distribution of the Subordinated
Debentures held by the Property Trustee to the holders of the Preferred
Securities issued by the Trust pro rata in accordance with the Trust Agreement.
"EXTENDED INTEREST PAYMENT PERIOD" has the meaning set forth in Section
4.01.
"GAAP" has the meaning set forth in the Base Indenture.
"GLOBAL DEBENTURE" has the meaning set forth in the Base Indenture.
"GLOBAL SUBORDINATED DEBENTURE" has the meaning set forth in Section
2.04(a)(i).
"GUARANTEE TRUSTEE" means the Preferred Securities Guarantee Trustee as
defined in the Preferred Securities Guarantee Agreement dated as of December 23,
1999 between Hercules Incorporated, as Guarantor, and The Chase Manhattan Bank,
as Preferred Securities Guarantee Trustee.
"HOLDER" has the meaning set forth in the Base Indenture.
3
<PAGE> 7
"INTEREST PAYMENT DATE" has the meaning set forth in Section 2.05(b).
"INTEREST RATE" has the meaning set forth in Section 2.05(a).
"LIBOR" means, with respect to an interest period commencing on an
Interest Payment Date (in the following order of priority):
(a) the rate (expressed as a percentage per annum) for Eurodollar
deposits having a three-month maturity that appears on Telerate page 3750 as of
11:00 a.m. (London time) on the Determination Date;
(b) if such rate does not appear on Telerate page 3750 as of 11:00 a.m.
(London time) on the Determination Date, the Calculation Agent will request the
principal London offices of four leading banks in the London interbank market as
selected by the Calculation Agent in consultation with the Company to provide
such banks' offered quotations (expressed as percentages per annum) to prime
banks in the London interbank market for Eurodollar deposits having a
three-month maturity as of 11:00 a.m. (London time) on such Determination Date,
and if at least two quotations are provided, LIBOR will be the arithmetic mean
of such quotations (rounded upwards if necessary to the fifth decimal place);
(c) if fewer than two such quotations are provided as requested in
clause (b) above, the Calculation Agent will request four major New York City
banks selected by the Calculation Agent in consultation with the Company to
provide such banks' offered quotations (expressed as percentages per annum) to
leading European banks for loans in Eurodollars as of 11:00 a.m. (New York City
time) on such Determination Date, and if at least two quotations are provided,
LIBOR will be the arithmetic mean of such quotations (rounded upwards if
necessary to the fifth decimal place); and
(d) if fewer than two such quotations are provided as requested in
clause (c) above, LIBOR will be LIBOR as in effect during the preceding interest
period.
"LONDON BANKING DAY" means any day, other than a Saturday or Sunday, on
which banks are open for business (including dealings in deposits in U.S.
dollars) in London.
"MATURITY DATE" means December 29, 2000.
"REGULAR RECORD DATE" has the meaning set forth in Section 2.05(c).
"RESTRICTED SECURITY" has the meaning set forth in Section 2.04(c).
"SENIOR BANK DEBT ACCELERATION" means an acceleration under the Credit
Agreement resulting in the obligations of the Company under the Credit Agreement
becoming or having been declared due and payable under Section 6 of the Credit
Agreement before such obligations would otherwise have been due and payable.
4
<PAGE> 8
"TRANSFER RESTRICTION TERMINATION DATE" means the first date on which
the Subordinated Debentures (other than Subordinated Debentures acquired by the
Company or any Affiliate thereof) may be sold pursuant to Rule 144(k).
"TRUST AGREEMENT" means the Amended and Restated Trust Agreement of
Hercules Trust VI, a Delaware statutory business trust, dated as of December 23,
1999.
"TRUST SECURITIES" means the Preferred Securities and Common Securities
of the Trust.
"U.S. DOLLAR," "DOLLAR," "U.S.$," "$" and "USD" means the lawful
currency of the United States of America.
ARTICLE 2
GENERAL TERMS AND CONDITIONS OF THE SUBORDINATED DEBENTURES
SECTION 2.01. Designation and Principal Amount. There is hereby
authorized a series of Debentures designated the "Floating Rate Junior
Subordinated Deferrable Interest Debentures due 2000," limited in aggregate
principal amount to $309,279,000, which amount shall be as set forth in any
written order of the Company for the authentication and delivery of Subordinated
Debentures pursuant to Section 2.03 of the Base Indenture, except for
Subordinated Debentures authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Subordinated Debentures
under the terms of the Indenture. Of such aggregate principal amount,
$175,258,000 is authenticated and delivered as of the date hereof, and the
remaining $134,021,000 of the Subordinated Debentures is issuable only in
connection with the Trust's right under the Trust Agreement to issue additional
Preferred Securities and Common Securities.
SECTION 2.02. Maturity. The principal of the Subordinated Debentures
shall be due and payable on the Maturity Date.
SECTION 2.03. Form and Payment; Minimum Transfer Restriction. (a)
Except as provided in Section 2.04, the Subordinated Debentures shall be issued
in fully registered certificated form without coupons in denominations of
$1,000,000 in principal amount and integral multiples of $1,000 thereof.
Principal and interest on the Subordinated Debentures issued in certificated
form will be payable by check or wire transfer, the transfer of such
Subordinated Debentures will be registrable and such Subordinated Debentures
will be exchangeable for Subordinated Debentures bearing identical terms and
provisions at the office or agency of the Trustee; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the Holder at such address as shall appear in the Register. Notwithstanding the
foregoing, so long as the Holder of any Subordinated Debentures is the Property
Trustee, the payment of the principal of and interest (including any Additional
Interest, if any) on such Subordinated Debentures held by the Property Trustee
will be made at such place and to such account as may be designated by the
Property Trustee.
5
<PAGE> 9
(b) The Subordinated Debentures may be transferred or exchanged only in
minimum denominations of $1,000,000 and integral multiples of $100,000 in excess
thereof, and any attempted transfer, sale or other disposition of Subordinated
Debentures in a denomination of less than $1,000,000 shall be deemed to be void
and of no legal effect whatsoever.
SECTION 2.04. Exchange and Registration of Transfer of Securities;
Restrictions on Transfers; Depository. (a) If distributed to holders of
Preferred Securities in connection with a Dissolution Event, the Subordinated
Debentures will be issued in the same form as the Preferred Securities that such
Subordinated Debentures replace in accordance with the following procedures.
(i) If the Preferred Securities are held in global form, the
Subordinated Debentures shall be presented to the Trustee by the
Property Trustee in exchange for a Global Debenture in an aggregate
principal amount equal to the aggregate principal amount of all
outstanding Subordinated Debentures (a "GLOBAL SUBORDINATED
DEBENTURE"), to be registered in the name of the Depository, or its
nominee, and delivered by the Property Trustee to the Depository for
crediting to the accounts of its participants pursuant to the
instructions of the Administrative Trustees. The Company upon any such
presentation shall execute a Global Subordinated Debenture in such
aggregate principal amount and deliver the same to the Trustee for
authentication and delivery in accordance with the Indenture. Payments
on the Subordinated Debentures issued as a Global Subordinated
Debenture will be made to the Depository.
(ii) If the Preferred Securities are held in certificated
form, the Subordinated Debentures shall be presented to the Trustee by
the Property Trustee and each outstanding Preferred Security
certificate will be deemed to represent a beneficial interest in such
Subordinated Debenture in an aggregate principal amount equal to the
aggregate Liquidation Amount of the Preferred Securities represented by
such Preferred Security certificate. When the holder of a Preferred
Security certificate presents such certificate for transfer or
reissuance, such certificate will be canceled and a Subordinated
Debenture, registered in the name of such holder or such holder's
transferee, as the case may be, in an aggregate principal amount equal
to the aggregate Liquidation Amount of the canceled certificate, will
be executed by the Company and delivered to the Trustee for
authentication and delivery in accordance with the Indenture. On issue
of such Subordinated Debentures, Subordinated Debentures with an
equivalent aggregate principal amount that were presented by the
Property Trustee to the Trustee will be deemed to have been canceled.
(b) Any Global Subordinated Debenture may be endorsed with or have
incorporated in the text thereof such legends or recitals or changes not
inconsistent with the provisions of this Indenture as may be required by the
Depository, by a national securities exchange or by the National Association of
Securities Dealers, Inc. in order for the Subordinated Debentures to be
tradeable on the PORTAL Market or as may be required for the Subordinated
Debentures to be tradeable on any other market developed for trading of
securities pursuant to Rule 144A or
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<PAGE> 10
required to comply with any applicable law or any regulation thereunder or with
the rules and regulations of any securities exchange upon which the Subordinated
Debentures may be listed or traded or to conform with any usage with respect
thereto, or to indicate any special limitations or restrictions to which any
particular Subordinated Debentures are subject.
(c) Each Subordinated Debenture that bears or is required to bear the
legend set forth in this Section 2.04(c) (a "RESTRICTED SECURITY") shall be
subject to the restrictions on transfer provided in the legend set forth in this
Section 2.04(c), unless such restrictions on transfer shall be waived by the
written consent of the Company, and the Holder of each Restricted Security, by
such Holder's acceptance thereof, agrees to be bound by such restrictions on
transfer. As used in this Section 2.04(c) and in Section 2.04(d), the term
"transfer" encompasses any sale, pledge, transfer or other disposition of any
Restricted Security.
Prior to the Transfer Restriction Termination Date, any certificate
evidencing a Subordinated Debenture shall bear a legend in substantially the
following form, unless otherwise agreed by the Company (with written notice
thereof to the Trustee):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION UNDER
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE (THE
"TRANSFER RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH
HERCULES INCORPORATED OR ANY AFFILIATED PERSON OF HERCULES INCORPORATED
WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY)
UNLESS SUCH OFFER, SALE OR OTHER TRANSFER IS (A) TO HERCULES
INCORPORATED OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT,
(C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A, TO A PERSON WHO IS OR WHO THE HOLDER REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT) THAT IS AN INSTITUTIONAL INVESTOR, (E) PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR
(F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE RIGHT OF HERCULES
INCORPORATED OR THE
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TRANSFER AGENT FOR THE SECURITIES PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF THE THEN HOLDER OF THIS SECURITY AFTER THE TRANSFER
RESTRICTION TERMINATION DATE.
Following the Transfer Restriction Termination Date, any Subordinated
Debenture or security issued in exchange or substitution therefor (other than
Subordinated Debentures acquired by the Company or any Affiliate) may, upon
surrender of such Subordinated Debenture or security for exchange to the Trustee
in accordance with the provisions of this Section 2.04, be exchanged for a new
Subordinated Debenture or Subordinated Debentures, of like tenor and aggregate
principal amount, which shall not bear the restrictive legend required by this
Section 2.04(c).
(d) Any Subordinated Debenture that, prior to the Transfer Restriction
Termination Date, is purchased or owned by the Company or any Affiliate thereof
may not be resold by the Company or such Affiliate unless registered under the
Securities Act or resold pursuant to an exemption from the registration
requirements thereof.
SECTION 2.05. Interest. (a) Interest on the principal amount of each
Subordinated Debenture will accrue and be payable at a rate (the "INTEREST
RATE") per annum, reset quarterly, equal to LIBOR plus 2.45% of such principal
amount. Notwithstanding the foregoing, if the Company fails to pay principal or
interest when due, such overdue amount shall accrue interest, compounded
quarterly, at the then applicable periodic Interest Rate, but only to the extent
permitted by applicable law. The term "INTEREST", as used herein, includes any
such additional interest and Additional Interest unless otherwise stated.
(b) Interest on the Subordinated Debentures will be payable quarterly
in arrears on March 29, 2000, June 29, 2000, September 29, 2000 and December 29,
2000, commencing March 29, 2000 (each, an "INTEREST PAYMENT DATE"), and will
accrue from and including the most recent date to which interest has been paid
or, if no interest has been paid, from December 23, 1999 (for the Subordinated
Debentures issued on such date), to but excluding the related Interest Payment
Date, except as otherwise described below. If additional Subordinated Debentures
are issued upon the issuance of additional Preferred Securities and Common
Securities as contemplated in Section 2.01, the Company will establish the date
on which interest will begin to accrue and the initial Interest Payment Date
with respect to such additional Subordinated Debentures.
For the Subordinated Debentures issued on December 23, 1999, the
Interest Rate in effect for the interest period from and including December 23,
1999 to but excluding March 29, 2000 shall be 8 5/8%. The amount of interest
payable for any interest period shall be computed on the basis of the actual
number of days in such period and a year of 360 days. If an Interest Payment
Date is not a Business Day, then such Interest Payment Date will be postponed to
the next
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<PAGE> 12
succeeding Business Day, except if such Business Day is in the next succeeding
calendar month, such Interest Payment Date will be the immediately preceding
Business Day.
(c) Interest shall be paid to the Person in whose name such
Subordinated Debenture or any predecessor Subordinated Debenture is registered
on the books and records of the Company at the close of business on the Regular
Record Date for such interest installment, which shall be the fifteenth (15th)
day of the month in which the applicable Interest Payment Date falls (the
"REGULAR RECORD DATE"). Notwithstanding the foregoing, so long as the Holder of
the Subordinated Debenture is the Property Trustee, the payment of the principal
of and interest on this Subordinated Debenture will be made at such place and to
such account as may be designated by the Property Trustee.
(d) If, at any time while the Property Trustee is the Holder of any
Subordinated Debentures, the Trust or the Property Trustee is required to pay
any taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States, or any other taxing
authority, then, in any such case, the Company will pay as additional interest
("ADDITIONAL INTEREST") on the Subordinated Debentures held by the Property
Trustee, such additional amounts as shall be required so that the net amounts
received and retained by the Trust and the Property Trustee after paying such
taxes, duties, assessments or other governmental charges will be equal to the
amounts the Trust and the Property Trustee would have received had no such
taxes, duties, assessments or other government charges been imposed.
ARTICLE 3
REDEMPTION OF THE SUBORDINATED DEBENTURES
SECTION 3.01. Redemption. The Subordinated Debentures are not subject
to redemption by the Company prior to maturity.
SECTION 3.02. No Sinking Fund. The Subordinated Debentures are not
entitled to the benefit of any sinking fund.
ARTICLE 4
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.01. Extension of Interest Payment Period. The Company shall
have the right, at any time, and from time to time, during the term of the
Subordinated Debentures to extend the interest payment period of the
Subordinated Debentures (an "EXTENDED INTEREST PAYMENT PERIOD"), provided no
Event of Default has occurred and is continuing with respect to the Subordinated
Debentures, and provided, further, that such Extended Interest Payment Period
must end on an Interest Payment Date and may not extend beyond the Maturity
Date. To the extent permitted by applicable law, interest, the payment of which
has been deferred because of the extension of the Interest Payment Period
pursuant to this Section 4.01, will bear interest
9
<PAGE> 13
thereon at the then applicable periodic Interest Rate for each quarterly period
in the Extended Interest Payment Period. At the end of the Extended Interest
Payment Period, the Company shall pay all interest then accrued and unpaid on
the Subordinated Debentures, including any Additional Sums, which shall be
payable to the Holders of the Subordinated Debentures in whose names the
Subordinated Debentures are registered in the Register on the first Regular
Record Date after the end of the Extended Interest Payment Period. Before the
termination of any Extended Interest Payment Period, the Company may shorten or
further extend such Extended Interest Payment Period, provided, however, that
such Extended Interest Payment Period, together with all such previous further
extensions thereof, shall not exceed beyond the Maturity Date. At the
termination of any Extended Interest Payment Period and upon the payment of all
accrued and unpaid interest and any Additional Sums then due, the Company may
elect a new Extended Interest Payment Period, subject to the foregoing
requirements. No interest shall be due and payable during an Extended Interest
Payment Period, except at the end thereof.
SECTION 4.02. Notice of Extension.
(a) If the Property Trustee is the only registered holder of the
Subordinated Debentures at the time the Company selects an Extended Interest
Payment Period, the Company shall give written notice to both the Administrative
Trustees and the Property Trustee of its selection of such Extended Interest
Payment Period in accordance with the notice provisions of Section 4.01 of the
Base Indenture.
(b) If the Property Trustee is not the only registered holder of the
Subordinated Debentures at the time the Company selects an Extended Interest
Payment Period, the Company shall give the holders of the Subordinated
Debenture's written notice of its selection of such Extended Interest Payment
Period in accordance with the notice provisions of Section 4.01 of the Base
Indenture.
ARTICLE 5
EXPENSES
SECTION 5.01. Payment of Expenses. In connection with the offering,
sale and issuance of the Subordinated Debentures to the Property Trustee and in
connection with the sale of the Trust Securities by the Trust, the Company, in
its capacity as borrower with respect to the Subordinated Debentures, shall:
(a) pay all costs and expenses relating to the offering, sale and
issuance of the Subordinated Debentures payable pursuant to the Purchase
Agreement and compensation of the Trustee under the Indenture in accordance with
the provisions of Section 7.06 of the Base Indenture;
(b) pay all costs and expenses of the Trust (other than payment in
respect of Trust Securities) (including, but not limited to, costs and expenses
relating to the organization of the
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<PAGE> 14
Trust; the fees and expenses of the Property Trustee and the Delaware Trustee;
the costs and expenses relating to the operation of the Trust, including without
limitation, costs and expenses of accountants, attorneys, statistical or
bookkeeping services, expenses for printing, engraving, computing or accounting
equipment, paying agent(s), registrar(s), transfer agent(s), duplicating and
travel; telephone and other telecommunications expenses; and costs and expenses
incurred in connection with the acquisition, financing, and disposition of Trust
assets);
(c) pay all costs and expenses of the Trust or Property Trustee related
to the enforcement by the Property Trustee of the rights of the holders of the
Preferred Securities;
(d) be primarily liable for any indemnification obligations arising
with respect to the Trust Agreement; and
(e) pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and expenses
with respect to such taxes of the Trust.
SECTION 5.02. Payment upon Resignation or Removal. Upon termination of
this Fourth Supplemental Indenture or the Base Indenture or the removal or
resignation of the Trustee pursuant to Section 7.08 of the Base Indenture, the
Company shall pay to the Trustee all amounts accrued to the date of such
termination, removal or resignation. Upon termination of the Trust Agreement or
the removal or resignation of the Delaware Trustee, the Guarantee Trustee or the
Property Trustee, as the case may be, the Company shall pay to the Delaware
Trustee, the Guarantee Trustee or the Property Trustee and their respective
counsel, as the case may be, all amounts accrued to the date of such
termination, removal or resignation.
ARTICLE 6
NOTICE
SECTION 6.01. Notice by the Company. The Company shall give prompt
written notice to the Trustee of any fact known to the Company that would
prohibit the making of any payment of monies to or by the Trustee in respect of
the Subordinated Debentures pursuant to the provisions of this Article.
Notwithstanding any of the provisions of the Base Indenture or this Fourth
Supplemental Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment of monies
to or by the Trustee in respect of the Subordinated Debentures pursuant to the
provisions of the Base Indenture; provided, however, that if the Trustee shall
not have received the notice provided for in this Article at least two Business
Days prior to the date upon which by the terms hereof any money may become
payable for any purpose (including, without limitation, the payment of the
principal of or interest on any Subordinated Debenture), then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such money and to apply the same to the purposes for which
it was received, and shall not be affected by any notice to the contrary that
may be received by it on or after the second Business Day prior to such date.
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ARTICLE 7
CONVERSION OF SUBORDINATED DEBENTURES
SECTION 7.01. Conversion Rights. The Subordinated Debentures are not
convertible at any time.
ARTICLE 8
FORM OF SUBORDINATED DEBENTURES
SECTION 8.01. Form of Subordinated Debenture. The Subordinated
Debentures and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A-1. Exhibit A-1 is hereby incorporated in
and expressly made a part of this Fourth Supplemental Indenture.
ARTICLE 9
ORIGINAL ISSUE OF SUBORDINATED DEBENTURES
SECTION 9.01. Subordinated Debentures. Each Subordinated Debenture
shall be issued in denominations of $1,000,000 and in integral multiples of
$100,000 thereof and may, upon execution of this Fourth Supplemental Indenture,
be executed by the Company and delivered to the Trustee for authentication, and
the Trustee shall thereupon authenticate and make available for delivery said
Subordinated Debentures to or upon the written order of the Company, signed by
its Chief Executive Officer, its President, any Executive Vice President or any
Vice President and its Treasurer or an Assistant Treasurer, without any further
action by the Company.
ARTICLE 10
EVENTS OF DEFAULT; ACCELERATION
SECTION 10.01. Events of Default. A Senior Bank Debt Acceleration shall
be an Event of Default under Section 6.01(h) of the Base Indenture.
SECTION 10.02. Acceleration. Notwithstanding the provisions of Section
6.02 of the Base Indenture, if a Senior Bank Debt Acceleration shall occur, the
principal of, and any accrued interest on, all the Subordinated Debentures shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holders of Subordinated Debentures.
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ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Ratification of Base Indenture; Fourth Supplemental
Indenture Controls. The Base Indenture, as supplemented by this Fourth
Supplemental Indenture, is in all respects ratified and confirmed, and this
Fourth Supplemental Indenture shall be deemed part of the Base Indenture in the
manner and to the extent herein and therein provided. The provisions of this
Fourth Supplemental Indenture shall supersede the provisions of the Base
Indenture to the extent the Base Indenture is inconsistent herewith.
SECTION 11.02. Trustee Not Responsible for Recitals. The recitals
herein contained are made by the Company and not by the Trustee, and the Trustee
assumes no responsibility for the correctness thereof. The Trustee makes no
representation as to the validity or sufficiency of this Fourth Supplemental
Indenture.
SECTION 11.03. Governing Law. This Fourth Supplemental Indenture and
each Subordinated Debenture shall be governed by and construed in accordance
with the laws of the State of New York, as applied to contracts made and
performed within the State of New York, without regard to its principles of
conflicts of laws.
SECTION 11.04. References to Co-Chief Executive Officer. All references
in the Base Indenture to a Co-Chief Executive Officer of the Company shall mean
its Chief Executive Officer.
SECTION 11.05. Severability. If any provision in the Base Indenture,
this Fourth Supplemental Indenture or in the Subordinated Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.06. Counterparts. The parties may sign any number of copies
of this Fourth Supplemental Indenture. Each signed copy shall be an original,
but all of them together represent the same agreement. Any signed copy shall be
sufficient proof of this Fourth Supplemental Indenture.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Supplemental Indenture to be duly executed as of the day and year first above
written.
HERCULES INCORPORATED
By ___________________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
as Trustee
By ___________________________________
Name:
Title:
14
<PAGE> 18
EXHIBIT A-1
[FORM OF SUBORDINATED DEBENTURE]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE (THE "TRANSFER RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH HERCULES INCORPORATED OR ANY AFFILIATED PERSON
OF HERCULES INCORPORATED WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY) UNLESS SUCH OFFER, SALE OR OTHER TRANSFER IS (A) TO HERCULES
INCORPORATED OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON WHO IS OR WHO THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) TO AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT) THAT IS AN INSTITUTIONAL INVESTOR, (E)
PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR (F)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT, SUBJECT TO THE RIGHT OF HERCULES INCORPORATED OR THE
TRANSFER AGENT FOR THE SECURITIES PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER
PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM.
THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE THEN HOLDER OF THIS SECURITY
AFTER THE TRANSFER RESTRICTION TERMINATION DATE.
USE THE FOLLOWING IF THIS IS A GLOBAL SUBORDINATED DEBENTURE:
[THIS SUBORDINATED DEBENTURE IS A GLOBAL SUBORDINATED DEBENTURE WITHIN THE
MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME
OF THE DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE
CLEARING AGENCY. THIS SUBORDINATED DEBENTURE IS EXCHANGEABLE FOR SUBORDINATED
DEBENTURES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR
ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND NO
TRANSFER OF THIS SUBORDINATED DEBENTURE (OTHER THAN A TRANSFER OF THIS
SUBORDINATED DEBENTURE AS A WHOLE BY THE CLEARING AGENCY
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<PAGE> 19
TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE CLEARING AGENCY TO
THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING AGENCY) MAY BE REGISTERED
EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS SUBORDINATED DEBENTURE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY SUBORDINATED DEBENTURE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.,
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
A1-2
<PAGE> 20
No.________ CUSIP NO. ____________
HERCULES INCORPORATED
FLOATING RATE JUNIOR SUBORDINATED
DEFERRABLE INTEREST DEBENTURE DUE 2000
Hercules Incorporated, a Delaware corporation (the "COMPANY",
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay the principal sum of
_________ Dollars ($ ) on December 29, 2000, or such other date as may be
provided pursuant to the terms of the Indenture.
(a) Interest on the principal amount of this Subordinated Debenture
will accrue and be payable at a rate (the "INTEREST RATE") per annum, reset
quarterly, equal to LIBOR plus 2.45% of such principal amount. Notwithstanding
the foregoing, if the Company fails to pay principal or interest when due, such
overdue amount shall accrue interest, compounded quarterly, at the then
applicable periodic Interest Rate, but only to the extent permitted by
applicable law. The term "INTEREST", as used herein, includes any such
additional interest and Additional Interest unless otherwise stated.
(b) Interest on this Subordinated Debenture will be payable quarterly
in arrears on March 29, 2000, June 29, 2000, September 29, 2000 and December 29,
2000, commencing March 29, 2000 (each an "INTEREST PAYMENT Date"), will accrue
from and including the most recent date to which interest has been paid or, if
no interest has been paid, from December 23, 1999, to but excluding the related
Interest Payment Date, except as otherwise described below. If additional
Subordinated Debentures are issued upon the issuance of additional Preferred
Securities and Common Securities as contemplated in Section 2.01, the Company
will establish the date on which interest will begin to accrue and the initial
Interest Payment Date with respect to such additional Subordinated Debentures.
For the Subordinated Debentures issued on December 23, 1999, the
Interest Rate in effect for the period from and including December 23, 1999, to
but excluding March 29, 2000, shall be 8 5/8%. The Interest Rate in effect
thereafter shall be determined by the Calculation Agent on the Determination
Date prior to the applicable Interest Payment Date. The amount of interest
payable for any interest period shall be computed on the basis of the actual
number of days in such period and a year of 360 days. If an Interest Payment
Date is not a Business Day, then such Interest Payment Date will be postponed to
the next succeeding Business Day, except if such Business Day is in the next
succeeding calendar month, such Interest Payment Date will be the immediately
preceding Business Day.
(c) Interest shall be paid to the Person in whose name such
Subordinated Debenture or any predecessor Subordinated Debenture is registered
on the books and records of the Company at the close of business on the Regular
Record Date for such interest installment,
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which shall be the fifteenth (15th) day of the month in which the applicable
Interest Payment Date falls (the "REGULAR RECORD DATE"). Notwithstanding the
foregoing, so long as the Holder of the Subordinated Debenture is the Property
Trustee, the payment of the principal of and interest on this Subordinated
Debenture will be made at such place and to such account as may be designated by
the Property Trustee.
The indebtedness evidenced by this Subordinated Debenture is, to the
extent provided in the Indenture, subordinate and junior in right of payment to
the prior payment in full of all existing and future Senior Indebtedness, and
this Subordinated Debenture is issued subject to the provisions of the Indenture
with respect thereto. Each Holder of this Subordinated Debenture, by accepting
the same, (i) agrees to and shall be bound by such provisions, (ii) authorizes
and directs the Trustee on his or her behalf to take such action as may be
necessary or appropriate to acknowledge or effectuate the subordination so
provided and (iii) appoints the Trustee his or her attorney-in-fact for any and
all such purposes. Each Holder hereof, by his or her acceptance hereof, hereby
waives all notice of the acceptance of the subordination provisions contained
herein and in the Indenture by each holder of Senior Indebtedness, whether now
outstanding or hereafter incurred, and waives reliance by each such holder upon
said provisions.
This Subordinated Debenture shall not be entitled to any benefit under
the Indenture hereinafter referred to, be valid or become obligatory for any
purpose until the Certificate of Authentication hereon shall have been signed by
or on behalf of the Trustee.
The provisions of this Subordinated Debenture are continued on the
reverse side hereof and such continued provisions shall for all purposes have
the same effect as though fully set forth at this place.
A1-4
<PAGE> 22
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
HERCULES INCORPORATED
By: _________________________________
Name:
Title
Attest:
By:_______________________________
Name:
Title:
A1-5
<PAGE> 23
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
This is one of the Subordinated Debentures of the series of Debentures described
in the within-mentioned Indenture.
Dated:
THE CHASE MANHATTAN BANK,
as Trustee or as Authentication Agent
By _______________________________ By ________________________________
Authorized Signatory Authorized Signatory
A1-6
<PAGE> 24
[FORM OF REVERSE OF DEBENTURE]
This Subordinated Debenture is one of a duly authorized series of
Debentures of the Company (herein sometimes referred to as the "DEBENTURES"),
specified in the Indenture, all issued or to be issued in one or more series
under and pursuant to a Junior Subordinated Debentures Indenture dated as of
November 12, 1998, duly executed and delivered between the Company and The Chase
Manhattan Bank, as Trustee (the "TRUSTEE"), as supplemented by the Fourth
Supplemental Indenture dated as of December 23, 1999, between the Company and
the Trustee (the Indenture as so supplemented, the "INDENTURE"), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the Holders of the
Subordinated Debentures. By the terms of the Indenture, the Debentures are
issuable thereunder in series that may vary as to amount, date of maturity, rate
of interest and in other respects as provided in the Indenture. This series of
Debentures is limited in aggregate principal amount as specified in said Fourth
Supplemental Indenture and herein sometimes referred to as the "SUBORDINATED
DEBENTURES."
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Subordinated Debentures
may be declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the Holders of at least a majority in aggregate
principal amount of the Debentures of each series affected thereby then
outstanding (and, in the case of any series of Debentures held as assets of a
Trust and with respect to which a Dissolution Event has not theretofore
occurred, such consent of holders of the Preferred Securities and the Common
Securities of such Trust as may be required under the Trust Agreement), as
defined in the Indenture, to reduce the principal amount of such Debentures;
reduce the percentage of the principal amount of such Debentures the Holders of
which must consent to an amendment of the Indenture or a waiver; change (i) the
stated maturity of the principal of or the interest on such Debentures, or (ii)
the rate of interest (or the manner of calculation thereof) on such Debentures,
change adversely to the Holders the redemption, conversion or exchange
provisions applicable to such Debentures, if any; change the currency in respect
of which the payments on such Debentures are to be made; make any change in the
subordination provisions in Article 10 of the Indenture that adversely affects
the rights of the Holders of the Debentures or any change to any other section
thereof that adversely affects their rights; or change the direct action rights
of holders of Preferred Securities; provided that, in the case of the
outstanding Debentures of a series then held by a Trust, no such amendment shall
be made that adversely affects the holders of the Preferred Securities of that
Trust, and no waiver of any Event of Default with respect to the Debentures of
that series or compliance with any covenant under the Indenture shall be
effective, without the prior consent of the holders of at least a majority of
the aggregate liquidation amount of the outstanding Preferred Securities of that
Trust or the holder of each such Preferred Security, as applicable.
A1-7
<PAGE> 25
A supplemental indenture that changes or eliminates any covenant or
other provision of the Indenture that has expressly been included solely for the
benefit of one or more particular series of Debentures, or which modifies the
rights of the Holders of Debentures of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under the Indenture
of the Holders of Debentures of any other series.
No reference herein to the Indenture and no provision of this
Subordinated Debenture or of the Indenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of and
interest on this Subordinated Debenture at the time and place and at the rate or
rates and in the currency herein prescribed.
As provided in the Indenture and subject to certain limitations herein
and therein set forth, this Subordinated Debenture is transferable by the
registered Holder hereof on the Register of the Company, upon surrender of this
Subordinated Debenture for registration of transfer at the office or agency of
the Trustee in the City and State of New York accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company or the
Trustee duly executed by the registered Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Subordinated Debentures of
authorized denominations and for the same aggregate principal amount and series
will be issued to the designated transferee or transferees. No service charge
will be made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
Prior to due presentment for registration of transfer of this
Subordinated Debenture, the Company, the Trustee, any paying agent and the
Registrar may deem and treat the registered holder hereof as the absolute owner
hereof (whether or not this Subordinated Debenture shall be overdue and
notwithstanding any notice of ownership or writing hereon made by anyone other
than the Registrar) for the purpose of receiving payment of or on account of the
principal hereof and interest due hereon and for all other purposes, and neither
the Company nor the Trustee nor any paying agent nor any Registrar shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Subordinated Debenture, or for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture, against
any incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.
The Subordinated Debentures of this series are issuable only in
registered form without coupons in denominations of $1,000,000 and any integral
multiple of $100,000 in excess thereof. The Subordinated Debentures may be
transferred or exchanged only in minimum denominations of $1,000,000 and
integral multiples of $100,000 in excess thereof, and any attempted transfer,
A1-8
<PAGE> 26
sale or other disposition of Subordinated Debentures in a denomination of less
than $1,000,000 shall be deemed void and of no legal effect whatsoever.
All terms used in this Subordinated Debenture that are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
THE INDENTURE AND THE DEBENTURES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS
PRINCIPLES OF CONFLICTS OF LAWS.
A1-9
<PAGE> 1
EXHIBIT 4-Z
AMENDED AND RESTATED TRUST AGREEMENT
HERCULES TRUST VI
Dated as of December 23, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions.................................................................. 2
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application............................................. 8
SECTION 2.2 Lists of Holders of Securities............................................... 9
SECTION 2.3 Reports by the Property Trustee.............................................. 9
SECTION 2.4 Periodic Reports to Property Trustee......................................... 9
SECTION 2.5 Evidence of Compliance with Conditions Precedent............................. 9
SECTION 2.6 Events of Default; Waiver.................................................... 10
SECTION 2.7 Event of Default; Notice..................................................... 11
ARTICLE III
ORGANIZATION
SECTION 3.1 Name......................................................................... 12
SECTION 3.2 Office....................................................................... 12
SECTION 3.3 Purpose...................................................................... 12
SECTION 3.4 Authority.................................................................... 12
SECTION 3.5 Title to Property of the Trust............................................... 13
SECTION 3.6 Powers and Duties of the Administrative Trustees............................. 13
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees......................... 15
SECTION 3.8 Powers and Duties of the Property Trustee.................................... 16
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.................. 18
SECTION 3.10 Certain Rights of Property Trustee........................................... 20
SECTION 3.11 Delaware Trustee............................................................. 22
SECTION 3.12 Execution of Documents....................................................... 23
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities....................... 23
SECTION 3.14 Duration of Trust............................................................ 23
SECTION 3.15 Mergers...................................................................... 23
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities...................................... 25
SECTION 4.2 Responsibilities of the Sponsor.............................................. 26
SECTION 4.3 Right to Proceed............................................................. 26
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees; Appointment of Co-Trustee................................ 26
SECTION 5.2 Delaware Trustee............................................................. 27
SECTION 5.3 Property Trustee; Eligibility................................................ 27
SECTION 5.4 Certain Qualifications of Administrative Trustees and
Delaware Trustee Generally................................................... 28
SECTION 5.5 Administrative Trustees...................................................... 28
SECTION 5.6 Delaware Trustee............................................................. 29
SECTION 5.7 Appointment, Removal and Resignation of Trustees............................. 29
SECTION 5.8 Vacancies among Trustees..................................................... 31
SECTION 5.9 Effect of Vacancies.......................................................... 31
SECTION 5.10 Meetings..................................................................... 31
SECTION 5.11 Delegation of Power.......................................................... 32
SECTION 5.12 Merger, Conversion, Consolidation or Succession to Business.................. 32
SECTION 5.13 Compensation................................................................. 32
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions................................................................ 33
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities...................................... 33
SECTION 7.2 Execution and Authentication................................................. 33
SECTION 7.3 Form and Dating.............................................................. 34
SECTION 7.4 Registrar and Paying Agent................................................... 35
SECTION 7.5 Paying Agent to Hold Money in Trust.......................................... 36
SECTION 7.6 Replacement Securities....................................................... 36
SECTION 7.7 Outstanding Preferred Securities............................................. 37
SECTION 7.8 Preferred Securities in Treasury............................................. 37
SECTION 7.9 Temporary Securities......................................................... 37
SECTION 7.10 Cancellation................................................................. 37
SECTION 7.11 CUSIP Numbers................................................................ 38
ARTICLE VIII
DISSOLUTION OF TRUST
SECTION 8.1 Dissolution of Trust......................................................... 38
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities....................................................... 39
SECTION 9.2 Transfer Procedures and Restrictions......................................... 41
SECTION 9.3 Deemed Security Holders...................................................... 44
SECTION 9.4 Book Entry Interests......................................................... 44
SECTION 9.5 Notices to Clearing Agency................................................... 45
SECTION 9.6 Appointment of Successor Clearing Agency..................................... 45
ARTICLE X
LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES,
TRUSTEES OR OTHERS
SECTION 10.1 Liability.................................................................... 45
SECTION 10.2 Exculpation.................................................................. 46
SECTION 10.3 Fiduciary Duty............................................................... 46
SECTION 10.4 Indemnification.............................................................. 47
SECTION 10.5 Outside Businesses........................................................... 49
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year.................................................................. 50
SECTION 11.2 Certain Accounting Matters................................................... 50
SECTION 11.3 Banking...................................................................... 51
SECTION 11.4 Withholding.................................................................. 51
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments................................................................... 51
SECTION 12.2 Meetings of the Holders of Securities;
Action by Written Consent.................................................... 53
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of Property Trustee........................... 55
SECTION 13.2 Representations and Warranties of Delaware Trustee........................... 55
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Notices...................................................................... 56
SECTION 14.2 Governing Law................................................................ 58
SECTION 14.3 Intention of the Parties..................................................... 58
SECTION 14.4 Headings..................................................................... 58
SECTION 14.5 Successors and Assigns....................................................... 58
SECTION 14.6 Partial Enforceability....................................................... 58
SECTION 14.7 Counterparts................................................................. 58
ANNEX I Terms of Preferred Securities and Common Securities............... I-1
EXHIBIT A-1 Form of Preferred Security Certificate............................ A1-1
EXHIBIT A-2 Form of Common Security Certificate............................... A2-1
EXHIBIT B Specimen Debenture................................................ B-1
EXHIBIT C Purchase Agreement................................................ C-1
</TABLE>
iv
<PAGE> 6
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Section of
Trust Indenture Act Section of
of 1939, as amended Agreement
------------------- ---------
<S> <C>
310(a)................................................................. 5.3(a)
310(b)................................................................. 5.3(c)
310(c)................................................................. Inapplicable
311(a) and (b)......................................................... 5.3(c)
311(c)................................................................. Inapplicable
312(a)................................................................. 2.2(a)
312(b)................................................................. 2.2(b)
313.................................................................... 2.3
314(a)................................................................. 2.4
314(b)................................................................. Inapplicable
314(c)................................................................. 2.5
314(d)................................................................. Inapplicable
314(e)................................................................. 1.1, 2.5
314(f)................................................................. Inapplicable
315(a)................................................................. 3.9(b)
315(b)................................................................. 2.7(a)
315(c)................................................................. 3.9(a)
315(d)................................................................. 3.9(b)
316(a) and (b)......................................................... 2.6 and
Annex I
316(c)................................................................. 3.6(f)
317(a)................................................................. 3.8(h)
317(b)................................................................. 3.8(i)
---------------
</TABLE>
*This Cross-Reference Table does not constitute part of the Agreement
and shall not affect the interpretation of any of its terms or
provisions.
i
<PAGE> 7
AMENDED AND RESTATED
TRUST AGREEMENT
OF
HERCULES TRUST VI
AMENDED AND RESTATED TRUST AGREEMENT (the "Agreement") dated
and effective as of December 23, 1999 by the Trustees (as defined herein), the
Sponsor (as defined herein) and by the holders, from time to time, of undivided
beneficial interests in the assets of the Trust (as defined herein) to be issued
pursuant to this Agreement;
WHEREAS, the Trustees and the Sponsor established Hercules
Trust VI (the "Trust"), a trust created under the Business Trust Act (as defined
herein) pursuant to a Trust Agreement dated as of December 21, 1999 (the
"Original Agreement"), and a Certificate of Trust filed with the Secretary of
State of the State of Delaware on December 21, 1999, for the sole purpose of
issuing and selling certain securities representing undivided beneficial
interests in the assets of the Trust and investing the proceeds thereof in
certain Debentures of the Debenture Issuer (each as hereinafter defined) and
engaging in only those activities necessary, advisable or incidental thereto;
WHEREAS, the parties hereto desire to amend and restate each
and every term and provision of the Original Agreement; and
NOW, THEREFORE, it being the intention of the parties hereto
that the Trust continue as a business trust under the Business Trust Act, that
the Original Agreement be amended and restated in its entirety as provided
herein and that this Agreement constitute the governing instrument of such
business trust, the Trustees declare that all assets contributed to the Trust
will be held in trust for the benefit of the holders, from time to time, of the
securities representing undivided beneficial interests in the assets of the
Trust issued hereunder, subject to the provisions of this Agreement and, in
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties, intending to be legally bound hereby, agree as follows:
<PAGE> 8
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions.
Unless the context otherwise requires:
(a) capitalized terms used in this Agreement but not defined
in the preamble above or elsewhere herein have the respective meanings
assigned to them in this Section 1.1;
(b) a term defined anywhere in this Agreement has the same
meaning throughout;
(c) all references to "the Agreement" or "this Agreement" are
to this Agreement and each Annex and Exhibit hereto, as modified,
supplemented or amended from time to time;
(d) all references in this Agreement to Articles and Sections
and Annexes and Exhibits are to Articles and Sections of and Annexes
and Exhibits to this Agreement unless otherwise specified;
(e) a term defined in the Trust Indenture Act (as defined
herein) has the same meaning when used in this Agreement unless
otherwise defined in this Agreement or unless the context otherwise
requires; and
(f) a reference to the singular includes the plural and vice
versa.
"Administrative Trustee" has the meaning set forth in Section
5.1.
"Affiliate" has the same meaning as given to that term in Rule
405 under the Securities Act or any successor rule thereunder.
"Agent" means any Paying Agent or Registrar.
"Agreement" means this Amended and Restated Trust Agreement,
dated as of December 23, 1999, including Annex I and all the exhibits hereto.
"Authorized Officer" of a Person means any other Person that
is authorized to legally bind such former Person.
"Book Entry Interest" means a beneficial interest in a Global
Preferred Security Certificate registered in the name of a Clearing Agency or
its nominee, ownership and transfers of which shall be maintained and made
through book entries by a Clearing Agency as described in Section 9.4.
2
<PAGE> 9
"Business Day" means any day other than a Saturday, Sunday or
other day on which banking institutions in The City of New York or Wilmington,
Delaware are authorized or required by law, regulation or executive order to
close; provided, however, that, with respect to LIBOR distribution
determinations, calculations and payments, such day is also a London Business
Day.
"Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code Section 3801 et seq., as it may be amended from time
to time, or any successor legislation.
"Calculation Agent" means The Chase Manhattan Bank or any
successor.
"Clearing Agency" means an organization registered as a
"Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as
depositary for the Preferred Securities and in whose name or in the name of a
nominee of that organization shall be registered a global certificate and which
shall undertake to effect book-entry transfers and pledges of the Preferred
Securities.
"Closing Time" means the Closing Time as defined in the
Purchase Agreement.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor legislation.
"Commission" means the United States Securities and Exchange
Commission as from time to time constituted, or if at any time after the
execution of this Agreement such Commission is not existing and performing the
duties now assigned to it under applicable federal securities laws, then the
body performing such duties at such time.
"Common Securities" has the meaning specified in Section
7.1(a).
"Common Securities Guarantee" means the Common Securities
Guarantee Agreement, dated as of December 23, 1999 of the Sponsor in respect of
the Common Securities.
"Company Indemnified Person" means (a) any Administrative
Trustee; (b) any Affiliate of any Administrative Trustee; (c) any officers,
directors, shareholders, members, partners, employees, representatives or agents
of any Administrative Trustee; or (d) any officer, employee or agent of the
Trust or its Affiliates; provided that the term "Company Indemnified Person"
shall not include any Fiduciary Indemnified Person.
"Corporate Trust Office" means the office of the Property
Trustee for the conduct of corporate trust business at which matters related to
this Agreement shall, at any particular time, be principally administered, which
office at the date of execution of this Agreement is located at c/o Chase
Manhattan Trust Company, National Association, One Liberty Place, 52nd Floor,
1650 Market Street, Philadelphia, Pennsylvania 19103, Attention: Capital Markets
Fiduciary Services.
"Covered Person" means: (a) any officer, director,
shareholder, partner, member, representative, employee or agent of (i) the Trust
or (ii) the Trust's Affiliates; and (b) any Holder of Securities.
3
<PAGE> 10
"Debenture Issuer" means Hercules Incorporated, a Delaware
corporation, or any successor entity resulting from any consolidation,
amalgamation, merger or other business combination, in its capacity as issuer of
the Debentures under the Indenture.
"Debentures" means the Floating Rate Junior Subordinated
Deferrable Interest Debentures due 2000 of the Debenture Issuer issued pursuant
to the Indenture.
"Debenture Trustee" means The Chase Manhattan Bank, a New York
banking corporation, as trustee under the Indenture until a successor is
appointed thereunder, and thereafter means such successor trustee.
"Default" means an event, act or condition that with notice of
lapse of time, or both, would constitute an Event of Default.
"Definitive Preferred Securities" has the meaning set forth in
Section 7.3.
"Delaware Trustee" has the meaning set forth in Section 5.2.
"Direct Action" has the meaning set forth in Section 3.8(e).
"Distribution" means a distribution payable to Holders of
Securities in accordance with Section 6.1.
"DTC" means The Depository Trust Company, the initial Clearing
Agency.
"Event of Default" means, with respect to the Securities, an
Event of Default (as defined in the Indenture) that has occurred and is
continuing in respect of the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor legislation.
"Fiduciary Indemnified Person" has the meaning set forth in
Section 10.4(b).
"Fiscal Year" has the meaning set forth in Section 11.1.
"Global Preferred Security" has the meaning set forth in
Section 7.3.
"Holder" means a Person in whose name a Security or Successor
Security is registered, such Person being a beneficial owner within the meaning
of the Business Trust Act.
"Indemnified Person" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"Indenture" means the Junior Subordinated Debentures
Indenture, dated as of November 12, 1998, between the Debenture Issuer and the
Debenture Trustee relating to the Debenture Issuer's junior subordinated
debentures, as supplemented by the Fourth Supplemental Indenture thereto, dated
as of December 23, 1999, and, as further amended or supplemented from time to
time.
4
<PAGE> 11
"Investment Company" means an investment company as defined in
the Investment Company Act.
"Investment Company Act" means the Investment Company Act of
1940, as amended from time to time, or any successor legislation.
"Investment Company Event" means that the Trust has received
an opinion of counsel experienced in such matters to the effect that, as a
result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority, there is more than an
insubstantial risk that the Trust is or will be considered an "investment
company" under the Investment Company Act that is required to be registered
under this law, which change becomes effective on or after March 12, 1999.
"Legal Action" has the meaning set forth in Section 3.6(h).
"LIBOR" has the meaning set forth in Section 2 of Annex I
hereto.
"Like Amount" has the meaning set forth in Section 3 of Annex
I hereto.
"Liquidation Amount" has the meaning set forth in Section 2 of
Annex I hereto.
"List of Holders" has the meaning set forth in Section 2.2(a)
of Annex I hereto.
"London Business Day" means any day other than a Saturday or
Sunday on which banks are open for business (including dealings in deposits in
U.S. dollars) in London.
"Majority in Liquidation Amount" means, with respect to the
Securities, except as provided in the terms of the Preferred Securities or by
the Trust Indenture Act, Holders of outstanding Securities voting together as a
single class or, as the context may require, Holders of outstanding Preferred
Securities or Holders of outstanding Common Securities voting separately as a
class, who are the record owners of more than 50% of the aggregate Liquidation
Amount (including the amount that would be paid on redemption, liquidation or
otherwise, plus accumulated and unpaid Distributions to the date upon which the
voting percentages are determined) of all outstanding Securities of the relevant
class.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chief Executive Officer, the Chief Financial Officer,
the President or a Vice President, and by the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary. Any Officers' Certificate delivered by
the Trust shall be signed by at least one Administrative Trustee. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Agreement shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definitions
relating thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer in rendering
the Officers' Certificate;
5
<PAGE> 12
(c) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is
necessary to enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel, who
may be an employee of the Sponsor, and who shall be reasonably acceptable to the
Property Trustee, provided, that the General Counsel or Assistant General
Counsel of the Sponsor shall be deemed to be reasonably acceptable to the
Trustee.
"Participants" has the meaning specified in Section 7.3(a).
"Paying Agent" has the meaning specified in Section 7.4.
"Payment Amount" has the meaning specified in Section 6.1.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"PORTAL Market" means the Private Offerings, Resales and
Trading through Automated Linkages Market operated by the National Association
of Securities Dealers, Inc. or any successor thereto.
"Preferred Securities" has the meaning specified in Section
7.1(a).
"Preferred Securities Guarantee" means the Preferred
Securities Guarantee Agreement dated as of December 23, 1999 of the Sponsor in
respect of the Preferred Securities.
"Preferred Security Beneficial Owner" means, with respect to a
Book Entry Interest, a Person who is the beneficial owner of such Book-Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
"Property Trustee" has the meaning set forth in Section
5.3(a).
"Property Trustee Account" has the meaning set forth in
Section 3.8(c).
"Purchase Agreement" means the Purchase Agreement for the
offering and sale of Preferred Securities in the form of Exhibit C.
"QIB" means a qualified institutional buyer as defined in Rule
144A.
6
<PAGE> 13
"Quorum" means a majority of the Administrative Trustees or,
if there are only two Administrative Trustees, both of them.
"Registrar" has the meaning set forth in Section 7.4.
"Related Party" means, with respect to the Sponsor, any direct
or indirect wholly owned subsidiary of the Sponsor or any other Person that
owns, directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"Responsible Officer" means, with respect to the Property
Trustee, any officer within the Corporate Trust Office of the Property Trustee
with direct responsibility for the administration of this Agreement, including
any vice-president, any assistant vice-president, any assistant secretary, any
assistant treasurer or other officer of the Corporate Trust Office of the
Property Trustee customarily performing functions similar to those performed by
any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer of the Property Trustee to
whom such matter is referred because of that officer's knowledge of and
familiarity with the particular subject.
"Restricted Security" has the meaning set forth in Section
9.1.
"Rule 144A" means Rule 144A as promulgated under the
Securities Act, or any successor rule.
"Rule 144(k)" means Rule 144(k) as promulgated under the
Securities Act, or any successor rule.
"Securities" or "Trust Securities" means the Common Securities
and the Preferred Securities.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, or any successor legislation.
"Securities Guarantees" means the Common Securities Guarantee
and the Preferred Securities Guarantee.
"Sponsor" means Hercules Incorporated, a Delaware corporation,
or any successor entity resulting from any merger, consolidation, amalgamation
or other business combination, in its capacity as sponsor of the Trust.
"Successor Delaware Trustee" has the meaning set forth in
Section 5.7(b)(ii).
"Successor Entity" has the meaning set forth in Section
3.15(b)(i).
"Successor Property Trustee" has the meaning set forth in
Section 3.8(f)(ii).
"Successor Securities" has the meaning set forth in Section
3.15(b)(i)(B).
"Super Majority" has the meaning set forth in Section
2.6(a)(ii).
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"10% in Liquidation Amount" means, with respect to the
Securities, except as provided in the terms of the Preferred Securities or by
the Trust Indenture Act, Holders of outstanding Securities voting together as a
single class or, as the context may require, Holders of outstanding Preferred
Securities or Holders of outstanding Common Securities voting separately as a
class, who are the record owners of 10% or more of the aggregate Liquidation
Amount (including the amount that would be paid on redemption, liquidation or
otherwise, plus accumulated and unpaid Distributions to the date upon which the
voting percentages are determined) of all outstanding Securities of the relevant
class.
"Transfer Restriction Termination Date" means the first date
on which the Preferred Securities (other than Preferred Securities acquired by
the Trust or any Affiliate thereof) may be sold pursuant to Rule 144(k).
"Treasury Regulations" means the income tax regulations,
including temporary and proposed regulations, promulgated under the Code by the
United States Treasury, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"Trustee" or "Trustees" means each Person who has signed this
Agreement as a trustee, so long as such Person shall continue as Trustee of the
Trust in accordance with the terms hereof, and all other Persons who may from
time to time be duly appointed, qualified and serving as Trustees in accordance
with the provisions hereof, and references herein to a Trustee or the Trustees
shall refer to such Person or Persons solely in their capacity as trustees
hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended from time to time, or any successor legislation.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
(a) This Agreement is subject to the provisions of the Trust Indenture
Act that are required to be part of this Agreement in order for this Agreement
to be qualified under the Trust Indenture Act and shall, to the extent
applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a trustee
for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Agreement limits,
qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
(d) The application of the Trust Indenture Act to this Agreement shall
not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
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SECTION 2.2 Lists of Holders of Securities.
(a) Each of the Sponsor and the Administrative Trustees on behalf of
the Trust shall provide the Property Trustee, unless the Property Trustee is the
Registrar for the Securities, (i) within 14 days after each record date for
payment of Distributions, a list, in such form as the Property Trustee may
reasonably require, of the names and addresses of the Holders of the Securities
("List of Holders") as of such record date, provided that neither the Sponsor
nor the Administrative Trustees on behalf of the Trust shall be obligated to
provide such List of Holders at any time the List of Holders does not differ
from the most recent List of Holders given to the Property Trustee by the
Sponsor and the Administrative Trustees on behalf of the Trust, and (ii) at any
other time, within 30 days of receipt by the Trust of a written request for a
List of Holders as of a date no more than 14 days before such List of Holders is
given to the Property Trustee. The Property Trustee shall preserve, in as
current a form as is reasonably practicable, all information contained in Lists
of Holders given to it or which it receives in the capacity as Paying Agent (if
acting in such capacity), provided that the Property Trustee may destroy any
List of Holders previously given to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with the obligations set forth
under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Property Trustee.
Within 60 days after September 1 of each year, commencing
September 1, 2000, the Property Trustee shall provide to the Holders of the
Preferred Securities such reports as are required by Section 313 of the Trust
Indenture Act, if any, in the form and in the manner provided by Section 313 of
the Trust Indenture Act. The Property Trustee shall also comply with the
requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Property Trustee.
Each of the Sponsor and the Administrative Trustees on behalf
of the Trust shall provide to the Property Trustee such documents, reports and
information as are required by Section 314 of the Trust Indenture Act (if any)
and the compliance certificate required by Section 314 of the Trust Indenture
Act in the form, in the manner and at the times required by Section 314 of the
Trust Indenture Act.
SECTION 2.5 Evidence of Compliance with Conditions Precedent.
Each of the Sponsor and the Administrative Trustees on behalf
of the Trust shall provide to the Property Trustee such evidence of compliance
with any conditions precedent provided for in this Agreement that relate to any
of the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) of the Trust Indenture Act may be given in the form of an Officers'
Certificate.
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SECTION 2.6 Events of Default; Waiver.
(a) The Holders of a Majority in Liquidation Amount of Preferred
Securities may, by vote, on behalf of the Holders of all of the Preferred
Securities, waive any past Event of Default in respect of the Preferred
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, the Event of Default
under the Agreement shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority
in aggregate principal amount of the holders of the Debentures (a
"Super Majority") to be waived under the Indenture, the Event of
Default under the Agreement may only be waived by the vote of the
Holders of at least the proportion in aggregate Liquidation Amount of
the Preferred Securities that the relevant Super Majority represents of
the aggregate principal amount of the Debentures outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of Section
316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Agreement and the
Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such
default shall cease to exist, and any Event of Default with respect to the
Preferred Securities arising therefrom shall be deemed to have been cured, for
every purpose of this Agreement, but no such waiver shall extend to any
subsequent or other default or an Event of Default with respect to the Preferred
Securities or impair any right consequent thereon. Any waiver by the Holders of
the Preferred Securities of an Event of Default with respect to the Preferred
Securities shall also be deemed to constitute a waiver by the Holders of the
Common Securities of any such Event of Default with respect to the Common
Securities for all purposes of this Agreement without any further act, vote, or
consent of the Holders of the Common Securities.
(b) The Holders of a Majority in Liquidation Amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture (except where the
Holders of the Common Securities are deemed to have waived such Event
of Default under the Agreement as provided below in this Section
2.6(b)), the Event of Default under the Agreement shall also not be
waivable; or
(ii) requires the consent or vote of a Super Majority to be
waived, except where the Holders of the Common Securities are deemed to
have waived such Event of Default under the Agreement as provided below
in this Section 2.6(b), the Event of Default under the Agreement may
only be waived by the vote of the Holders of at least the proportion in
aggregate Liquidation Amount of the Common Securities that the relevant
Super Majority represents of the aggregate principal amount of the
Debentures outstanding;
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provided further, each Holder of Common Securities will be deemed to have waived
any such Event of Default and all Events of Default with respect to the Common
Securities and its consequences until all Events of Default with respect to the
Preferred Securities have been cured, waived or otherwise eliminated, and until
such Events of Default have been so cured, waived or otherwise eliminated, the
Property Trustee will be deemed to be acting solely on behalf of the Holders of
the Preferred Securities and only the Holders of the Preferred Securities will
have the right to direct the Property Trustee in accordance with the terms of
the Securities. The foregoing provisions of this Section 2.6(b) shall be in lieu
of Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such
Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby
expressly excluded from this Agreement and the Securities, as permitted by the
Trust Indenture Act. Subject to the foregoing provisions of this Section 2.6(b),
upon such waiver, any such default shall cease to exist and any Event of Default
with respect to the Common Securities arising therefrom shall be deemed to have
been cured for every purpose of this Agreement, but no such waiver shall extend
to any subsequent or other default or Event of Default with respect to the
Common Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the Property
Trustee, at the direction of the Holders of the Preferred Securities,
constitutes a waiver of the corresponding Event of Default under this Agreement.
The foregoing provisions of this Section 2.6(c) shall be in lieu of Section
316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Agreement and the
Securities, as permitted by the Trust Indenture Act.
SECTION 2.7 Event of Default; Notice.
(a) The Property Trustee shall, within 90 days after the occurrence of
any default with respect to the Securities, transmit by mail, first class
postage prepaid, to the Holders of the Securities and to the Sponsor, notices of
all such defaults actually known to a Responsible Officer of the Property
Trustee, unless such defaults have been cured before the giving of such notice
(the term "defaults" for the purposes of this Section 2.7(a) being hereby
defined to be a Default as defined in the Indenture, not including any periods
of grace provided for therein and irrespective of the giving of any notice
provided therein); provided that, except for a default in the payment of
principal of (or premium, if any) or interest on any of the Debentures, the
Property Trustee shall be protected in withholding such notice if and so long as
a committee of Responsible Officers of the Property Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Securities.
(b) The Property Trustee shall not be deemed to have actual knowledge
of any default except:
(i) a default under Sections 6.01(a) and 6.01(b) of the
Indenture; or
(ii) any default as to which the Property Trustee shall have
received written notice or of which a Responsible Officer of the
Property Trustee charged with the administration of the Agreement shall
have actual knowledge.
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(c) Within ten Business Days after the occurrence of any Event of
Default actually known to a Responsible Officer of the Property Trustee, the
Property Trustee shall transmit notice of such Event of Default to the Holders
of the Preferred Securities, the Administrative Trustees and the Sponsor, unless
such Event of Default shall have been cured, waived or otherwise eliminated. The
Sponsor and the Administrative Trustees shall file annually with the Property
Trustee a certification as to whether or not they are in compliance with all the
conditions and covenants applicable to them under this Agreement.
ARTICLE III
ORGANIZATION
SECTION 3.1 Name.
The Trust is named "Hercules Trust VI" as such name may be modified
from time to time by the Administrative Trustees following written notice to the
Delaware Trustee, the Property Trustee and the Holders of Securities. The
Trust's activities may be conducted under the name of the Trust or any other
name deemed advisable by the Administrative Trustees.
SECTION 3.2 Office.
The address of the principal office of the Trust is c/o Hercules Plaza,
1313 North Market Street, Wilmington, Delaware 19894-0001. On ten Business Days'
prior written notice to the Delaware Trustee, the Property Trustee and the
Holders of Securities, the Administrative Trustees may designate another
principal office.
SECTION 3.3 Purpose.
The exclusive purposes and functions of the Trust are (a) to issue and
sell Securities, (b) use the proceeds from the sale of the Securities to acquire
the Debentures in an aggregate principal amount equal to the aggregate
Liquidation Amount of such Securities, and (c) except as otherwise limited
herein, to engage in only those other activities necessary, advisable or
incidental thereto, including without limitation, those activities specified in
Sections 3.6, 3.8, 3.9, 3.10, 3.11 and/or 3.12.
SECTION 3.4 Authority.
Subject to the limitations provided in this Agreement and to the
specific duties of the Property Trustee, the Administrative Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust. An
action taken by one or more of the Administrative Trustees in accordance with
their powers shall constitute the act of and serve to bind the Trust and an
action taken by the Property Trustee on behalf of the Trust in accordance with
its powers shall constitute the act of and serve to bind the Trust. In dealing
with the Trustees acting on behalf of the Trust, no Person shall be required to
inquire into the authority of the Trustees to bind the Trust. Persons dealing
with the Trust are entitled to rely conclusively on the power and authority of
the Trustees as set forth in this Agreement.
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SECTION 3.5 Title to Property of the Trust.
Except as provided in Section 3.8 with respect to the Debentures and
the Property Trustee Account or as otherwise provided in this Agreement, legal
title to all assets of the Trust shall be vested in the Trust. The Holders shall
not have legal title to any part of the assets of the Trust, but shall have an
undivided beneficial interest in the assets of the Trust.
SECTION 3.6 Powers and Duties of the Administrative Trustees.
The Administrative Trustees shall have the exclusive power
(subject to Section 4.2), duty and authority, and are hereby authorized and
directed, to cause the Trust to engage in the following activities:
(a) to execute, deliver, issue and sell the Preferred Securities and
the Common Securities in accordance with this Agreement; provided, however, that
(i) the Trust may issue no more than one series of Preferred Securities and no
more than one series of Common Securities, (ii) there shall be no interests in
the Trust other than the Securities, and (iii) the issuance of Securities shall
be limited to a simultaneous issuance of both Preferred Securities and Common
Securities at the Closing Time, subject to (1) the issuance of additional
Securities in the event of transfers, exchanges and replacements and (2) the
right of the Trust to issue additional Securities, without the consent of any
Holders, with the same terms as the applicable Securities (other than the date
of issuance and the date on which Distributions begin to accumulate) so as to
form the same series with such Securities;
(b) in connection with the issue and sale of the Preferred Securities,
at the direction of the Sponsor, to:
(i) execute and file any documents prepared by the Sponsor, or
take any acts as determined by the Sponsor to be necessary in order to
qualify or register all or part of the Preferred Securities in any
State in which the Sponsor has determined to qualify or register such
Preferred Securities for sale;
(ii) execute and file an application, prepared by the Sponsor,
to qualify the Preferred Securities for trading in the PORTAL Market;
(iii) execute and deliver letters, documents, or instruments
with DTC and other Clearing Agencies relating to the Preferred
Securities; and
(iv) execute and file any agreement, certificate or other
document which such Administrative Trustee deems necessary or
appropriate in connection with the issuance and sale of the Preferred
Securities;
(c) to acquire the Debentures with the proceeds of the sale of the
Preferred Securities and the Common Securities; provided, however, that the
Administrative Trustees shall cause legal title to the Debentures to be held of
record in the name of the Property Trustee for the benefit of the Holders of the
Preferred Securities and the Holders of Common Securities;
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(d) if requested by the Sponsor, to cause the Trust to enter into and
to execute and deliver on behalf of the Trust such agreements (including the
Purchase Agreement) and arrangements as may be necessary or desirable in
connection with the sale of Preferred Securities to the initial purchaser(s)
thereof and the consummation thereof, and to take all action, and exercise all
discretion, as may be necessary or desirable in connection with the consummation
thereof;
(e) to give the Sponsor and the Property Trustee prompt written notice
of the occurrence of any event specified in Section 8.1;
(f) to establish a record date with respect to all actions to be taken
hereunder that require a record date be established, including and with respect
to, for the purposes of Section 316(c) of the Trust Indenture Act,
Distributions, voting rights and redemptions, and to issue relevant notices to
the Holders of Preferred Securities and Holders of Common Securities as to such
actions and applicable record dates;
(g) to take all actions and perform such duties as may be required of
the Administrative Trustees pursuant to the terms of the Securities;
(h) to bring or defend, pay, collect, compromise, arbitrate, resort to
legal action, or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.8(e), the Property Trustee has
the exclusive power to bring such Legal Action;
(i) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and pay reasonable compensation for such services;
(j) to cause the Trust to comply with the Trust's obligations under the
Trust Indenture Act;
(k) to give the certificate required by Section 314(a)(4) of the Trust
Indenture Act to the Property Trustee, which certificate may be executed by any
Administrative Trustee;
(l) to incur expenses that are necessary or incidental to carry out any
of the purposes of the Trust;
(m) to act as, or appoint another Person to act as, Registrar for the
Securities or to appoint a Paying Agent for the Securities as provided in
Section 7.4 except for such time as such power to appoint a Paying Agent is
vested in the Property Trustee;
(n) to give prompt written notice to the Property Trustee and to
Holders of the Securities of any notice received from the Debenture Issuer of
its election to defer payments of interest on the Debentures by extending the
interest payment period under the Indenture;
(o) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which
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such existence is necessary to protect the limited liability of the Holders of
the Preferred Securities or to enable the Trust to effect the purposes for which
the Trust was created;
(p) to take any action (provided that such action does not materially
adversely affect the interests of Holders), not inconsistent with this Agreement
or with applicable law, that the Administrative Trustees determine in their
discretion to be necessary or desirable in carrying out the activities of the
Trust as set out in this Section 3.6, including, but not limited to:
(i) causing the Trust not to be deemed to be an Investment
Company required to be registered under the Investment Company Act;
(ii) causing the Trust to be classified for United States
Federal income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer to ensure that the
Debentures will be treated as indebtedness of the Debenture Issuer for
United States Federal income tax purposes;
(q) to take all action necessary to cause all applicable tax returns
and tax information reports that are required to be filed with respect to the
Trust to be duly prepared and filed by the Administrative Trustees, on behalf of
the Trust; and
(r) to execute and deliver and record, file or register, as applicable,
all documents, certificates, agreements or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary, advisable or incidental to the foregoing.
The Administrative Trustees must exercise the powers set forth in this
Section 3.6 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Administrative Trustees shall not take
any action that is inconsistent with the purposes and functions of the Trust set
forth in Section 3.3.
Subject to this Section 3.6, the Administrative Trustees shall have
none of the powers or the authority of the Property Trustee set forth in Section
3.8.
Any expenses incurred by the Administrative Trustees pursuant to this
Section 3.6 shall be reimbursed by the Debenture Issuer.
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.
(a) The Trust and the Trustees (including the Property Trustee and the
Delaware Trustee) shall not, and the Administrative Trustees shall cause the
Trust not to, engage in any activity other than as required or authorized by
this Agreement. In particular, the Trust shall not:
(i) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to Holders of
Securities pursuant to the terms of this Agreement and of the
Securities;
(ii) acquire any assets other than as expressly provided
herein;
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(iii) possess Trust property for other than a Trust purpose or
execute any mortgage in respect of, or pledge, any Trust property;
(iv) make any loans or incur any indebtedness other than loans
represented by the Debentures;
(v) possess any power or otherwise act in such a way as to
vary the Trust assets or the terms of the Securities in any way
whatsoever;
(vi) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the
Securities;
(vii) so long as any Debentures are held by the Property
Trustee, the Trustees shall not (A) direct the time, method and place
of conducting any proceeding with respect to any remedy available to
the Debenture Trustee, or exercise any trust or power conferred upon
the Debenture Trustee with respect to the Debentures, (B) waive any
past default that is waivable under the Indenture, (C) exercise any
right to rescind or annul a declaration of acceleration of the maturity
of the principal of the Debentures, or (D) consent to any amendment,
modification or termination of the Indenture or the Debentures where
such consent shall be required, without, in each case, obtaining (1)
the prior approval of the Holders of a Majority in Liquidation Amount
of all outstanding Securities; provided, however, that where a consent
under the Indenture would require the consent of each holder of
Debentures affected thereby, no such consent shall be given by the
Property Trustee without the prior approval of each Holder of
Securities and (2) an Opinion of Counsel delivered to the Trust from
tax counsel experienced in such matters to the effect that the Trust
will not be classified as an association taxable as a corporation for
United States Federal income tax purposes on account of such action;
(viii) revoke any action previously authorized or approved by
a vote of the Holders of Preferred Securities except by subsequent vote
of such Holders;
(ix) revoke any action previously authorized or approved by a
vote of the Holders of Common Securities except by subsequent vote of
such Holders; or
(x) undertake (or permit to be undertaken) any activity that
would cause the Trust not to be classified for United States Federal
income tax purposes as a grantor trust.
SECTION 3.8 Powers and Duties of the Property Trustee.
(a) The legal title to the Debentures shall be owned by and held of
record in the name of the Property Trustee in trust for the benefit of the Trust
and the Holders of the Securities. The right, title and interest of the Property
Trustee to the Debentures shall vest automatically in each Person who may
hereafter be appointed as Property Trustee in accordance with Section 5.7. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents with regard to the Debentures have been executed and delivered.
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(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Administrative Trustees or to the Delaware
Trustee (if the Property Trustee does not also act as Delaware Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing
trust account (the "Property Trustee Account") in the name of and under
the exclusive control of the Property Trustee on behalf of the Holders
of the Securities and, upon the receipt of payments of funds made in
respect of the Debentures held by the Property Trustee, deposit such
funds into the Property Trustee Account and make payments or cause the
Paying Agent to make payments to the Holders of the Preferred
Securities and Holders of the Common Securities from the Property
Trustee Account in accordance with Section 6.1; and funds in the
Property Trustee Account shall be held uninvested until disbursed in
accordance with this Agreement;
(ii) engage in such ministerial activities as shall be
necessary or appropriate to effect the redemption of the Preferred
Securities and the Common Securities when the Debentures mature;
(iii) upon written notice of distribution issued by the
Administrative Trustees in accordance with the terms of the Securities,
engage in such ministerial activities as shall be necessary or
appropriate to effect the distribution of the Debentures to Holders of
Securities upon the occurrence of certain events; and
(iv) take such ministerial action as may be requested by the
Administrative Trustees in connection with the winding up of the
affairs of or liquidation of the Trust in accordance with this
Agreement and the preparation, execution and filing of a certificate of
cancellation or other appropriate certificates with the Secretary of
State of the State of Delaware and other appropriate governmental
authorities.
(d) The Property Trustee shall take all actions and perform such duties
as may be specifically required of the Property Trustee pursuant to the terms of
this Agreement and the Securities.
(e) Subject to Section 3.9, the Property Trustee shall take any Legal
Action which arises out of or in connection with an Event of Default of which a
Responsible Officer of the Property Trustee has actual knowledge or the Property
Trustee's duties and obligations under this Agreement or the Trust Indenture Act
and, if the Property Trustee shall have failed to take such Legal Action, the
Holders of the Preferred Securities in at least an aggregate Liquidation Amount
equal to the specified percentage of Holders of Debentures entitled to take such
Legal Action may, to the fullest extent permitted by law, take such Legal Action
without first proceeding against the Property Trustee or the Trust; provided
however, that if an Event of Default has occurred and is continuing and such
event is attributable to the failure of the Debenture Issuer to pay the
principal of or premium, if any, or interest on the Debentures on the date such
principal, premium, if any, or interest is otherwise payable (or in the case of
redemption, on the redemption date), then a Holder of Preferred Securities may
directly institute
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a proceeding for enforcement of payment to such Holder of the principal of or
premium, if any, or interest on the Debentures having a principal amount equal
to the aggregate Liquidation Amount of the Preferred Securities of such Holder
on or after the respective due date specified in the Debentures (a "Direct
Action"). Except as provided in the preceding sentence, the Holders of Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the Debentures.
(f) The Property Trustee shall continue to serve as a Trustee until
either:
(i) the Trust has been completely liquidated and the proceeds
of the liquidation distributed to the Holders of Securities pursuant to
the terms of the Securities and this Agreement; or
(ii) a successor Property Trustee has been appointed and has
accepted that appointment in accordance with Section 5.7 (a "Successor
Property Trustee").
(g) The Property Trustee shall have the legal power to exercise all of
the rights, powers and privileges of a holder of Debentures under the Indenture
and, if an Event of Default actually known to a Responsible Officer of the
Property Trustee occurs and is continuing, the Property Trustee shall, for the
benefit of Holders of the Securities, enforce its rights as holder of the
Debentures subject to the rights of the Holders pursuant to the terms of the
Securities and this Agreement.
(h) The Property Trustee shall be authorized to undertake any actions
set forth in Section 317(a) of the Trust Indenture Act.
(i) For such time as the Property Trustee is the Paying Agent, the
Property Trustee may authorize one or more Persons to act as additional Paying
Agents and to pay Distributions, redemption payments or liquidation payments on
behalf of the Trust with respect to all Securities and any such Paying Agent
shall comply with Section 317(b) of the Trust Indenture Act. Any such additional
Paying Agent may be removed by the Property Trustee at any time the Property
Trustee remains as Paying Agent and a successor Paying Agent or additional
Paying Agents may be (but are not required to be) appointed at any time by the
Property Trustee while the Property Trustee is acting as Paying Agent.
(j) Subject to this Section 3.8, the Property Trustee shall have none
of the duties, liabilities, powers or the authority of the Administrative
Trustees set forth in Section 3.6.
Notwithstanding anything expressed or implied to the contrary in this
Agreement or any Annex or Exhibit hereto, the Property Trustee must exercise the
powers set forth in this Section 3.8 in a manner that is consistent with the
purposes and functions of the Trust set out in Section 3.3.
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.
(a) The Property Trustee, before the occurrence of any Event of Default
and after the curing or waiving of all Events of Default that may have occurred,
shall undertake to perform
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only such duties as are specifically set forth in this Agreement and in the
Securities and no implied covenants or obligations shall be read into this
Agreement against the Property Trustee. In case an Event of Default has occurred
(that has not been cured or waived pursuant to Section 2.6) of which a
Responsible Officer of the Property Trustee has actual knowledge, the Property
Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(b) No provision of this Agreement shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act, its own bad faith or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Property
Trustee shall be determined solely by the express provisions
of this Agreement and in the Securities and the Property
Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this
Agreement and in the Securities, and no implied covenants or
obligations shall be read into this Agreement against the
Property Trustee; and
(B) in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may conclusively rely,
as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Property Trustee and conforming to the
requirements of this Agreement; provided, however, that in the
case of any such certificates or opinions that by any
provision hereof are specifically required to be furnished to
the Property Trustee, the Property Trustee shall be under a
duty to examine the same to determine whether or not they
conform to the requirements of this Agreement (but shall not
be required to confirm or investigate the accuracy of
mathematical calculations or other facts stated therein);
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property
Trustee, unless it shall be proved that the Property Trustee was
negligent in ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of a Majority in
Liquidation Amount of the Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the
Property Trustee, or exercising any trust or power conferred upon the
Property Trustee under this Agreement;
(iv) no provision of this Agreement shall require the Property
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that the repayment of such funds or liability is
not reasonably
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assured to it under the terms of this Agreement or indemnity reasonably
satisfactory to the Property Trustee against such risk or liability is
not reasonably assured to it;
(v) the Property Trustee's sole duty with respect to the
custody, safekeeping and physical preservation of the Debentures and
the Property Trustee Account shall be to deal with such property in a
similar manner as the Property Trustee deals with similar property for
its own account, subject to the protections and limitations on
liability afforded to the Property Trustee under this Agreement and the
Trust Indenture Act;
(vi) the Property Trustee shall have no duty or liability for
or with respect to the value, genuineness, existence or sufficiency of
the Debentures or the payment of any taxes or assessments levied
thereon or in connection therewith;
(vii) the Property Trustee shall not be liable for any
interest on any money received by it except as it may otherwise agree
in writing with the Sponsor. Money held by the Property Trustee need
not be segregated from other funds held by it except in relation to the
Property Trustee Account maintained by the Property Trustee pursuant to
Section 3.8(c)(i) and except to the extent otherwise required by law;
and
(viii) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrative Trustees or the Sponsor
with their respective duties under this Agreement, nor shall the
Property Trustee be liable for any default or misconduct of the
Administrative Trustees or the Sponsor.
SECTION 3.10 Certain Rights of Property Trustee.
(a) Subject to the provisions of Section 3.9:
(i) the Property Trustee may conclusively rely and shall be
fully protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by
it to be genuine and to have been signed, sent or presented by the
proper party or parties;
(ii) any direction or act of the Sponsor or the Administrative
Trustees contemplated by this Agreement may be sufficiently evidenced
by an Officers' Certificate;
(iii) whenever in the administration of this Agreement, the
Property Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder,
the Property Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and
conclusively rely upon an Officers' Certificate which, upon receipt of
such request, shall be promptly delivered by the Sponsor or the
Administrative Trustees;
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(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or
securities laws) or any re-recording, refiling or registration thereof;
(v) the Property Trustee may consult with counsel or other
experts of its selection and the advice or opinion of such counsel and
experts with respect to legal matters or advice within the scope of
such experts' area of expertise shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in accordance with such
advice or opinion, such counsel may be counsel to the Sponsor or any of
its Affiliates, and may include any of its employees; and the Property
Trustee shall have the right at any time to seek instructions
concerning the administration of this Agreement from any court of
competent jurisdiction;
(vi) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Agreement at
the request or direction of any Holder, unless such Holder shall have
provided to the Property Trustee security and indemnity, reasonably
satisfactory to the Property Trustee, against the costs, expenses
(including reasonable attorneys' fees and expenses and the expenses of
the Property Trustee's agents, nominees or custodians) and liabilities
that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by
the Property Trustee in respect of the time, method or place of
conducting any proceeding for any remedy available to the Property
Trustee or the exercise of any trust or power conferred on the Property
Trustee under this Agreement;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Property Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents, custodians, nominees or attorneys and the Property
Trustee shall not be responsible for any misconduct or negligence on
the part of any agent or attorney appointed with due care by it
hereunder;
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the Securities, and
the signature of the Property Trustee or its agents alone shall be
sufficient and effective to perform any such action and no third party
shall be required to inquire as to the authority of the Property
Trustee to so act or as to its compliance with any of the terms and
provisions of this Agreement, both of which shall be conclusively
evidenced by the Property Trustee's or its agent's taking such action;
(x) whenever in the administration of this Agreement the
Property Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or
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taking any other action hereunder, the Property Trustee (i) may request
instructions from the Holders of the Securities which instructions may
only be given by the Holders of the same proportion in Liquidation
Amount of the Securities as would be entitled to direct the Property
Trustee under the terms of the Securities in respect of such remedy,
right or action, (ii) may refrain from enforcing such remedy or right
or taking such other action until such instructions are received, and
(iii) shall be protected in conclusively relying on, or acting in
accordance with, such instructions;
(xi) except as otherwise expressly provided by this Agreement,
the Property Trustee shall not be under any obligation to take any
action that is discretionary under the provisions of this Agreement;
and
(xii) the Property Trustee shall not be liable for any action
taken, suffered, or omitted to be taken by it in good faith, without
negligence, and reasonably believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Agreement.
(b) No provision of this Agreement shall be deemed to impose any duty
or obligation on the Property Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any jurisdiction
in which it shall be illegal, or in which the Property Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts, or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Property Trustee shall be
construed to be a duty.
(c) It is expressly understood and agreed by the parties hereto that in
fulfilling its obligations as Property Trustee hereunder on behalf of the Trust,
(i) any agreements or instruments executed or delivered by The Chase Manhattan
Bank are executed and delivered not in its individual capacity but solely as
Property Trustee under this Agreement in the exercise of the powers and
authority conferred and vested in it, (ii) each of the representations,
undertakings and agreements herein made on the part of the Trust is made and
intended not as representations, warranties, covenants, undertakings and
agreements by The Chase Manhattan Bank in its individual capacity but is made
and intended for the purpose of binding only the Trust, and (iii) under no
circumstances (except with respect to funds delivered to it relating to payments
in respect of the Securities) shall The Chase Manhattan Bank in its individual
capacity be personally liable for the payment of any indebtedness or expenses of
the Trust or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Trust under this
Agreement except if such breach or failure is due to any negligence, bad faith
or willful misconduct of the Property Trustee.
SECTION 3.11 Delaware Trustee.
(a) Notwithstanding any other provision of this Agreement other than
Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers,
nor shall the Delaware Trustee have any of the duties and responsibilities of
the Administrative Trustees or the Property Trustee described in this Agreement
(except as required under the Business Trust Act). Except as set
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forth in Section 5.2, the Delaware Trustee shall be a Trustee for the sole and
limited purpose of fulfilling the requirements of Section 3807 of the Business
Trust Act.
(b) It is expressly understood and agreed by the parties hereto that in
fulfilling its obligations as Delaware Trustee hereunder on behalf of the Trust,
(i) any agreements or instruments executed or delivered by Chase Manhattan Bank
Delaware are executed and delivered not in its individual capacity but solely as
Delaware Trustee under this Agreement in the exercise of the powers and
authority conferred and vested in it, (ii) each of the representations,
undertakings and agreements herein made on the part of the Trust is made and
intended not as representations, warranties, covenants, undertakings and
agreements by Chase Manhattan Bank Delaware in its individual capacity but is
made and intended for the purpose of binding only the Trust, and (iii) under no
circumstances shall Chase Manhattan Bank Delaware in its individual capacity be
personally liable for the payment of any indebtedness or expenses of the Trust
or be liable for the breach or failure of any obligation, representation,
warranty, or covenant made or undertaken by the Trust under this Agreement
except if such breach or failure is due to any negligence, bad faith or willful
misconduct of the Delaware Trustee.
SECTION 3.12 Execution of Documents.
Except as otherwise required by the Business Trust Act or applicable
law, each Administrative Trustee, individually, is authorized to execute and
deliver on behalf of the Trust any documents, agreements, instruments or
certificates that the Administrative Trustees have the power and authority to
execute and deliver pursuant to this Agreement.
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities.
The recitals contained in this Agreement and the Securities shall be
taken as the statements of the Sponsor, and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as to
the value or condition of the property of the Trust or any part thereof. The
Trustees make no representations as to the validity or sufficiency of this
Agreement or the Securities.
SECTION 3.14 Duration of Trust.
The Trust, unless dissolved pursuant to the provisions of Article VIII
hereof, shall have existence until December 29, 2001.
SECTION 3.15 Mergers.
(a) The Trust may not merge with or into, convert into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to any Person, except as
described in Section 3.15(b) and (c) and except with respect to the distribution
of all Debentures to Holders of Securities pursuant to Section 8.1(a)(iii).
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(b) The Trust may, at the request of the Sponsor, with the consent of
the Administrative Trustees or, if there are more than two, a majority of the
Administrative Trustees and without the consent of the Holders of the
Securities, the Delaware Trustee or the Property Trustee, merge with or into,
convert into, consolidate, amalgamate, or be replaced by, or convey, transfer or
lease its properties and assets as an entirety or substantially as an entirety
to, a trust organized as such under the laws of any State; provided that:
(i) such successor entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the
Trust under the Securities; or
(B) substitutes for the Securities other securities
having substantially the same terms as the Securities (the
"Successor Securities") so long as the Successor Securities
rank the same as the Securities rank with respect to
Distributions and payments upon liquidation, redemption and
otherwise;
(ii) the Sponsor expressly appoints a trustee of the Successor
Entity that possesses the same powers and duties as the Property
Trustee with respect to the Debentures;
(iii) the Successor Securities (excluding any securities
substituted for any Common Securities) are listed, quoted or included
for trading, or any Successor Securities will be listed, quoted or
included for trading, upon notification of issuance, on any national
securities exchange or with any other organization on which the
Preferred Securities are then listed, quoted or included;
(iv) such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Preferred
Securities (including any Successor Securities) or the Debentures to be
downgraded or placed under surveillance or review by any nationally
recognized statistical rating organization that publishes a rating on
the Preferred Securities or the Debentures;
(v) such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect
the rights, preferences and privileges of the Holders of the Securities
(including the holders of any Successor Securities) in any material
respect (other than with respect to any dilution of the interests of
such Holders or holders, as the case may be, in the Successor Entity);
(vi) the Successor Entity has a purpose substantially
identical to that of the Trust;
(vii) prior to such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Sponsor
has received an opinion of a nationally recognized independent counsel
to the Trust experienced in such matters to the effect that:
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(A) such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease does
not adversely affect the rights, preferences and privileges of
the Holders of the Securities (including the holders of any
Successor Securities) in any material respect (other than with
respect to any dilution of the interests of such Holders or
holders, as the case may be, in the Successor Entity); and
(B) following such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease,
neither the Trust nor the Successor Entity, if any, will be
required to register as an Investment Company; and
(viii) the Sponsor or any permitted successor or assignee owns
all of the common securities of the Successor Entity and guarantees the
obligations of the Successor Entity under the Successor Securities at
least to the extent provided by the Preferred Securities Guarantee and
the Common Securities Guarantee.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except with
the consent of Holders of 100% in Liquidation Amount of the Securities, merge
with or into, convert into, consolidate, amalgamate, or be replaced by, or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to, any other Person or permit any other Person to
merge with or into, consolidate, amalgamate, or replace it if such merger,
conversion, consolidation, amalgamation, replacement, conveyance, transfer or
lease would cause the Trust or the Successor Entity, if any, not to be
classified as a grantor trust for United States Federal income tax purposes.
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities.
At the Closing Time, the Sponsor will purchase all of the Common
Securities then issued by the Trust, in an amount equal to at least 3% of the
total capital of the Trust, at the same time as the Preferred Securities are
issued and sold. The aggregate Liquidation Amount of Common Securities at any
time shall not be less than 3% of the total capital of the Trust.
For so long as the Preferred Securities remain outstanding, the Sponsor
covenants (i) to maintain, directly or indirectly, 100% ownership of the Common
Securities; provided, however, that any permitted successor of the Sponsor under
the Indenture may succeed to the Sponsor's interest in the Common Securities,
(ii) to use its best efforts to cause the Trust (a) to remain a business trust,
except in connection with a distribution of Debentures to the Holders of
Securities in liquidation of the Trust, the redemption of all the Securities, or
certain mergers, consolidations or amalgamations, each as permitted by this
Agreement, and not to voluntarily dissolve, wind up, liquidate or be terminated,
except as permitted by this Agreement, and (b) to otherwise continue to be
classified as a grantor trust for United States federal income tax purposes,
(iii) to use its best efforts to ensure that the Trust shall not be an
Investment Company for purposes of the Investment Company Act, (iv) to use its
best efforts to cause each Holder of
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Securities to be treated as owning an undivided beneficial interest in the
Debentures and (v) to take no action which would cause the dissolution,
liquidation or winding up of the Trust, except as otherwise provided in this
Agreement.
SECTION 4.2 Responsibilities of the Sponsor.
In connection with the issue and sale of the Preferred Securities, the
Sponsor shall have the exclusive right (subject to Section 3.6) and
responsibility to engage in the following activities:
(a) to determine the jurisdictions in which to take appropriate action
to qualify or register for sale all or part of the Preferred Securities and to
do any and all such acts, other than actions which must be taken by the Trust,
and advise the Trust of actions it must take, and prepare for execution and
filing any documents to be executed and filed by the Trust, as the Sponsor deems
necessary or advisable in order to comply with the applicable laws of any such
jurisdictions;
(b) to prepare, execute and file on behalf of the Trust an application
to the PORTAL Market;
(c) to prepare, execute and file on behalf of the Trust documents or
instruments to be delivered to the Clearing Agency relating to the Preferred
Securities; and
(d) to negotiate the terms of, execute, enter into and deliver the
Purchase Agreement providing for the sale of the Preferred Securities.
SECTION 4.3 Right to Proceed.
The Sponsor acknowledges the rights of the Holders of Preferred
Securities to bring one or more Direct Actions under the circumstances specified
in this Agreement.
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees; Appointment of Co-Trustee.
The number of Trustees initially shall be five (5), and:
(a) at any time before the issuance of any Securities, the Sponsor may,
by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees may be
increased or decreased by vote of the Holders of a Majority in Liquidation
Amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities;
provided, however, that, the number of Trustees shall in no event be less than
two (2); provided further that (1) one Trustee shall be a Person meeting the
requirements of Section 5.2 (the
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"Delaware Trustee"); (2) there shall be at least one Trustee who is an employee
or officer of, or is affiliated with the Sponsor (an "Administrative Trustee");
and (3) one Trustee shall be the Property Trustee, and such Trustee may also
serve as Delaware Trustee if it meets the applicable requirements.
Notwithstanding the above, unless an Event of Default shall have occurred and be
continuing, at any time or times, for the purpose of meeting the legal
requirements of the Trust Indenture Act or of any jurisdiction in which any part
of the Trust's property may at the time be located, the Holders of a Majority in
Liquidation Amount of the Common Securities acting as a class at a meeting of
the Holders of the Common Securities, and the Administrative Trustees shall have
power to appoint one or more Persons either to act as a co-trustee, jointly with
the Property Trustee, of all or any part of the Trust's property, or to act as
separate trustee of any such property, in either case with such powers as may be
provided in the instrument of appointment, and to vest in such Person or Persons
in such capacity any property, title, right or power deemed necessary or
desirable, subject to the provisions of this Agreement. In case an Event of
Default has occurred and is continuing, the Property Trustee alone shall have
power to make any such appointment of a co-trustee.
SECTION 5.2 Delaware Trustee.
For so long as required by the Business Trust Act, the Delaware Trustee
shall be:
(a) a natural person who is a resident of the State of Delaware; or
(b) if not a natural person, an entity which has its principal place of
business in the State of Delaware, and otherwise meets the requirements of
applicable law, provided, however, if the Property Trustee has its principal
place of business in the State of Delaware and otherwise meets the requirements
of applicable law, then the Property Trustee shall also be the Delaware Trustee
and Section 3.11 shall have no application.
SECTION 5.3 Property Trustee; Eligibility.
(a) There shall at all times be one Trustee (the "Property Trustee")
which shall act as Property Trustee and which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof
or of the District of Columbia, or a corporation or Person permitted by
the Commission to act as an indenture trustee under the Trust Indenture
Act, authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $50,000,000, and
subject to supervision or examination by federal, state, territorial or
District of Columbia authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements
of the supervising or examining authority referred to above, then for
the purposes of this Section 5.3(a)(ii), the combined capital and
surplus of such corporation shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so
published.
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(b) If at any time the Property Trustee shall cease to be eligible to
so act under Section 5.3(a), the Property Trustee shall immediately resign in
the manner and with the effect set forth in Section 5.7(c).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Common Securities (as if it were the
obligor referred to in Section 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
(d) The Preferred Securities Guarantee shall be deemed to be
specifically described in this Agreement for purposes of clause (i) of the first
provision contained in Section 310(b) of the Trust Indenture Act.
(e) The initial Property Trustee shall be:
The Chase Manhattan Bank
c/o Chase Manhattan Trust Company, National Association
One Liberty Place, 52nd Floor
1650 Market Street
Philadelphia, Pennsylvania 19103
Attention: Capital Markets Fiduciary Services
Telephone: (215) 988-1317
Telecopier: (215) 972-8372
SECTION 5.4 Certain Qualifications of Administrative Trustees and Delaware
Trustee Generally.
Each Administrative Trustee and the Delaware Trustee (unless the
Property Trustee also acts as Delaware Trustee) shall be either a natural person
who is at least 21 years of age or a legal entity that shall act through one or
more Authorized Officers.
SECTION 5.5 Administrative Trustees.
The initial Administrative Trustees shall be:
Israel J. Floyd
Michael J. Scott
Stuart C. Shears
c/o Hercules Incorporated
Hercules Plaza
1313 North Market Street
Wilmington, Delaware 19894-0001
Telephone: (302) 594-5000
Telecopier: (302) 594-5210
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(a) Except as expressly set forth in this Agreement and except if a
meeting of the Administrative Trustees is called with respect to any matter over
which the Administrative Trustees have power to act, any power of the
Administrative Trustees may be exercised by, or with the consent of, any one
such Administrative Trustee.
(b) Unless otherwise determined by the Administrative Trustees, and
except as otherwise required by the Business Trust Act or applicable law, any
Administrative Trustee acting alone is authorized to execute on behalf of the
Trust any documents which the Administrative Trustees have the power and
authority to cause the Trust to execute pursuant to Section 3.6.
SECTION 5.6 Delaware Trustee.
The initial Delaware Trustee shall be:
Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, Delaware 19801
Attention: Corporate Trust Department
Telephone: (302) 984-3372
Telecopier: (302) 428-4903
SECTION 5.7 Appointment, Removal and Resignation of Trustees.
(a) Subject to Section 5.7(b), Trustees may be appointed or removed
without cause at any time:
(i) until the issuance of any Securities, by written
instrument executed by the Sponsor;
(ii) unless an Event of Default shall have occurred and be
continuing after the issuance of any Securities, by vote of the Holders
of a Majority in Liquidation Amount of the Common Securities voting as
a class at a meeting of the Holders of the Common Securities; and
(iii) if an Event of Default shall have occurred and be
continuing after the issuance of the Securities, with respect to the
Property Trustee or the Delaware Trustee, by vote of Holders of a
Majority in Liquidation Amount of the Preferred Securities voting as a
class at a meeting of Holders of the Preferred Securities (it being
understood that in no event will the Holders of the Preferred
Securities have the right to vote, appoint, remove or replace the
Administrative Trustees, which voting rights are exclusively vested in
the Holder of the Common Securities).
(b) (i) The Trustee that acts as Property Trustee shall not be removed
in accordance with Section 5.7(a) until a Successor Property Trustee has been
appointed and has accepted such appointment by written instrument executed by
such Successor Property Trustee and delivered to the Administrative Trustees and
the Sponsor; and
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(ii) the Trustee that acts as Delaware Trustee shall not be
removed in accordance with Section 5.7(a) until a successor Trustee
possessing the qualifications to act as Delaware Trustee under Sections
5.2 and 5.4 (a "Successor Delaware Trustee") has been appointed and has
accepted such appointment by written instrument executed by such
Successor Delaware Trustee and delivered to the removed Delaware
Trustee, the Property Trustee (if the removed Delaware Trustee is not
also the Property Trustee), the Administrative Trustees and the
Sponsor.
(c) A Trustee appointed to office shall hold office until his successor
shall have been appointed or until his death, removal or resignation. Any
Trustee may resign from office (without need for prior or subsequent accounting)
by an instrument in writing signed by the Trustee and delivered to the other
Trustees, the Sponsor and the Trust, which resignation shall take effect upon
such delivery or upon such later date as is specified therein; provided,
however, that:
(i) No such resignation of the Trustee that acts as the
Property Trustee shall be effective:
(A) until a Successor Property Trustee has been
appointed and has accepted such appointment by instrument
executed by such Successor Property Trustee and delivered to
the Trust, the Sponsor, the Delaware Trustee (if the resigning
Property Trustee is not also the Delaware Trustee) and the
resigning Property Trustee; or
(B) until the assets of the Trust have been
completely liquidated and the proceeds thereof distributed to
the Holders of the Securities; and
(ii) no such resignation of the Trustee that acts as the
Delaware Trustee shall be effective until a Successor Delaware Trustee
has been appointed and has accepted such appointment by instrument
executed by such Successor Delaware Trustee and delivered to the Trust,
the Property Trustee (if the resigning Delaware Trustee is not also the
Property Trustee), the Sponsor and the resigning Delaware Trustee.
(d) The Holders of the Common Securities or, if an Event of Default
shall have occurred and be continuing after the issuance of the Securities, the
Holders of the Preferred Securities shall use their best efforts to promptly
appoint a Successor Delaware Trustee or Successor Property Trustee, as the case
may be, if the Property Trustee or the Delaware Trustee delivers an instrument
of resignation in accordance with this Section 5.7.
(e) If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.7 within 60 days after delivery of an instrument of resignation or removal,
the Property Trustee or Delaware Trustee resigning or being removed, as
applicable, may petition any court of competent jurisdiction for appointment of
a Successor Property Trustee or Successor Delaware Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper and
prescribe, appoint a Successor Property Trustee or Successor Delaware Trustee,
as the case may be.
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(f) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
SECTION 5.8 Vacancies among Trustees.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Administrative Trustees or, if
there are more than two, a majority of the Administrative Trustees shall be
conclusive evidence of the existence of such vacancy. The vacancy shall be
filled with a Trustee appointed in accordance with Section 5.7.
SECTION 5.9 Effect of Vacancies.
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee shall
not operate to dissolve, terminate or annul the Trust or to terminate this
Agreement. Whenever a vacancy in the number of Administrative Trustees shall
occur, until such vacancy is filled by the appointment of an Administrative
Trustee in accordance with Section 5.7, the Administrative Trustees in office,
regardless of their number, shall have all the powers granted to the
Administrative Trustees and shall discharge all the duties imposed upon the
Administrative Trustees by this Agreement.
SECTION 5.10 Meetings.
If there is more than one Administrative Trustee, meetings of the
Administrative Trustees shall be held from time to time upon the call of any
Administrative Trustee. Regular meetings of the Administrative Trustees may be
held at a time and place fixed by resolution of the Administrative Trustees.
Notice of any in-person meetings of the Administrative Trustees shall be hand
delivered or otherwise delivered in writing (including by facsimile, with a hard
copy by overnight courier) not less than 24 hours before such meeting. Notice of
any telephonic meetings of the Administrative Trustees or any committee thereof
shall be hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 24 hours before
a meeting. Notices shall contain a brief statement of the time, place and
anticipated purposes of the meeting. The presence (whether in person or by
telephone) of an Administrative Trustee at a meeting shall constitute a waiver
of notice of such meeting except where an Administrative Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Agreement, any action of the Administrative Trustees
may be taken at a meeting by vote of a majority of the Administrative Trustees
present (whether in person or by telephone) and eligible to vote with respect to
such matter, provided that a Quorum is present, or without a meeting by the
unanimous written consent of the Administrative Trustees. In the event there is
only one Administrative Trustee, any and all action of such Administrative
Trustee shall be evidenced by a written consent of such Administrative Trustee.
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SECTION 5.11 Delegation of Power.
(a) Any Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21 his
or her power for the purpose of executing any documents contemplated in Section
3.6, including any registration statement or amendment thereto filed with the
Commission; and
(b) The Administrative Trustees shall have power to delegate from time
to time to such of their number or to officers of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Administrative Trustees or otherwise as the Administrative
Trustees may deem expedient, to the extent such delegation is not prohibited by
applicable law or contrary to the provisions of this Agreement.
SECTION 5.12 Merger, Conversion, Consolidation or Succession to Business.
Any Person into which the Property Trustee or the Delaware Trustee or
any Administrative Trustee that is not a natural person, as the case may be, may
be merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which the Property
Trustee or the Delaware Trustee, as the case may be, shall be a party, or any
Person succeeding to all or substantially all the corporate trust business of
the Property Trustee or the Delaware Trustee, as the case may be, shall be the
successor of the Property Trustee or the Delaware Trustee, as the case may be,
hereunder, provided such Person shall be otherwise qualified and eligible under
this Article, without the execution or filing of any paper or any further act on
the part of any of the parties hereto; provided, however, such successor shall
notify the Sponsor and the Trust promptly of its succession.
SECTION 5.13 Compensation.
The Sponsor agrees:
(a) to pay to the Property Trustee and the Delaware Trustee
from time to time such compensation as shall be agreed in writing between the
Company and the Property Trustee and the Delaware Trustee, respectively, for all
services rendered by them hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust); and
(b) to reimburse the Property Trustee and the Delaware Trustee
upon their request for reasonable expenses, disbursements and advances incurred
or made by the Property Trustee or the Delaware Trustee, respectively, in
accordance with any provision of this Agreement (including the reasonable
compensation and the expenses and advances of its agents and counsel), except
any such expense or advance as may be attributable to their negligence, willful
misconduct or bad faith.
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ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions.
Holders shall receive Distributions in accordance with the applicable
terms of the relevant Holder's Securities. Distributions shall be made on the
Preferred Securities and the Common Securities in accordance with the respective
terms and preferences set forth herein and in Annex I. If and to the extent that
the Debenture Issuer makes a payment of interest (including any compounded
interest and additional interest), premium and/or principal on the Debentures
held by the Property Trustee (the amount of any such payment being a "Payment
Amount"), the Property Trustee shall and is directed, to the extent funds are
available for that purpose, to make a distribution (a "Distribution") of the
Payment Amount to Holders.
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities.
(a) The Administrative Trustees shall on behalf of the Trust issue one
class of preferred securities representing undivided beneficial interests in the
assets of the Trust having such terms as are set forth in Annex I (the
"Preferred Securities") and one class of common securities representing
undivided beneficial interests in the assets of the Trust having such terms as
are set forth in Annex I (the "Common Securities"). The Trust shall issue no
securities or other interests in the assets of the Trust other than the
Preferred Securities and the Common Securities.
(b) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(c) Upon issuance of the Securities as provided in this Agreement, the
Securities so issued shall be validly issued, fully paid and non-assessable.
(d) Every Person, by virtue of having become a Holder or a Preferred
Security Beneficial Owner in accordance with the terms of this Agreement, shall
be deemed to have expressly assented and agreed to the terms of, and shall be
bound by, this Agreement.
SECTION 7.2 Execution and Authentication.
(a) The Securities shall be signed on behalf of the Trust by an
Administrative Trustee. In case any Administrative Trustee of the Trust who
shall have signed any of the Securities shall cease to be such Administrative
Trustee before the Securities so signed shall be delivered by the Trust, such
Securities nevertheless may be delivered as though the Person who signed such
Securities had not ceased to be such Administrative Trustee; and any Securities
may be signed on behalf of the Trust by such persons who, at the actual date of
execution of such Security, shall be the Administrative Trustees of the Trust,
although at the date of the execution and delivery of this Agreement any such
person was not an Administrative Trustee.
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(b) One Administrative Trustee shall sign the Preferred Securities for
the Trust by manual or facsimile signature.
A Preferred Security shall not be valid until authenticated by the
manual signature of an authorized signatory of the Property Trustee. The
signature shall be conclusive evidence that the Preferred Security has been
authenticated under this Agreement. A Common Security shall be valid upon
execution by an Administrative Trustee without any act of the Property Trustee.
Upon a written order of the Trust signed by one Administrative Trustee,
the Property Trustee shall authenticate the Preferred Securities for original
issue.
The aggregate number of Preferred Securities outstanding at any time
shall not exceed the number set forth in the terms in Annex I hereto except as
provided in Section 7.6.
The Property Trustee may appoint an authenticating agent acceptable to
the Trust to authenticate Preferred Securities. An authenticating agent may
authenticate Preferred Securities whenever the Property Trustee may do so. Each
reference in this Agreement to authentication by the Property Trustee includes
authentication by such agent. An authenticating agent has the same rights as the
Property Trustee hereunder with respect to the Sponsor or an Affiliate.
SECTION 7.3 Form and Dating.
The Preferred Securities and the Property Trustee's certificate of
authentication shall be substantially in the form of Exhibit A-1 and the Common
Securities shall be substantially in the form of Exhibit A-2, each of which is
hereby incorporated in and expressly made a part of this Agreement. The
Preferred Securities shall be issued only in minimum denominations of $1,000,000
Liquidation Amount and integral multiples of $1,000 in excess thereof. The
Securities may be in definitive or global form and may be printed, lithographed
or engraved or may be produced in any other manner as is reasonably acceptable
to an Administrative Trustee, as evidenced by the execution thereof. The
Securities may have letters, CUSIP or other numbers, notations or other marks of
identification or designation and such legends or endorsements required by law,
stock exchange or quotation system rule, agreements to which the Trust is
subject, if any, or usage (provided that any such notation, legend or
endorsement is in a form acceptable to the Trust). An Administrative Trustee, at
the direction of the Sponsor, shall furnish any such legend not contained in
Exhibits A-1 or A-2 to the Property Trustee in writing. Each Preferred Security
shall be dated the date of its authentication. The terms and provisions of the
Securities set forth in Annex I and the forms of Securities set forth in
Exhibits A-1 and A-2 are part of the terms of this Agreement and to the extent
applicable, the Property Trustee and the Sponsor, by their execution and
delivery of this Agreement, expressly agree to such terms and provisions and to
be bound thereby.
The following four paragraphs shall apply only to any Global Preferred
Securities:
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The Preferred Securities shall be issued in the form of one or more
permanent global Securities in definitive, fully registered form without
Distribution coupons with the appropriate global legends set forth in Exhibit
A-1 hereto (a "Global Preferred Security"), which shall be deposited on behalf
of the purchasers of the Preferred Securities represented thereby with the
Property Trustee, as custodian for the Clearing Agency, and registered in the
name of the Clearing Agency or a nominee of the Clearing Agency, duly executed
by an Administrative Trustee on behalf of the Trust and authenticated by the
Property Trustee as hereinafter provided. The number of Preferred Securities
represented by the Global Preferred Security may from time to time be increased
or decreased by adjustments made on the records of the Property Trustee and the
Clearing Agency or its nominee as hereinafter provided. The Holder of a Global
Preferred Security may grant proxies and otherwise authorize any Person,
including Participants and Persons that may hold interests through Participants,
to take any action which such Holder is entitled to take under this Agreement or
the Securities.
An Administrative Trustee shall execute and the Property Trustee shall,
in accordance with this Section 7.3, authenticate and make available for
delivery initially one or more Global Preferred Securities that (i) shall be
registered in the name of Cede & Co. or other nominee of such Clearing Agency
and (ii) shall be delivered by the Property Trustee to such Clearing Agency or
pursuant to such Clearing Agency's written instructions or held by the Property
Trustee as custodian for the Clearing Agency.
Members of, or participants in, the Clearing Agency ("Participants")
shall have no rights under this Agreement with respect to any Global Preferred
Security held on their behalf by the Clearing Agency or by the Property Trustee
as the custodian of the Clearing Agency or under such Global Preferred Security,
and the Clearing Agency may be treated by the Trust, the Property Trustee and
any agent of the Trust or the Property Trustee as the absolute owner of such
Global Preferred Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Trust, the Property Trustee or any
agent of the Trust or the Property Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Clearing Agency or
impair, as between the Clearing Agency and its Participants, the operation of
customary practices of such Clearing Agency governing the exercise of the rights
of a holder of a beneficial interest in any Global Preferred Security.
Except as provided in Section 9.2, owners of beneficial interests in a
Global Preferred Security will not be entitled to receive physical delivery of
Preferred Securities in definitive form ("Definitive Preferred Securities").
SECTION 7.4 Registrar and Paying Agent.
The Trust shall maintain in the Borough of Manhattan, The City of New
York, (i) an office or agency where Preferred Securities may be presented for
registration of transfer ("Registrar") and (ii) an office or agency where
Preferred Securities may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Preferred Securities and of their
transfer. The Trust may appoint the Registrar and the Paying Agent and may
appoint one or more co-registrars and one or more additional paying agents in
such other locations as it shall determine. The term "Registrar" includes any
additional registrar and the term "Paying Agent" includes any additional paying
agent. The Trust may change any Registrar or Paying Agent
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without prior notice to any Holder. The Administrative Trustees shall notify the
Property Trustee of the name and address of any Agent not a party to this
Agreement. If the Trust fails to appoint or maintain another entity as Registrar
or Paying Agent, the Property Trustee shall act as such, and as Paying Agent the
Property Trustee shall have the rights set forth in Section 3.8(i). The Trust or
any of its Affiliates may act as Registrar or Paying Agent. The Trust shall act
as Registrar and Paying Agent for the Common Securities.
Any Paying Agent shall be permitted to resign as Paying Agent upon 30
days' prior written notice to the Property Trustee, the Administrative Trustees
and the Sponsor. In the event that the Property Trustee shall no longer be the
Paying Agent, the Trust shall appoint a successor Paying Agent (which shall be a
bank or trust company acceptable to the Sponsor) to act as Paying Agent.
The Trust initially appoints the Property Trustee as Registrar and
Paying Agent for the Preferred Securities.
SECTION 7.5 Paying Agent to Hold Money in Trust.
The Trust shall require each Paying Agent other than the Property
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Property Trustee all money held by the Paying Agent
for the payment of liquidation amounts or Distributions on the Securities and
will notify the Property Trustee if there are insufficient funds for such
purpose. While any such insufficiency continues, the Property Trustee may
require a Paying Agent to pay all money held by it to the Property Trustee. The
Trust at any time may require a Paying Agent to pay all money held by it to the
Property Trustee and to account for any money disbursed by it. Upon payment over
to the Property Trustee, the Paying Agent (if other than the Trust or an
Affiliate of the Trust) shall have no further liability for the money. If the
Trust or the Sponsor or an Affiliate of the Trust or the Sponsor acts as Paying
Agent, it shall segregate and hold in a separate trust fund for the benefit of
the Holders all money held by it as Paying Agent.
SECTION 7.6 Replacement Securities.
If a Holder of a Security claims that a Security owned by it has been
lost, destroyed or wrongfully taken or if such Security is mutilated and is
surrendered to the Trust or, in the case of the Preferred Securities, to the
Property Trustee, an Administrative Trustee shall execute and the Property
Trustee shall authenticate and make available for delivery a replacement
Security if the Property Trustee's and the Trust's requirements, as the case may
be, are met. An indemnity bond must be provided by the Holder which, in the
judgment of the Property Trustee, is sufficient to protect the Trustees, the
Sponsor or any authenticating agent from any loss which any of them may suffer
if a Security is replaced. The Trust may charge such Holder for its expenses in
replacing a Security.
Every replacement Security is an additional beneficial interest in the
Trust.
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SECTION 7.7 Outstanding Preferred Securities.
The Preferred Securities outstanding at any time are all the Preferred
Securities authenticated by the Property Trustee except for those cancelled by
it, those delivered to it for cancellation, and those described in this Section
as not outstanding.
If a Preferred Security is replaced, paid or purchased pursuant to
Section 7.6 hereof, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced, paid or purchased Preferred
Security is held by a bona fide purchaser.
If Preferred Securities are considered paid in accordance with the
terms of this Agreement, they cease to be outstanding and Distributions thereon
shall cease to accumulate.
A Preferred Security does not cease to be outstanding because the
Trust, the Sponsor or an Affiliate of the Sponsor holds such Preferred Security.
SECTION 7.8 Preferred Securities in Treasury.
In determining whether the Holders of the required amount of Preferred
Securities have concurred in any direction, waiver or consent, Preferred
Securities owned by the Trust, the Sponsor or an Affiliate of the Sponsor, as
the case may be, shall be disregarded and deemed not to be outstanding, except
that for the purposes of determining whether the Property Trustee shall be fully
protected in relying on any such direction, waiver or consent, only Preferred
Securities which a Responsible Officer of the Property Trustee actually knows
are so owned shall be so disregarded.
SECTION 7.9 Temporary Securities.
Until Definitive Securities are ready for delivery, the Administrative
Trustees may prepare and, in the case of the Preferred Securities, the Property
Trustee shall authenticate temporary Securities. Temporary Securities shall be
substantially in the form of Definitive Securities but may have variations that
the Trust considers appropriate for temporary Securities. Without unreasonable
delay, the Administrative Trustees shall prepare and, in the case of the
Preferred Securities, the Property Trustee shall authenticate Definitive
Securities in exchange for temporary Securities.
SECTION 7.10 Cancellation.
The Trust at any time may deliver Preferred Securities to the Property
Trustee for cancellation. The Registrar and Paying Agent shall forward to the
Property Trustee any Preferred Securities surrendered to them for registration
of transfer, redemption, exchange or payment. The Property Trustee shall
promptly cancel all Preferred Securities surrendered for registration of
transfer, redemption, exchange, payment, replacement or cancellation and shall
dispose of cancelled Preferred Securities as the Trust directs, provided that
the Property Trustee shall not be obligated to destroy Preferred Securities. The
Trust may not issue new Preferred Securities to replace Preferred Securities
that it has paid or redeemed or that have been delivered to the Property Trustee
for cancellation or that any Holder has exchanged.
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SECTION 7.11 CUSIP Numbers.
The Trust, in issuing the Preferred Securities, may use
"CUSIP" numbers (if then generally in use), and, if so, the Property Trustee
shall use "CUSIP" numbers in notices of redemption as a convenience to Holders
of Preferred Securities; provided that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Preferred Securities or as contained in any notice of a redemption and
that reliance may be placed only on the other identification numbers printed on
the Preferred Securities, and any such redemption shall not be affected by any
defect in or omission of such numbers. The Sponsor will promptly notify the
Property Trustee of any change in the CUSIP numbers.
ARTICLE VIII
DISSOLUTION OF TRUST
SECTION 8.1 Dissolution of Trust.
(a) The Trust shall automatically dissolve upon the first to occur of
the following events:
(i) the bankruptcy of the Sponsor;
(ii) (A) the filing of a certificate of dissolution or
liquidation or its equivalent with respect to the Sponsor or (B) the
revocation of the Sponsor's charter and the expiration of 90 days after
the date of revocation without a reinstatement thereof;
(iii) the distribution of a Like Amount of the Debentures to
the Holders of the Securities, provided that the Property Trustee has
received written notice from the Sponsor directing the Property Trustee
to dissolve the Trust (which direction is optional and, except as
otherwise expressly provided herein, within the discretion of the
Sponsor), and provided, further, that such dissolution is conditioned
on the receipt by the Administrative Trustees of an opinion of an
independent tax counsel experienced in such matters (a "No Recognition
Opinion") to the effect that the Holders of the Securities will not
recognize any gain or loss for United States Federal income tax
purposes as a result of the dissolution of the Trust and the
distribution of the Debentures;
(iv) the entry of a decree of judicial dissolution of the
Trust by a court of competent jurisdiction;
(v) the redemption of all of the Securities and the payment to
the Holders of any and all amounts necessary therefor, all in
accordance with the terms of the Securities; or
(vi) the expiration of the term of the Trust provided in
Section 3.14.
(b) As soon as is practicable upon completion of winding up of the
Trust following the occurrence of an event referred to in Section 8.1(a), the
Administrative Trustees
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shall terminate the Trust by filing a certificate of cancellation with the
Secretary of State of the State of Delaware in accordance with the Business
Trust Act.
(c) The provisions of Section 3.9 and Article X shall survive the
termination of the Trust.
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities.
(a) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Agreement and in the
terms of the Securities. To the fullest extent permitted by law, any transfer or
purported transfer of any Security not made in accordance with this Agreement
shall be null and void.
(b) Subject to this Article IX, Preferred Securities shall be freely
transferable.
(c) To the fullest extent permitted by law, the Sponsor may not
transfer the Common Securities except for any transfer (whether voluntarily or
by operation of law) permitted under Article 5 of the Indenture.
(d) Each Security that bears or is required to bear the legend set
forth in this Section 9.1 (a "RESTRICTED SECURITY") shall be subject to the
restrictions on transfer provided in the legend set forth in this Section 9.1,
unless such restrictions on transfer shall be waived by the written consent of
the Administrative Trustees, and the Holder of each Restricted Security, by such
Holder's acceptance thereof, agrees to be bound by such restrictions on
transfer. As used in this Section 9.1 and in Section 9.2, the terms "transfer"
encompasses any sale, pledge, transfer or other disposition of any Restricted
Security.
Prior to the Transfer Restriction Termination Date, any certificate
evidencing a Security shall bear a legend in substantially the following form,
unless otherwise agreed by the Administrative Trustees (with written notice
thereof to the Property Trustee):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON
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WHICH HERCULES TRUST VI (THE "TRUST") OR ANY AFFILIATED PERSON OF THE TRUST WAS
THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) UNLESS SUCH
OFFER, SALE OR OTHER TRANSFER IS (A) TO THE TRUST OR HERCULES INCORPORATED OR
ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES
ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHO IS OR WHO THE
HOLDER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN "ACCREDITED INVESTOR"
(AS DEFINED IN RULE 501 (A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT
IS AN INSTITUTIONAL INVESTOR, (E) PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE
TRUST OR THE TRANSFER AGENT FOR THE SECURITIES PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE THEN HOLDER OF THIS
SECURITY AFTER THE RESALE RESTRICTION TERMINATION DATE.
The Preferred Securities may be transferred or exchanged only in
minimum denominations of $1,000,000 Liquidation Amount and integral multiples of
$1,000 in excess thereof, and any attempted transfer, sale or other disposition
of Preferred Securities in a denomination of less than $1,000,000 Liquidation
Amount shall be deemed to be void and of no legal effect whatsoever.
Following the Transfer Restriction Termination Date, any Security or
Securities issued in exchange or substitution therefor (other than Securities
acquired by the Sponsor or any Affiliate) may, upon surrender of such Security
or Securities for exchange to the Trustee in accordance with the provisions of
this Section 9.1, be exchanged for a new Security or Securities, as the case may
be, in a like aggregate Liquidation Amount and of like tenor that shall not bear
the restrictive legend required by this Section 9.1.
Any Security that, prior to the Transfer Restriction Termination Date,
is purchased or owned by the Sponsor, the Trust or any Affiliate thereof may not
be resold by the Sponsor, the Trust or such Affiliate unless registered under
the Securities Act or resold pursuant to an exemption from the registration
requirements thereof.
(e) The Administrative Trustees shall provide for the registration of
Securities and of the transfer of Securities, which will be effected without
charge but only upon payment (with such indemnity as the Administrative Trustees
may require) in respect of any tax or other governmental charges that may be
imposed in relation to it. Upon surrender for registration of
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transfer of any Securities, the Administrative Trustees shall cause one or more
new Securities to be issued in the name of the designated transferee or
transferees. Every Security surrendered for registration of transfer or exchange
shall be accompanied by a written instrument of transfer in form satisfactory to
the Administrative Trustees duly executed by the Holder or such Holder's
attorney duly authorized in writing. Each Security surrendered for registration
of transfer shall be canceled by the Administrative Trustees. A transferee of a
Security shall be entitled to the rights and subject to the obligations of a
Holder hereunder upon the receipt by such transferee of a Security. By
acceptance of a Security, each transferee shall be deemed to have agreed to be
bound by this Agreement.
SECTION 9.2 Transfer Procedures and Restrictions
(a) Transfer and Exchange of Definitive Preferred Securities. When
Definitive Preferred Securities are presented to the Registrar:
(x) to register the transfer of such Definitive Preferred
Securities; or
(y) to exchange such Definitive Preferred Securities which
became mutilated, destroyed, defaced, stolen or lost, for an equal
liquidation amount of Definitive Preferred Securities,
the Registrar shall register the transfer or make the exchange as requested if
its reasonable requirements for such transaction are met; provided, however,
that the Definitive Preferred Securities surrendered for transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form reasonably satisfactory to the Property Trustee and the Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
(b) Transfer of a Definitive Preferred Security for a Beneficial
Interest in a Global Preferred Security. Upon receipt by the Property Trustee of
a Definitive Preferred Security, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Property Trustee, together
with written instructions directing the Property Trustee to make, or to direct
the Clearing Agency to make, an adjustment on its books and records with respect
to the Global Preferred Security to reflect an increase in the Liquidation
Amount of the Preferred Securities represented by such Global Preferred
Security, then the Property Trustee shall cancel such Definitive Preferred
Security and cause, or direct the Clearing Agency to cause, the aggregate
Liquidation Amount of Preferred Securities represented by the appropriate Global
Preferred Security to be increased accordingly. If no Global Preferred
Securities are then outstanding, an Administrative Trustee shall execute on
behalf of the Trust and the Property Trustee shall authenticate, upon written
order of any Administrative Trustee, a Global Preferred Security representing an
appropriate Liquidation Amount of Preferred Securities.
(c) Transfer and Exchange of Global Preferred Securities. Subject to
Section 9.2(d), the transfer and exchange of Global Preferred Securities or
beneficial interests therein shall be effected through the Clearing Agency in
accordance with this Agreement and the procedures of the Clearing Agency
therefor.
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(d) Transfer of a Beneficial Interest in a Global Preferred Security
for a Definitive Preferred Security.
(i) A Global Preferred Security deposited with the Clearing
Agency or with the Property Trustee as custodian for the Clearing
Agency pursuant to Section 7.3 shall be transferred to the beneficial
owners thereof in the form of Definitive Preferred Securities only if
such transfer complies with Section 9.2(c) and (1) the Clearing Agency
notifies the Trust that it is unwilling or unable to continue as
Clearing Agency for such Global Preferred Security or if at any time
such Clearing Agency ceases to be a "clearing agency" registered under
the Exchange Act and, in each case, a clearing agency is not appointed
by the Sponsor within 90 days of receipt of such notice or of becoming
aware of such condition, (2) a Default or an Event of Default has
occurred and is continuing or (3) the Trust at its sole discretion
elects to cause the issuance of Definitive Preferred Securities.
(ii) Any Global Preferred Security that is transferable to the
beneficial owners thereof in the form of Definitive Preferred
Securities pursuant to this Section 9.2(d) shall be surrendered by the
Clearing Agency to the Property Trustee located in the Borough of
Manhattan, The City of New York, to be so transferred, in whole or from
time to time in part, without charge, and the Property Trustee shall
authenticate and make available for delivery, upon such transfer of
each portion of such Global Preferred Security, an equal aggregate
Liquidation Amount of Securities of authorized denominations in the
form of Definitive Preferred Securities. Any portion of a Global
Preferred Security transferred pursuant to this Section shall be
registered in such names as the Clearing Agency shall direct.
In the event of the occurrence of any of the events specified in clause
(i) above, the Administrative Trustees will promptly make available to the
Property Trustee a reasonable supply of Definitive Preferred Securities in fully
registered form without Distribution coupons.
(e) Restrictions on Transfer and Exchange of Global Preferred
Securities. Notwithstanding any other provisions of this Agreement (other than
the provisions set forth in subsection (d) of this Section 9.2), a Global
Preferred Security may not be transferred as a whole except by the Clearing
Agency to a nominee of the Clearing Agency or another nominee of the Clearing
Agency or by the Clearing Agency or any such nominee to a successor Clearing
Agency or a nominee of such successor Clearing Agency.
(f) Cancellation or Adjustment of Global Preferred Security. At such
time as all beneficial interests in a Global Preferred Security have either been
exchanged for Definitive Preferred Securities to the extent permitted by this
Agreement or redeemed, repurchased or canceled in accordance with the terms of
this Agreement, such Global Preferred Security shall be returned to the Clearing
Agency for cancellation or retained and canceled by the Property Trustee. At any
time prior to such cancellation, if any beneficial interest in a Global
Preferred Security is exchanged for Definitive Preferred Securities, Preferred
Securities represented by such Global Preferred Security shall be reduced and an
adjustment shall be made on the books and records of the Property Trustee (if it
is then the custodian for such Global Preferred Security)
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with respect to such Global Preferred Security, by the Property Trustee or the
Securities Custodian, to reflect such reduction.
(g) Obligations with Respect to Transfers and Exchanges of Preferred
Securities.
(i) To permit registrations of transfers and exchanges, an
Administrative Trustee shall execute and the Property Trustee shall
authenticate Definitive Preferred Securities and Global Preferred
Securities at the Registrar's request in accordance with the terms of
this Agreement.
(ii) Registrations of transfers or exchanges will be effected
without charge, but only upon payment (with such indemnity as the Trust
or the Sponsor may require) in respect of any tax or other governmental
charge that may be imposed in relation to it.
(iii) The Registrar shall not be required to register the
transfer of or exchange of (a) Preferred Securities during a period
beginning at the opening of business 15 days before the day of mailing
of a notice of redemption or any notice of selection of Preferred
Securities for redemption and ending at the close of business on the
day of such mailing; or (b) any Preferred Security so selected for
redemption in whole or in part, except the unredeemed portion of any
Preferred Security being redeemed in part.
(iv) All Preferred Securities issued upon any registration of
transfer or exchange pursuant to the terms of this Agreement shall
evidence the same security and shall be entitled to the same benefits
under this Agreement as the Preferred Securities surrendered upon such
registration of transfer or exchange.
(h) No Obligation of the Property Trustee.
(i) The Property Trustee shall have no responsibility or
obligation to any beneficial owner of a Global Preferred Security, a
Participant in the Clearing Agency or other Person with respect to the
accuracy of the records of the Clearing Agency or its nominee or of any
Participant thereof, with respect to any ownership interest in the
Preferred Securities or with respect to the delivery to any
Participant, beneficial owner or other Person (other than the Clearing
Agency) of any notice (including any notice of redemption) or the
payment of any amount, under or with respect to such Preferred
Securities. All notices and communications to be given to the Holders
and all payments to be made to Holders under the Preferred Securities
shall be given or made only to or upon the order of the Holders (which
shall be the Clearing Agency or its nominee in the case of a Global
Preferred Security). The rights of beneficial owners in any Global
Preferred Security shall be exercised only through the Clearing Agency
subject to the applicable rules and procedures of the Clearing Agency.
The Property Trustee may conclusively rely and shall be fully protected
in relying upon information furnished by the Clearing Agency or any
agent thereof with respect to its Participants and any beneficial
owners.
(ii) The Property Trustee and Registrar shall have no
obligation or duty to monitor, determine or inquire as to compliance
with any restrictions on transfer imposed
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under this Agreement or under applicable law with respect to any
transfer of any interest in any Preferred Security (including any
transfers between or among Clearing Agency Participants or beneficial
owners in any Global Preferred Security) other than to require delivery
of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by,
the terms of this Agreement, and to examine the same to determine
substantial compliance as to form with the express requirements hereof.
SECTION 9.3 Deemed Security Holders.
The Trust, the Trustees, the Registrar and the Paying Agent may treat
the Person in whose name any Security shall be registered on the books and
records of the Trust as the sole owner and Holder of such Security for purposes
of receiving Distributions and for all other purposes whatsoever and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such Security on the part of any Person other than such Holder,
regardless of any notice to the contrary.
SECTION 9.4 Book Entry Interests.
Global Preferred Securities shall initially be registered on the books
and records of the Trust in the name of Cede & Co., the nominee of the Clearing
Agency, and no Preferred Security Beneficial Owner will receive a definitive
Preferred Security Certificate representing such Preferred Security Beneficial
Owner's interests in such Global Preferred Securities, except as provided in
Section 9.2. Unless and until Definitive Preferred Securities have been issued
to the Preferred Security Beneficial Owners pursuant to Section 9.2:
(a) the provisions of this Section 9.4 shall be in full force and
effect;
(b) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Agreement (including the payment of
Distributions on the Global Preferred Securities and receiving approvals, votes
or consents hereunder) as the Holder of the Preferred Securities and the sole
holder of the Global Certificates and shall have no obligation to the Preferred
Security Beneficial Owners;
(c) to the extent that the provisions of this Section 9.4 conflict with
any other provisions of this Agreement, the provisions of this Section 9.4 shall
control; and
(d) the rights of the Preferred Security Beneficial Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Preferred Security Beneficial
Owners and the Clearing Agency and/or the Participants, including receiving and
transmitting payments of Distributions on the Global Certificates to such
Participants. DTC will make book entry transfers among the Participants.
Any Global Preferred Security may be endorsed with or have incorporated
in the text thereof such legends or recitals or changes not inconsistent with
the provisions of this Agreement as may be required by the Clearing Agency, by
any exchange or by the National
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Association of Securities Dealers, Inc. in order for the Preferred Securities to
be tradeable on the PORTAL Market or as may be required for the Preferred
Securities to be tradeable on any other market developed for trading of
securities pursuant to Rule 144A or required to comply with any applicable law
or any regulation thereunder or with the rules and regulations of any securities
exchange upon which the Preferred Securities may be listed or traded or to
conform with any usage with respect thereto, or to indicate any special
limitations or restrictions to which any particular Preferred Securities are
subject.
SECTION 9.5 Notices to Clearing Agency.
Whenever a notice or other communication to the Preferred Security
Holders is required to be given by a Trustee under this Agreement, such Trustee
shall give all such notices and communications specified herein to be given to
the Holders of Global Preferred Securities to the Clearing Agency and shall have
no notice obligations to the Preferred Security Beneficial Owners.
SECTION 9.6 Appointment of Successor Clearing Agency.
If any Clearing Agency elects to discontinue its services as securities
depositary with respect to the Preferred Securities, the Administrative Trustees
may, in their sole discretion, appoint a successor Clearing Agency with respect
to the Preferred Securities.
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 Liability.
(a) Except as expressly set forth in this Agreement, the Securities
Guarantees and the terms of the Securities, the Sponsor shall not be:
(i) personally liable for the return of any portion of the
capital contributions (or any return thereon) of the Holders of the
Securities which shall be made solely from assets of the Trust; and
(ii) required to pay to the Trust or to any Holder of
Securities any deficit upon dissolution of the Trust or otherwise.
(b) The Sponsor shall be liable for all of the debts and obligations of
the Trust (other than with respect to the Securities) to the extent not
satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the Holders
of the Preferred Securities shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
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SECTION 10.2 Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Trust or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Agreement or by law, except that
this provision shall not be deemed to modify Section 3.9(b).
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Trust and upon such information, opinions, reports
or statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which Distributions to
Holders of Securities might properly be paid.
SECTION 10.3 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Agreement shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Agreement. The provisions of
this Agreement, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Property Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between
any Covered Person and any Indemnified Person; or
(ii) whenever this Agreement or any other agreement
contemplated herein or therein provides that an Indemnified Person
shall act in a manner that is, or provides terms that are, fair and
reasonable to the Trust or any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Agreement or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.
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(c) Whenever in this Agreement an Indemnified Person is permitted or
required to make a decision:
(i) in its "discretion" or under a grant of similar authority,
the Indemnified Person shall be entitled to consider such interests and
factors as it desires, including its own interests, and shall have no
duty or obligation to give any consideration to any interest of or
factors affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard,
the Indemnified Person shall act under such express standard and shall
not be subject to any other or different standard imposed by this
Agreement or by applicable law.
SECTION 10.4 Indemnification.
(a) (i) The Sponsor shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the Trust) by reason of the fact that he is or was a Company
Indemnified Person against expenses (including attorneys' fees and
expenses), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Trust,
and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself, create a presumption that the Company Indemnified
Person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Trust,
and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
(ii) The Sponsor shall indemnify, to the full extent permitted
by law, any Company Indemnified Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Trust to procure a judgment in
its favor by reason of the fact that he is or was a Company Indemnified
Person against expenses (including attorneys' fees and expenses)
actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the Trust and except that no such indemnification shall be
made in respect of any claim, issue or matter as to which such Company
Indemnified Person shall have been adjudged to be liable to the Trust
unless and only to the extent that the Court of Chancery of Delaware or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such Company Indemnified Person is
fairly and reasonably entitled to indemnity for such expenses which
such Court of Chancery or such other court shall deem proper.
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(iii) To the extent that a Company Indemnified Person shall
be successful on the merits or otherwise (including dismissal of an
action without prejudice or the settlement of an action without
admission of liability) in defense of any action, suit or proceeding
referred to in paragraphs (i) and (ii) of this Section 10.4(a), or in
defense of any claim, issue or matter therein, he shall be indemnified,
to the full extent permitted by law, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of
this Section 10.4(a) (unless ordered by a court) shall be made by the
Sponsor only as authorized in the specific case upon a determination
that indemnification of the Company Indemnified Person is proper in the
circumstances because he has met the applicable standard of conduct set
forth in paragraphs (i) and (ii). Such determination shall be made (1)
by the Administrative Trustees by a majority vote of a Quorum
consisting of such Administrative Trustees who were not parties to such
action, suit or proceeding, (2) if such a Quorum is not obtainable, or,
even if obtainable, if a Quorum of disinterested Administrative
Trustees so directs, by independent legal counsel in a written opinion,
or (3) by the Common Security Holder of the Trust.
(v) Expenses (including attorneys' fees and expenses) incurred
by a Company Indemnified Person in defending a civil, criminal,
administrative or investigative action, suit or proceeding referred to
in paragraphs (i) and (ii) of this Section 10.4(a) shall be paid by the
Sponsor in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
Company Indemnified Person to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Sponsor
as authorized in this Section 10.4(a). Notwithstanding the foregoing,
no advance shall be made by the Sponsor if a determination is
reasonably and promptly made (1) by the Administrative Trustees by a
majority vote of a Quorum of disinterested Administrative Trustees, (2)
if such a Quorum is not obtainable, or, even if obtainable, if a quorum
of disinterested Administrative Trustees so directs, by independent
legal counsel in a written opinion or (3) by the Common Security Holder
of the Trust, that, based upon the facts known to the Administrative
Trustees, counsel or the Common Security Holder at the time such
determination is made, such Company Indemnified Person acted in bad
faith or in a manner that such Person did not believe to be in or not
opposed to the best interests of the Trust, or, with respect to any
criminal proceeding, that such Company Indemnified Person believed or
had reasonable cause to believe his conduct was unlawful. In no event
shall any advance be made in instances where the Administrative
Trustees, independent legal counsel or Common Security Holder
reasonably determine that such person deliberately breached his duty to
the Trust or its Common or Preferred Security Holders.
(vi) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other paragraphs of this Section
10.4(a) shall not be deemed exclusive of any other rights to which
those seeking indemnification and advancement of expenses may be
entitled under any agreement, vote of stockholders or disinterested
directors of the Sponsor or Preferred Security Holders of the Trust or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office. All
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rights to indemnification under this Section 10.4(a) shall be deemed to
be provided by a contract between the Sponsor and each Company
Indemnified Person who serves in such capacity at any time while this
Section 10.4(a) is in effect. Any repeal or modification of this
Section 10.4(a) shall not affect any rights or obligations then
existing.
(vii) The Sponsor or the Trust may purchase and maintain
insurance on behalf of any Person who is or was a Company Indemnified
Person against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or
not the Sponsor would have the power to indemnify him against such
liability under the provisions of this Section 10.4(a).
(viii) For purposes of this Section 10.4(a), references to
"the Trust" shall include, in addition to the resulting or surviving
entity, any constituent entity (including any constituent of a
constituent) absorbed in a consolidation or merger, so that any person
who is or was a director, trustee, officer or employee of such
constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee or agent
of another entity, shall stand in the same position under the
provisions of this Section 10.4(a) with respect to the resulting or
surviving entity as he would have with respect to such constituent
entity if its separate existence had continued.
(ix) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 10.4(a) shall, unless
otherwise provided when authorized or ratified, continue as to a Person
who has ceased to be a Company Indemnified Person and shall inure to
the benefit of the heirs, executors and administrators of such a
person.
(b) The Sponsor agrees to indemnify the (i) Property Trustee, (ii) the
Delaware Trustee, (iii) any Affiliate of the Property Trustee and the Delaware
Trustee, and (iv) any officers, directors, shareholders, members, partners,
employees, representatives, custodians, nominees or agents of the Property
Trustee and the Delaware Trustee (each of the Persons in (i) through (iv) being
referred to as a "Fiduciary Indemnified Person") for, and to hold each Fiduciary
Indemnified Person harmless against, any and all loss, liability, damage, claim
or expense including taxes (other than taxes based on the income of such
Fiduciary Indemnified Person) incurred without negligence, willful misconduct or
bad faith on its part, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs and
expenses (including reasonable legal fees and expenses) of defending itself
against or investigating any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder. With respect to the
Property Trustee, this provision shall not be deemed to modify Section 3.9(b) or
the Trust Indenture Act. The obligation to indemnify as set forth in this
Section 10.4(b) shall survive the resignation or removal of the Property Trustee
or the Delaware Trustee and the satisfaction and discharge of this Agreement.
SECTION 10.5 Outside Businesses.
Any Covered Person, the Sponsor, the Delaware Trustee and the Property
Trustee (subject to Section 5.3(c)) may engage in or possess an interest in
other business ventures of any nature or description, independently or with
others, similar or dissimilar to the business of the Trust, and the Trust and
the Holders of Securities shall have no rights by virtue of this
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Agreement in and to such independent ventures or the income or profits derived
therefrom, and the pursuit of any such venture, even if competitive with the
business of the Trust, shall not be deemed wrongful or improper. No Covered
Person, the Sponsor, the Delaware Trustee, or the Property Trustee shall be
obligated to present any particular investment or other opportunity to the Trust
even if such opportunity is of a character that, if presented to the Trust,
could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware
Trustee and the Property Trustee shall have the right to take for its own
account (individually or as a partner or fiduciary) or to recommend to others
any such particular investment or other opportunity. Any Covered Person, the
Delaware Trustee and the Property Trustee may engage or be interested in any
financial or other transaction with the Sponsor or any Affiliate of the Sponsor,
or may act as depositary for, trustee or agent for, or act on any committee or
body of holders of, securities or other obligations of the Sponsor or its
Affiliates.
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar
year, or such other year as is required by the Code.
SECTION 11.2 Certain Accounting Matters.
(a) At all times during the existence of the Trust, the Administrative
Trustees shall keep, or cause to be kept, full books of account, records and
supporting documents, which shall reflect in reasonable detail, each transaction
of the Trust. The books of account shall be maintained on the accrual method of
accounting, in accordance with generally accepted accounting principles,
consistently applied. The Trust shall use the accrual method of accounting for
United States Federal income tax purposes. The books of account and the records
of the Trust shall be examined by and reported upon as of the end of each Fiscal
Year of the Trust by a firm of independent certified public accountants selected
by the Administrative Trustees.
(b) The Administrative Trustees shall cause to be prepared and
delivered to each of the Holders of Securities, within 90 days after the end of
each Fiscal Year of the Trust, annual financial statements of the Trust,
including a balance sheet of the Trust as of the end of such Fiscal Year, and
the related statements of income or loss.
(c) The Administrative Trustees shall cause to be duly prepared and
delivered to each of the Holders of Securities, any annual United States Federal
income tax information statement, required by the Code, containing such
information with regard to the Securities held by each Holder as is required by
the Code and the Treasury Regulations. Notwithstanding any right under the Code
to deliver any such statement at a later date, the Administrative Trustees shall
endeavor to deliver all such information statements within 30 days after the end
of each Fiscal Year of the Trust.
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(d) The Administrative Trustees shall cause to be duly prepared and
filed with the appropriate taxing authority, an annual United States Federal
income tax return, on a Form 1041 or such other form required by United States
Federal income tax law, and any other annual income tax returns required to be
filed by the Administrative Trustees on behalf of the Trust with any state or
local taxing authority.
SECTION 11.3 Banking.
The Trust shall maintain one or more bank accounts in the name and for
the sole benefit of the Trust; provided, however, that all payments of funds in
respect of the Debentures held by the Property Trustee shall be made directly to
the Property Trustee Account and no other funds of the Trust shall be deposited
in the Property Trustee Account. The sole signatories for such accounts shall be
designated by the Administrative Trustees; provided, however, that the Property
Trustee shall designate the signatories for the Property Trustee Account.
SECTION 11.4 Withholding.
The Trust and the Administrative Trustees, on behalf of the Trust,
shall comply with all withholding requirements under United States Federal,
state and local law. The Administrative Trustees, on behalf of the Trust, shall
request, and the Holders shall provide to the Trust, such forms or certificates
as are necessary to establish an exemption from withholding with respect to each
Holder, and any representations and forms as shall reasonably be requested by
the Administrative Trustees to assist them in determining the extent of, and in
fulfilling, the Trust's withholding obligations. The Administrative Trustees
shall file required forms with applicable jurisdictions and, unless an exemption
from withholding is properly established by a Holder, shall remit amounts
withheld with respect to the Holder to applicable jurisdictions. To the extent
that the Trust is required to withhold and pay over any amounts to any authority
with respect to Distributions or allocations to any Holder, the amount withheld
shall be deemed to be a Distribution in the amount of the withholding to the
Holder. In the event of any claim of excess withholding, Holders shall be
limited to an action against the applicable jurisdiction. If the amount required
to be withheld was not withheld from actual Distributions made, the Trust may
reduce subsequent Distributions by the amount of such withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments.
(a) Except as otherwise provided in this Agreement or by any applicable
terms of the Securities, this Agreement may only be amended by a written
instrument approved and executed by:
(i) the Sponsor and the Administrative Trustees (or, if there
are more than two Administrative Trustees, a majority of the
Administrative Trustees);
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(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Property Trustee, the Property
Trustee; and
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the Delaware
Trustee.
(b) No amendment shall be made, and any such purported amendment shall
be void and ineffective:
(i) unless, in the case of any proposed amendment, the
Property Trustee shall have first received an Officers' Certificate
from each of the Trust and the Sponsor that such amendment is permitted
by, and conforms to, the terms of this Agreement (including the terms
of the Securities);
(ii) unless, in the case of any proposed amendment which
affects the rights, powers, duties, obligations or immunities of the
Property Trustee, the Property Trustee shall have first received:
(A) an Officers' Certificate from each of the Trust
and the Sponsor that such amendment is permitted by, and
conforms to, the terms of this Agreement (including the terms
of the Securities); and
(B) an opinion of counsel (who may be counsel to the
Sponsor or the Trust) that such amendment is permitted by, and
conforms to, the terms of this Agreement (including the terms
of the Securities) and that all conditions precedent to the
execution and delivery of such amendment have been satisfied;
and
(iii) to the extent the result of such amendment would:
(A) cause the Trust to fail to be classified for
purposes of United States Federal income taxation as a grantor
trust;
(B) reduce or otherwise adversely affect the powers
of the Property Trustee in contravention of the Trust
Indenture Act; or
(C) cause the Trust to be deemed to be an Investment
Company required to be registered under the Investment Company
Act.
(c) At such time after the Trust has issued any Securities that remain
outstanding, any amendment that would adversely affect the rights, privileges or
preferences of any Holder of the Securities may be effected only with such
additional requirements as may be set forth in the terms of such Securities;
provided, however, that, without the consent of each Holder of the Securities,
this Agreement may not be amended to (i) change the Distribution rate (or manner
of calculation of the Distribution rate), amount, timing or currency or
otherwise adversely affect the method of any required payment, (ii) change the
purposes of the Trust, (iii) authorize the issuance of any additional beneficial
interests in the Trust, (iv) change the redemption provisions, (v) change the
conditions precedent for the Sponsor to elect to dissolve the Trust and
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distribute the Debentures to the Holders of the Securities, (vi) change the
Liquidation Distribution or other provisions relating to the distribution of
amounts payable upon the dissolution and liquidation of the Trust, (vii) affect
the limited liability of any Holder of the Securities or (viii) restrict the
right of a Holder of the Securities to institute suit for the enforcement of any
required payment on or after the due date therefor (or in the case of
redemption, on the Redemption Date).
(d) Section 9.1(c) and this Section 12.1 shall not be amended without
the consent of all of the Holders of the Securities.
(e) Article IV shall not be amended without the consent of the Holders
of a Majority in Liquidation Amount of the Common Securities.
(f) The rights of the Holders of the Common Securities under Article V
to increase or decrease the number of, and to appoint and remove, Trustees shall
not be amended without the consent of the Holders of a Majority in Liquidation
Amount of the Common Securities.
(g) Notwithstanding Section 12.1(c), this Agreement may be amended by
the Sponsor and the Trustees without the consent of the Holders of the
Securities to:
(i) cure any ambiguity, correct or supplement any provision in
this Agreement that may be inconsistent with any other provision of
this Agreement or make any other provisions with respect to matters or
questions arising under this Agreement not inconsistent with any other
provisions of this Agreement;
(ii) modify, eliminate or add to any provisions of this
Agreement to such extent as shall be necessary to ensure that the Trust
will be classified for United States Federal income tax purposes as a
grantor trust at all times that any Securities are outstanding or to
ensure that the Trust will not be required to register as an Investment
Company under the Investment Company Act;
provided, however, that, in each case, such action shall not adversely affect in
any material respect the interests of the Holders of the Securities, and any
such amendments of this Agreement shall become effective when notice thereof is
given to the Holders of the Securities.
SECTION 12.2 Meetings of the Holders of Securities; Action by Written Consent.
(a) Meetings of the Holders of any class of Securities may be called at
any time by the Administrative Trustees (or as provided in the terms of the
Securities) to consider and act on any matter on which Holders of such class of
Securities are entitled to act under the terms of this Agreement, the terms of
the Securities or the rules of any stock exchange or quotation system or market
on which the Preferred Securities are listed or admitted for trading. The
Administrative Trustees shall call a meeting of the Holders of such class if
directed to do so by the Holders of at least 10% in Liquidation Amount of the
Securities of such class. Such direction shall be given by delivering to the
Administrative Trustees one or more notices in a writing stating that the
signing Holders of Securities wish to call a meeting and indicating the general
or
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specific purpose for which the meeting is to be called. Any Holders of
Securities calling a meeting shall specify in writing the security certificates
held by the Holders of Securities exercising the right to call a meeting and
only those Securities specified shall be counted for purposes of determining
whether the required percentage set forth in the second sentence of this
paragraph has been met.
(b) Whenever a vote, consent or approval of the Holders of Securities
is permitted or required under this Agreement or the rules of any stock exchange
or quotation system or market on which the Preferred Securities are listed or
admitted for trading, such vote, consent or approval may be given at a meeting
of the Holders of Securities. Any action that may be taken at a meeting of the
Holders of Securities may be taken without a meeting if a consent in writing
setting forth the action so taken is signed by the Holders of Securities owning
not less than the minimum amount of Securities in Liquidation Amount that would
be necessary to authorize or take such action at a meeting at which all Holders
of Securities having a right to vote thereon were present and voting. Prompt
notice of the taking of action without a meeting shall be given to the Holders
of Securities entitled to vote who have not consented in writing.
(c) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to all the
Holders of Securities having a right to vote thereat at least seven
days and not more than 60 days before the date of such meeting. The
Administrative Trustees may specify that any written ballot submitted
to the Security Holders for the purpose of taking any action without a
meeting shall be returned to the Trust within the time specified by the
Administrative Trustees;
(ii) each Holder of a Security may authorize any Person to act
for it by proxy on all matters in which a Holder of Securities is
entitled to participate, including waiving notice of any meeting, or
voting or participating at a meeting. No proxy shall be valid after the
expiration of eleven months from the date thereof unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure
of the Holder of Securities executing it. Except as otherwise provided
herein, all matters relating to the giving, voting or validity of
proxies shall be governed by the General Corporation Law of the State
of Delaware relating to proxies, and judicial interpretations
thereunder, as if the Trust were a Delaware corporation and the Holders
of the Securities were stockholders of a Delaware corporation;
(iii) each meeting of the Holders of the Securities shall be
conducted by the Administrative Trustees or by such other Person that
the Administrative Trustees may designate; and
(iv) unless the Business Trust Act, this Agreement, the terms
of the Securities, the Trust Indenture Act or the listing rules of any
stock exchange or quotation system or market on which the Preferred
Securities are then listed or trading, otherwise provides, the
Administrative Trustees, in their sole discretion, shall establish all
other provisions relating to meetings of Holders of Securities,
including notice of the time, place or purpose of any meeting at which
any matter is to be voted on by any Holders of
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Securities, waiver of any such notice, action by consent without a
meeting, the establishment of a record date, quorum requirements,
voting in person or by proxy or any other matter with respect to the
exercise of any such right to vote.
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of Property Trustee.
The Trustee that acts as initial Property Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Agreement, and each
Successor Property Trustee represents and warrants, as applicable, to the Trust
and the Sponsor at the time of the Successor Property Trustee's acceptance of
its appointment as Property Trustee that:
(a) the Property Trustee is a banking corporation, a national banking
association or a bank or trust company, duly organized, validly existing and in
good standing under the laws of the United States or a State of the United
States, as the case may be, with corporate power and authority to execute and
deliver, and to carry out and perform its obligations under the terms of, this
Agreement;
(b) the execution, delivery and performance by the Property Trustee of
the Agreement have been duly authorized by all necessary corporate action on the
part of the Property Trustee. The Agreement has been duly executed and delivered
by the Property Trustee under New York law and constitutes a legal, valid and
binding obligation of the Property Trustee, enforceable against it in accordance
with its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law);
(c) the execution, delivery and performance of this Agreement by the
Property Trustee do not conflict with or constitute a breach of the charter or
by-laws of the Property Trustee; and
(d) no consent, approval or authorization of, or registration with or
notice to, any federal or New York State banking authority is required for the
execution, delivery or performance by the Property Trustee of this Agreement.
SECTION 13.2 Representations and Warranties of Delaware Trustee.
The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Agreement, and each
Successor Delaware Trustee represents and warrants to the Trust and the Sponsor
at the time of the Successor Delaware Trustee's acceptance of its appointment as
Delaware Trustee that:
(a) the Delaware Trustee is a banking corporation, a national banking
association or a bank or trust company, duly organized, validly existing and in
good standing under the laws
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of the United States or the State of Delaware, as the case may be, with
corporate power and authority to execute and deliver, and to carry out and
perform its obligations under the terms of, this Agreement;
(b) the execution, delivery and performance by the Delaware Trustee of
this Agreement have been duly authorized by all necessary corporate action on
the part of the Delaware Trustee. This Agreement has been duly executed and
delivered by the Delaware Trustee under Delaware law and constitutes a legal,
valid and binding obligation of the Delaware Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law);
(c) the execution, delivery and performance of this Agreement by the
Delaware Trustee do not conflict with or constitute a breach of the charter or
by-laws of the Delaware Trustee;
(d) no consent, approval or authorization of, or registration with or
notice to, any Federal or Delaware banking authority governing the trust powers
of the Delaware Trustee is required for the execution, delivery or performance
by the Delaware Trustee of this Agreement; and
(e) the Delaware Trustee is a natural person who is a resident of the
State of Delaware or, if not a natural person, an entity which has its principal
place of business in the State of Delaware, and is a Person that satisfies for
the Trust Section 3807(a) of the Business Trust Act.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Notices.
All notices provided for in this Agreement shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by first class mail, as follows:
(a) if given to the Trust, in care of the Administrative Trustees at
the Trust's mailing address set forth below (or such other address as the Trust
may give notice of to the Holders of the Securities):
Hercules Trust VI
c/o Hercules Incorporated
Hercules Plaza
1313 North Market Street
Wilmington, Delaware 19894-0001
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Attention: Israel J. Floyd
Telephone: (302) 594-5000
Telecopier: (302) 594-5210
(b) if given to the Delaware Trustee, at the mailing address set forth
below (or such other address as Delaware Trustee may give notice of to the
Holders of the Securities):
Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, Delaware 19801
Attention: Corporate Trust Department
Telephone: (302) 984-3372
Telecopier: (302) 428-4903
(c) if given to the Property Trustee, at the Property Trustee's mailing
address set forth below (or such other address as the Property Trustee may give
notice of to the Holders of the Securities):
The Chase Manhattan Bank
c/o Chase Manhattan Trust Company, National Association
One Liberty Place, 52nd Floor
1650 Market Street
Philadelphia, Pennsylvania 19103
Attention: Capital Markets Fiduciary Services
Telephone: (215) 988-1317
Telecopier: (215) 972-8372
(d) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the Holder of
the Common Securities may give notice to the Trust):
Hercules Incorporated
Hercules Plaza
1313 North Market Street
Wilmington, Delaware 19894-0001
Attention: Vice-President and Treasurer and
Corporate Secretary of the Sponsor
Telephone: (302) 594-5000
Telecopier: (302) 594-5210
(e) if given to any other Holder, at the address set forth on the books
and records of the Trust.
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All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 14.2 Governing Law.
This Agreement and the rights of the parties hereunder shall be
governed by and construed in accordance with the laws of the State of Delaware
and all rights and remedies shall be governed by such laws without regard to
principles of conflict of laws, except that the rights, limitations of rights,
obligations, duties and immunities of the Property Trustee shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 14.3 Intention of the Parties.
It is the intention of the parties hereto that the Trust be classified
for United States Federal income tax purposes as a grantor trust. The provisions
of this Agreement shall be interpreted to further this intention of the parties.
SECTION 14.4 Headings.
The Table of Contents, Cross-Reference Table and Headings contained in
this Agreement are inserted for convenience of reference only and do not affect
the interpretation of this Agreement or any provision hereof.
SECTION 14.5 Successors and Assigns.
Whenever in this Agreement any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Agreement by the Sponsor and
the Trustees shall bind and inure to the benefit of their respective successors
and assigns, whether so expressed.
SECTION 14.6 Partial Enforceability.
If any provision of this Agreement, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Agreement, or the application of such provision to Persons or circumstances
other than those to which it is held invalid, shall not be affected thereby.
SECTION 14.7 Counterparts.
This Agreement may contain more than one counterpart of the signature
page and this Agreement may be executed by the affixing of the signature of each
of the Trustees to one of such counterpart signature pages. All of such
counterpart signature pages shall be read as though one, and they shall have the
same force and effect as though all of the signers had signed a single signature
page.
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IN WITNESS WHEREOF, the undersigned have caused this Amended and
Restated Trust Agreement to be executed as of the day and year first above
written.
Michael J. Scott, not in his individual capacity
but solely as Administrative Trustee of the
Trust
________________________________________________
Stuart C. Shears, not in his individual capacity
but solely as Administrative Trustee of the
Trust
________________________________________________
Israel J. Floyd, not in his individual capacity
but solely as Administrative Trustee of the
Trust
________________________________________________
Chase Manhattan Bank Delaware, not in its
individual capacity but solely as Delaware
Trustee of the Trust
By:_____________________________________________
Name:
Title:
The Chase Manhattan Bank, not in its individual
capacity but solely as Property Trustee of the
Trust
By:_____________________________________________
Name:
Title:
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Hercules Incorporated,
as Sponsor of the Trust
By:_____________________________________________
Name:
Title:
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ANNEX I
TERMS OF
FLOATING RATE PREFERRED SECURITIES
FLOATING RATE COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated Trust Agreement of
the Trust, dated as of December 23, 1999 (as amended from time to time, the
"Agreement"), the designation, rights, privileges, restrictions, preferences and
other terms and provisions of the Floating Rate Preferred Securities (the
"Preferred Securities") and the Floating Rate Common Securities (the "Common
Securities," and together with the Preferred Securities, the "Securities") are
set forth below (each capitalized term used but not defined herein has the
meaning set forth in the Agreement or, if not defined in such Agreement, as
defined in the Indenture):
1. Designation and Number.
(a) Preferred Securities. Up to and including 170,000 Preferred
Securities of the Trust, with an aggregate liquidation amount with respect to
the assets of the Trust of one hundred and seventy million dollars
($170,000,000), and with a Liquidation Amount with respect to the assets of the
Trust of $1,000 per security, are hereby designated for the purposes of
identification only as "Floating Rate Preferred Securities". The Trust may
issue, without the consent of the Holders of the Preferred Securities,
additional Preferred Securities having the same terms (other than the date of
issuance and the date on which Distributions begin to accumulate) as the
Preferred Securities issued at the Closing Time so as to form a single series
with the Preferred Securities theretofore issued. The certificates evidencing
the Preferred Securities shall be substantially in the form of Exhibit A-1 to
the Agreement.
(b) Common Securities. Up to and including 5,258 Common Securities of
the Trust with an aggregate Liquidation Amount with respect to the assets of the
Trust of five million two hundred fifty eight thousand dollars ($5,258,000), and
with a Liquidation Amount with respect to the assets of the Trust of $1,000 per
security, are hereby designated for the purposes of identification only as
"Floating Rate Common Securities". If the Trust issued additional Preferred
Securities pursuant to the second sentence of Section 1(a), then the Trust will
issue additional Common Securities having the same terms (other than the date of
issuance and the date on which Distribution begin to accumulate) as the Common
Securities issued at the Closing Time so as to form a single series with the
Common Securities theretofore issued. The certificate evidencing the Common
Securities shall be substantially in the form of Exhibit A-2 to the Agreement.
2. Distributions.
(a) Distributions will be payable at the rate per annum, reset
quarterly, equal to LIBOR (as defined below) plus 245 basis points (2.45%) of
the $1,000 Liquidation Amount per Security (the "Distribution Rate").
Distributions in arrears for more than one quarterly
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period will bear additional distributions thereon compounded quarterly at the
applicable periodic Distribution Rate (to the extent permitted by applicable
law). The term "Distributions", as used herein, includes any such additional
distributions unless otherwise stated. A Distribution is payable only to the
extent that payments are made in respect of the Debentures held by the Property
Trustee and to the extent the Property Trustee has funds legally available
therefor.
(b) Distributions on the Securities will be cumulative, will be payable
quarterly in arrears on March 29, 2000, June 29, 2000, September 29, 2000 and
December 29, 2000 (each, a "Distribution Date"), will accumulate from and
including the most recent date to which Distributions have been paid or, if no
Distributions have been paid, from and including December 23, 1999, to but
excluding the related Distribution Date (a "Distribution Period").
(c) The amount of Distributions payable for any Distribution Period
will be computed on the basis of the actual number of days in such Distribution
Period and a year of 360 days. If a Distribution Date is not a Business Day,
then such Distribution Date will be postponed to the next succeeding Business
Day. However, if the next succeeding Business Day is in the next succeeding
calendar month, such Distribution Date will be the immediately preceding
Business Day.
(d) Distributions on a Distribution Date will be payable to the Holders
thereof as they appear on the books and records of the Trust on the day
immediately preceding such Distribution Date. If the Preferred Securities are
ever issued in the form of Definitive Preferred Securities, the record date for
the payment of Distributions shall be the 15th day of the calendar month in
which the Distribution Date occurs, even if that day is not a Business Day. The
relevant record dates for the Common Securities shall be the same as the record
dates for the Preferred Securities. Distributions payable on any Securities that
are not punctually paid or duly provided for on any Distribution Date, as a
result of the Debenture Issuer having failed to make a payment under the
Debentures, will cease to be payable to the Holder on the relevant record date,
and such defaulted Distributions will instead be payable to the Person in whose
name such Securities are registered on the Special Record Date or other
specified date for the Debentures determined in accordance with the Indenture.
(e) The "Calculation Agent" shall be The Chase Manhattan Bank or any
successor appointed by the Sponsor and will calculate the Distribution Rate for
each Distribution Period based on LIBOR determined as of two London Business
Days prior to the first day of such Distribution Period (each, a "Determination
Date"). "LIBOR" means, with respect to a Distribution Period relating to a
Distribution Date (in the following order of priority):
(1) the rate (expressed as a percentage per annum) for
Eurodollar deposits having a three-month maturity that appears on Telerate Page
3750 as of 11:00 a.m. (London time) on the applicable Determination Date;
(2) if such rate does not appear on Telerate Page 3750 as of
11:00 a.m. (London time) on the applicable Determination Date, the Calculation
Agent will request the principal London offices of four leading banks in the
London interbank market as selected by the Calculation Agent in consultation
with the Sponsor to provide such banks' offered quotations (expressed as
percentages per annum) to prime banks in the London interbank market for
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Eurodollar deposits having a three-month maturity as of 11:00 a.m. (London time)
on such Determination Date, and if at least two quotations are provided, LIBOR
will be the arithmetic mean of such quotations (rounded upwards if necessary to
the fifth decimal place);
(3) if fewer than two such quotations are provided as
requested in clause (2) above, the Calculation Agent will request four major New
York City banks selected by the Calculation Agent in consultation with the
Sponsor to provide such banks' offered quotations (expressed as percentages per
annum) to leading European banks for loans in Eurodollars as of 11:00 a.m. (New
York City time) on such Determination Date, and if at least two quotations are
provided, LIBOR will be the arithmetic mean of such quotations (rounded upwards
if necessary to the fifth decimal place); and
(4) if fewer than two such quotations are provided as
requested in clause (3) above, LIBOR will be LIBOR as determined on the
preceding Determination Date.
The Distribution Rate for any Distribution Period will at no time be
higher than the maximum rate then permitted by New York law, as the same may be
modified by United States law.
Absent manifest error, the Calculation Agent's determination of LIBOR
and its calculation of the applicable Distribution Rate for each Distribution
Period will be final and binding.
(f) As long as no Event of Default has occurred and is continuing under
the Indenture, the Debenture Issuer has the right under the Indenture to defer
payments of interest on the Debentures by extending the interest payment period
at any time and from time to time (each period as to which interest payments
have been deferred is referred to herein as an "Extension Period"), provided
that an Extension Period must end on an Interest Payment Date for the Debentures
and may not extend beyond December 29, 2000 (the "Stated Maturity Date"). As a
consequence of such deferral, Distributions on the Securities will also be
deferred during an Extension Period. Despite such deferral, quarterly
Distributions will continue to accumulate with additional interest thereon (to
the extent permitted by applicable law but not at a rate greater than the rate
at which interest is then accruing on the Debentures) at the Distribution Rate
then in effect, compounded quarterly during any Extension Period. Prior to the
termination of an Extension Period, the Debenture Issuer may further defer
payments of interest by further extending such Extension Period; provided that
an Extension Period, together with all such previous and further extensions, may
not extend beyond the Stated Maturity Date. At the end of an Extension Period,
all accumulated and unpaid Distributions (but only to the extent payments are
made in respect of the Debentures held by the Property Trustee and to the extent
the Property Trustee has funds legally available therefor) will be payable to
the Holders as they appear on the books and records of the Trust on the record
date immediately preceding the end of the Extension Period. Upon the termination
of any Extension Period (or any extension thereof) and the payment of all
amounts then due, the Debenture Issuer may commence a new Extension Period,
subject to the foregoing requirements.
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(g) In the event that there is any money or other property held by or
for the Trust that is not accounted for hereunder, such property shall be
distributed on a Pro Rata (as defined herein) basis among the Holders of the
Securities.
3. Liquidation Distribution Upon Dissolution.
In the event of any dissolution of the Trust, the Trust shall be
liquidated by the Administrative Trustees as expeditiously as the Administrative
Trustees determine to be possible by distributing, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, to the
Holders of the Securities a Like Amount (as defined below) of the Debentures,
unless such distribution is determined by the Property Trustee not to be
practicable, in which event such Holders will be entitled to receive out of the
assets of the Trust legally available for distribution to Holders, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, an amount equal to the aggregate of the Liquidation Amount of $1,000 per
Security plus accumulated and unpaid Distributions thereon to the date of
payment (such amount is referred to herein as the "Liquidation Distribution").
"Like Amount" means (i) with respect to a redemption of the Securities,
Securities having a Liquidation Amount equal to the principal amount of
Debentures to be paid in accordance with their terms and (ii) with respect to a
distribution of Debentures upon the dissolution of the Trust, Debentures having
a principal amount equal to the Liquidation Amount of the Securities of the
Holder to whom such Debentures are distributed.
If, upon any such liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets legally available to pay
in full the aggregate Liquidation Distribution, then the amounts payable
directly by the Trust on the Securities shall be paid on a Pro Rata basis.
4. Redemption and Distribution.
(a) Upon the repayment of the Debentures on the Stated Maturity Date,
the proceeds from such repayment shall be simultaneously applied by the Property
Trustee to redeem a Like Amount of the Securities at the Redemption Price (as
defined below). Holders will be given not less than 30 nor more than 60 days'
prior written notice of such redemption. Any redemption of Securities shall be
made, and the Redemption Price shall be payable, on the Redemption Date, and
only to the extent that the Trust has funds legally available for the payment
thereof.
(b) The "Redemption Price" shall mean a price equal to 100% of the
Liquidation Amount of the Securities to be redeemed plus accumulated and unpaid
Distributions thereon, if any, to the date of redemption.
(c) On and from the date fixed by the Administrative Trustees for any
distribution of Debentures and liquidation of the Trust: (i) the Securities will
no longer be deemed to be outstanding, (ii) the Clearing Agency or its nominee
(or any successor Clearing Agency or its nominee), as the Holder of the
Preferred Securities, will receive a registered global certificate or
certificates representing the Debentures to be delivered upon such distribution
and
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(iii) any certificates representing Securities not held by the Clearing Agency
or its nominee (or any successor Clearing Agency or its nominee) will be deemed
to represent beneficial interests in Debentures until such certificates are
presented to the Debenture Issuer or its agent for transfer or reissue.
(a) (d) The procedure with respect to redemptions or distributions of
Debentures shall be as follows:
(i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for, the Securities (a "Redemption/Distribution
Notice") will be given by an Administrative Trustee on behalf of the
Trust by mail to each Holder of Securities to be redeemed or exchanged
not fewer than 30 nor more than 60 days before the date fixed for
redemption or exchange thereof which, in the case of a redemption, will
be the date fixed for redemption of the Debentures. For purposes of the
calculation of the date of redemption or exchange and the dates on
which notices are given pursuant to this Section 4(f)(i), a Redemption/
Distribution Notice shall be deemed to be given on the day such notice
is first mailed by first-class mail, postage prepaid, to Holders of
Securities. Each Redemption/Distribution Notice shall be addressed to
the Holders of Securities at the address of each such Holder appearing
in the books and records of the Trust. No defect in the Redemption/
Distribution Notice or in the mailing of either thereof with respect to
any Holder shall affect the validity of the redemption or exchange
proceedings with respect to any other Holder.
(ii) In the event that fewer than all the outstanding
Securities are to be redeemed, the Securities to be redeemed shall be
redeemed on a Pro Rata basis from each Holder of Preferred Securities,
it being understood that, in respect of Preferred Securities registered
in the name of and held of record by the Clearing Agency or its nominee
(or any successor Clearing Agency or its nominee) or any nominee, the
distribution of the proceeds of such redemption will be made to the
Clearing Agency and disbursed by such Clearing Agency in accordance
with the procedures applied by such agency or nominee.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice (which notice will be irrevocable), then
(A) with respect to Global Preferred Securities representing Preferred
Securities issued in book-entry form, by 12:00 noon, New York City
time, on the Redemption Date, provided that the Debenture Issuer has
paid the Property Trustee a sufficient amount of cash in connection
with the maturity of the Debentures by 10:00 a.m., New York City time,
on the Stated Maturity Date, the Property Trustee will deposit
irrevocably with the Clearing Agency or its nominee (or successor
Clearing Agency or its nominee) funds sufficient to pay the Redemption
Price with respect to such Preferred Securities and will give the
Clearing Agency irrevocable instructions and authority to pay the
Redemption Price to the relevant Participants, and (B) with respect to
Definitive Preferred Securities and Common Securities, provided that
the Debenture Issuer has paid the Property Trustee a sufficient amount
of cash in connection with the maturity of the Debentures, the Property
Trustee will pay the Redemption Price to the Holders of such Securities
by check mailed to the address of such Holder appearing on the books
and records of the Trust on the Redemption Date. If a
Redemption/Distribution Notice shall have been given and funds
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deposited as required, then immediately prior to the close of business
on the date of such deposit, or on the Redemption Date, as applicable,
Distributions will cease to accumulate on the Securities so called for
redemption and all rights of Holders of such Securities so called for
redemption will cease, except the right of the Holders of such
Securities to receive the Redemption Price, but without interest on
such Redemption Price, and such Securities shall cease to be
outstanding.
(iv) Payment of accumulated and unpaid Distributions on the
Redemption Date will be subject to the rights of Holders of Securities
on the close of business on a record date in respect of a Distribution
Date occurring on such Redemption Date.
(v) If a Redemption Date is not a Business Day, then payment
of the Redemption Price payable on such date will be made on the next
succeeding Business Day, and no interest or other payment in respect of
any such delay will accumulate for the period to but excluding such
Business Day. If payment of the Redemption Price in respect of any
Securities is improperly withheld or refused and not paid either by the
Property Trustee or by the Sponsor as guarantor pursuant to the
relevant Securities Guarantee, Distributions on such Securities will
continue to accumulate from the original redemption date to the actual
date of payment, in which case the actual payment date will be
considered the Redemption Date for purposes of calculating the
Redemption Price.
(vi) Redemption/Distribution Notices shall be sent by the
Property Trustee on behalf of the Trust to (A) in respect of the
Preferred Securities, the Clearing Agency or its nominee (or any
successor Clearing Agency or its nominee) if the Global Preferred
Securities have been issued or, if Definitive Preferred Securities have
been issued, to the Holders thereof, and (B) in respect of the Common
Securities, to the Sponsor.
(vii) Subject to the foregoing and applicable law (including,
without limitation, United States Federal securities laws and banking
laws), the Sponsor or any of its subsidiaries may at any time and from
time to time purchase outstanding Preferred Securities by tender, in
the open market or by private agreement.
5. Voting Rights - Preferred Securities.
(a) Except as provided under Sections 5(b) and 7 and as otherwise
required by law or the Agreement, the Holders of the Preferred Securities will
have no voting rights.
(b) So long as any Debentures are held by the Property Trustee, the
Trustees shall not (i) direct the time, method and place of conducting any
proceeding with respect to any remedy available to the Debenture Trustee, or
exercise any trust or power conferred upon the Debenture Trustee, with respect
to the Debentures, (ii) waive any past default that is waivable under the
Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Debentures, or (iv) consent
to any amendment, modification or termination of the Indenture or the Debentures
where such consent shall be required, without, in each case, obtaining (1) the
prior approval of the Holders of a Majority in Liquidation Amount of all
outstanding Preferred Securities; provided, however, that where a consent under
the Indenture would require the consent of each holder of Debentures affected
thereby, no such
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consent shall be given by the Property Trustee without the prior approval of
each Holder of the Preferred Securities and (2) an Opinion of Counsel delivered
to the Trust from tax counsel experienced in such matters to the effect that the
Trust will not be classified as an association taxable as corporation for United
States Federal income tax purposes on account of such action.
Notwithstanding anything to the contrary contained herein, if an Event
of Default under the Agreement has occurred and is continuing and such event is
attributable to the failure of the Debenture Issuer to pay principal of or
interest on the Debentures on the date such principal or interest is otherwise
payable, then a Holder of Preferred Securities may directly institute a
proceeding against the Debenture Issuer for enforcement of payment to such
Holder of the principal of or interest on a Like Amount of Debentures (a "Direct
Action") on or after the respective due date specified in the Debentures. In
connection with such a Direct Action, (i) the rights of the Common Securities
Holder will be subordinated to the rights of Holders of Preferred Securities
with respect to payments made or required to be made by the Debenture Issuer in
such Direct Action and (ii) the Debenture Issuer shall remain obligated to pay
the principal of or interest on such Debentures, and the Debenture Issuer shall
be subrogated to the rights of such Holder of Preferred Securities to the extent
of any payment made by the Debenture Issuer to such Holder in such Direct
Action.
Any approval or direction of Holders of Preferred Securities may be
given at a separate meeting of Holders of Preferred Securities convened for such
purpose, at a meeting of all of the Holders of Securities or pursuant to written
consent. The Property Trustees will cause a notice of any meeting at which
Holders of Preferred Securities are entitled to vote to be mailed to each Holder
of record of Preferred Securities. Each such notice will include a statement
setting forth (i) the date of such meeting, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are entitled to vote
and (iii) instructions for the delivery of proxies.
No vote or consent of the Holders of the Preferred Securities will be
required for the Trust to distribute the Debentures in accordance with the
Agreement and these terms of the Securities.
Notwithstanding that Holders of Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Sponsor or any Affiliate of the
Sponsor shall not be entitled to vote or consent and shall, for purposes of such
vote or consent, be treated as if they were not outstanding.
6. Voting Rights - Common Securities.
(a) Except as provided under Sections 6(b) and 7 as otherwise required
by law or the Agreement, the Holders of the Common Securities will have no
voting rights.
(b) So long as any Debentures are held by the Property Trustee, the
Trustees shall not (i) direct the time, method and place of conducting any
proceeding with respect to any remedy available to the Debenture Trustee, or
exercise any trust or power conferred upon the Debenture Trustee, with respect
to the Debentures, (ii) waive any past default that is waivable under the
Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of
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<PAGE> 74
the maturity of the principal of the Debentures or (iv) consent to any
amendment, modification or termination of the Indenture or the Debentures where
such consent shall be required, without, in each case, obtaining (1) the prior
approval of the Holders of a Majority in Liquidation Amount of all outstanding
Common Securities; provided, however, that where a consent under the Indenture
would require the consent of each holder of Debentures affected thereby, no such
consent shall be given by the Property Trustee without the prior approval of the
Common Securities Holder and (2) an Opinion of Counsel delivered to the Trust
from tax counsel experienced in such matters to the effect that the Trust will
not be classified as an association taxable as a corporation for United States
Federal income tax purposes on account of such action.
Notwithstanding anything to the contrary contained herein, if an Event
of Default under the Agreement has occurred and is continuing and such event is
attributable to the failure of the Debenture Issuer to pay principal of or
interest on the Debentures on the date such principal or interest is otherwise
payable, then a Holder of Common Securities may institute a Direct Action
against the Debenture Issuer for enforcement of payment to such Holder of the
principal of or interest on a Like Amount of Debentures on or after the
respective due date specified in the Debentures. In connection with such a
Direct Action, (i) the rights of the Common Securities Holder will be
subordinated to the rights of Holders of Preferred Securities with respect to
payments made or required to be made by the Debenture Issuer in such Direct
Action and (ii) the Debenture Issuer shall remain obligated to pay the principal
of or interest on such Debentures, and the Debenture Issuer shall be subrogated
to the rights of such Holder of Preferred Securities to the extent of any
payment made by the Debenture Issuer to such Holder in such Direct Action.
Any approval or direction of Holder(s) of Common Securities may be
given at a separate meeting of Holder(s) of Common Securities convened for such
purpose, at a meeting of all of the Holders of Securities or pursuant to written
consent. The Administrative Trustees will cause a notice of any meeting at which
Holder(s) of Common Securities are entitled to vote to be mailed to each Holder
of record of Common Securities. Each such notice will include a statement
setting forth (i) the date of such meeting, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holder(s) are entitled to
vote and (iii) instructions for the delivery of proxies.
No vote or consent of the Holder(s) of the Common Securities will be
required for the Trust to distribute the Debentures in accordance with the
Agreement and these terms of the Securities.
7. Amendments to Agreement.
(b) In addition to the requirements set out in Section 12.1 of the
Agreement, the Agreement may be amended from time to time by the Sponsor and the
Trustees with (i) the consent of Holders of a Majority in Liquidation Amount of
all outstanding Securities, and (ii) receipt by the Trustees of an opinion of
counsel experienced in such matters to the effect that such amendment or the
exercise of any power granted to the Trustees in accordance with such amendment
will not affect the Trust's status as a grantor trust for United States Federal
income tax purposes or the Trust's exemption from status as an Investment
Company under the Investment Company Act; provided, however, that, without the
consent of each Holder of the
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<PAGE> 75
Securities, the Agreement may not be amended to (i) change the Distribution Rate
(or manner of calculation of the Distribution Rate), amount, timing or currency
or otherwise adversely affect the method of any required payment, (ii) change
the purposes of the Trust, (iii) authorize the issuance of any additional
beneficial interests in the Trust, (iv) change the redemption provisions, (v)
change the conditions precedent for the Sponsor to elect to dissolve the Trust
and distribute the Debentures to the Holders of the Securities, (vi) change the
Liquidation Distribution or other provisions relating to the distribution of
amounts payable upon the dissolution and liquidation of the Trust, (vii) affect
the limited liability of any Holder of the Securities or (viii) restrict the
right of a Holder of the Securities to institute suit for the enforcement of any
required payment on or after the due date therefor (or, in the case of
redemption, on the Redemption Date).
8. Pro Rata.
A reference herein to any payment, distribution or treatment as being
"Pro Rata" shall mean pro rata to each Holder of Securities according to the
aggregate Liquidation Amount of the Securities held by such Holder in relation
to the aggregate Liquidation Amount of all Securities outstanding unless, in
relation to a payment, an Event of Default under the Agreement has occurred and
is continuing, in which case any funds legally available to make such payment
shall be paid first to each Holder of the Preferred Securities pro rata
according to the aggregate Liquidation Amount of Preferred Securities held by
such Holder relative to the aggregate Liquidation Amount of all Preferred
Securities outstanding, and only after satisfaction of all amounts owed to the
Holders of the Preferred Securities, to each Holder of Common Securities pro
rata according to the aggregate Liquidation Amount of Common Securities held by
such Holder relative to the aggregate Liquidation Amount of all Common
Securities outstanding.
9. Ranking.
The Preferred Securities rank pari passu with the Common Securities and
payment thereon shall be made Pro Rata with the Common Securities, except that,
if an Event of Default under the Agreement occurs and is continuing, no payments
in respect of Distributions on, or payments upon liquidation, redemption or
otherwise with respect to, the Common Securities shall be made until the Holders
of the Preferred Securities shall be paid in full the Distributions, Liquidation
Distribution, Redemption Price and other payments to which they are entitled at
such time.
10. Acceptance of Securities Guarantees and Indenture.
Each Holder of Preferred Securities and Common Securities, by the
acceptance thereof, agrees to the provisions of the Preferred Securities
Guarantee, the Common Securities Guarantee and the Indenture, including the
subordination provisions therein.
11. No Preemptive Rights.
The Holders of the Preferred Securities and the Common Securities shall
have no preemptive or similar rights to subscribe for any additional securities.
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<PAGE> 76
12. Miscellaneous.
These terms constitute a part of the Agreement.
The Sponsor will provide a copy of the Agreement, the Preferred
Securities Guarantee or the Common Securities Guarantee (as may be appropriate)
and the Indenture (including any supplemental indenture) to a Holder without
charge on written request to the Sponsor at its principal place of business.
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<PAGE> 77
EXHIBIT A-1
FORM OF PREFERRED SECURITY CERTIFICATE
[FORM OF FACE OF SECURITY]
[IF THIS PREFERRED SECURITY IS A GLOBAL PREFERRED SECURITY,
INSERT: THIS PREFERRED SECURITY IS A GLOBAL PREFERRED SECURITY WITHIN THE
MEANING OF THE AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME
OF THE DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE
CLEARING AGENCY. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR PREFERRED
SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR
ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE AGREEMENT AND NO
TRANSFER OF THIS PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS PREFERRED
SECURITY AS A WHOLE BY THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY
OR BY A NOMINEE OF THE CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE
OF THE CLEARING AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE CLEARING AGENCY TO THE TRUST OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY PREFERRED SECURITY ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE CLEARING AGENCY AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.]
THE SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
THE HOLDER OF THE SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT
TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH HERCULES TRUST VI (THE
"TRUST") OR ANY AFFILIATED PERSON OF THE TRUST WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF SUCH SECURITY) UNLESS SUCH OFFER, SALE OR OTHER
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TRANSFER IS (A) TO THE TRUST OR HERCULES INCORPORATED OR ANY OF ITS
SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHO IS OR WHO THE HOLDER
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN "ACCREDITED INVESTOR" (AS DEFINED
IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT IS AN
INSTITUTIONAL INVESTOR, (E) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS
THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER
THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE
TRUST OR THE TRANSFER AGENT FOR THE SECURITIES PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE THEN HOLDER OF THIS
SECURITY AFTER THE RESALE RESTRICTION TERMINATION DATE.
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<PAGE> 79
Certificate Number Number of Preferred
Securities
PS-001 ___________
CUSIP NO. _________
Certificate Evidencing Preferred Securities
of
HERCULES TRUST VI
- --------------------------------------------------------------------------------
Floating Rate Preferred Securities
(liquidation amount $1,000 per Preferred Security)
HERCULES TRUST VI, a statutory business trust created under
the laws of the State of Delaware (the "Trust"), hereby certifies that
______________ (the "Holder") is the registered owner of 170,000 securities of
the Trust representing undivided beneficial interests in the assets of the Trust
designated as the Floating Rate Preferred Securities (liquidation amount $1,000
per Preferred Security) (the "Preferred Securities"). The Preferred Securities
are transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer.
The designation, rights, privileges, restrictions, preferences
and other terms and provisions of the Preferred Securities represented hereby
are issued and shall in all respects be subject to the provisions of the Amended
and Restated Trust Agreement of the Trust dated as of December 23, 1999, as the
same may be amended from time to time (the "Agreement"), including the
designation of the terms of the Preferred Securities as set forth in Annex I to
the Agreement. Capitalized terms used but not defined herein shall have the
respective meanings given them in the Agreement. The Sponsor will provide a copy
of the Agreement, the Preferred Securities Guarantee and the Indenture to a
Holder without charge upon written request to the Trust at its principal place
of business.
Upon receipt of this certificate, the Holder is bound by the
Agreement and is entitled to the benefits thereunder and to the benefits of the
Preferred Securities Guarantee to the extent provided therein.
By acceptance, the Holder agrees to treat, for United States
Federal income tax purposes, the Debentures as indebtedness and the Preferred
Securities as evidence of indirect beneficial ownership in the Debentures.
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<PAGE> 80
IN WITNESS WHEREOF, the Trust has executed this certificate
this _______ day of ______________, 1999.
HERCULES TRUST VI
By: ________________________________
Name:
Title: Administrative Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Preferred Securities referred to in the
within-mentioned Agreement.
Dated: ___________, 1999
THE CHASE MANHATTAN BANK,
as Property Trustee
By: ________________________________
Authorized Signatory
A1-4
<PAGE> 81
[FORM OF REVERSE OF PREFERRED SECURITY]
Distributions on the Preferred Securities will be payable at a rate per
annum, reset quarterly, equal to LIBOR (as defined in the Agreement) plus 245
basis points (2.45%) of the $1,000 liquidation amount per security (the
"Distribution Rate"). The Distribution Rate for any Distribution Period will at
no time be higher than the maximum rate then permitted by New York law, as the
same may be modified by United States law. Distributions in arrears for more
than one quarterly period will bear additional distributions thereon compounded
quarterly at the applicable periodic Distribution Rate (to the extent permitted
by applicable law). The term "Distributions", as used herein, includes any such
additional distributions unless otherwise stated. A Distribution is payable only
to the extent that payments are made in respect of the Debentures held by the
Property Trustee and to the extent the Property Trustee has funds legally
available therefor.
Distributions on the Preferred Securities will be cumulative, will be
payable quarterly in arrears on March 29, 2000, June 29, 2000, September 29,
2000 and December 29, 2000 (each, a "Distribution Date"), will accumulate from
and including the most recent date to which Distributions have been paid or, if
no Distributions have been paid, from and including December 23, 1999, to but
excluding the related Distribution Date (a "Distribution Period").
The amount of Distributions payable for any Distribution Period will be
computed on the basis of the actual number of days in such Distribution Period
and a year of 360 days. If a Distribution Date is not a Business Day, then such
Distribution Date will be postponed to the next succeeding Business Day.
However, if the next succeeding Business Day is in the next succeeding calendar
month, such Distribution Date will be the immediately preceding Business Day.
Distributions on a Distribution Date will be payable to the Holders
thereof as they appear on the books and records of the Trust on the day
immediately preceding such Distribution Date. If the Preferred Securities are
ever issued in the form of Definitive Preferred Securities, the record date for
the payment of Distributions shall be the 15th day of the calendar month in
which the Distribution Date occurs, even if that day is not a Business Day. The
relevant record dates for the Common Securities shall be the same as the record
dates for the Preferred Securities. Distributions payable on any Securities that
are not punctually paid or duly provided for on any Distribution Date, as a
result of the Debenture Issuer having failed to make a payment under the
Debentures, will cease to be payable to the Holder on the relevant record date,
and such defaulted Distributions will instead be payable to the Person in whose
name such Preferred Securities are registered on the Special Record Date or
other specified date for the Debentures determined in accordance with the
Indenture.
As long as no Event of Default has occurred and is continuing under the
Indenture, the Debenture Issuer has the right under the Indenture to defer
payments of interest on the Debentures by extending the interest payment period
at any time and from time to time (each period as to which interest payments
have been deferred is referred to herein as an "Extension Period"), provided
that an Extension Period must end on an Interest Payment Date for the
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<PAGE> 82
Debentures and may not extend beyond December 29, 2000 (the "Stated Maturity
Date"). As a consequence of such deferral, Distributions on the Preferred
Securities will also be deferred during an Extension Period. Despite such
deferral, quarterly Distributions will continue to accumulate with additional
interest thereon (to the extent permitted by applicable law but not at a rate
greater than the rate at which interest is then accruing on the Debentures) at
the Distribution Rate then in effect, compounded quarterly during any Extension
Period. Prior to the termination of an Extension Period, the Debenture Issuer
may further defer payments of interest by further extending such Extension
Period; provided that an Extension Period, together with all such previous and
further extensions, may not extend beyond the Stated Maturity Date. At the end
of an Extension Period, all accumulated and unpaid Distributions (but only to
the extent payments are made in respect of the Debentures held by the Property
Trustee and to the extent the Property Trustee has funds legally available
therefor) will be payable to the Holders as they appear on the books and records
of the Trust on the record date immediately preceding the end of the Extension
Period. Upon the termination of any Extension Period (or any extension thereof)
and the payment of all amounts then due, the Debenture Issuer may commence a new
Extension Period, subject to the foregoing requirements.
Subject to other conditions set forth in the Agreement and the
Indenture, the Property Trustee may, at the direction of the Sponsor, dissolve
the Trust at any time and cause the Debentures to be distributed to the Holders
of the Preferred Securities in liquidation of the Trust or, simultaneously with
any redemption of the Debentures, cause a Like Amount of the Preferred
Securities to be redeemed by the Trust.
The Preferred Securities shall be redeemable as provided in
the Agreement.
A1-6
<PAGE> 83
ASSIGNMENT
_____________________
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________agent to transfer
this Preferred Security Certificate on the books of the Trust. The agent may
substitute another to act for him or her.
Date: _______________________
Signature: __________________
(Sign exactly as your name appears on the other side of this Preferred Security
Certificate)
Signature Guarantee**: ___________________________________
______________________
** Signature must be guaranteed by an "eligible guarantor institution"
that is a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities and
Exchange Act of 1934, as amended.
A1-7
<PAGE> 84
[INCLUDE THE FOLLOWING IF THE PREFERRED SECURITY IS A RESTRICTED SECURITY]
In connection with any transfer of any of the Preferred Securities evidenced
hereby, the undersigned confirms that such Preferred Securities are being:
CHECK ONE BOX BELOW
(1) / / exchanged for the undersigned's own account without
transfer; or
(2) / / transferred to a "qualified institutional buyer" for
its own account or another "qualified institutional buyer" (as
defined in Rule 144A) in compliance with Rule 144A under the
Securities Act of 1933, as amended; or
(3) / / transferred to an institutional "accredited investor"
within the meaning of subparagraph (a)(1), (2), (3) or (7) of
Rule 501 under the Securities Act of 1933 that is acquiring
the Preferred Securities for its own account, or for the
account of such an institutional "accredited investor," for
investment purposes and not with a view to, or offer or sale
in connection with, any distribution in violation of the
Securities Act of 1933, as amended; or
(4) / / transferred pursuant to another available exemption
from the registration requirements of the Securities Act of
1933, as amended; or
(5) / / transferred pursuant to an effective registration
statement.
Unless one of the boxes is checked, the Transfer Agent will refuse to
register any of the Preferred Securities evidenced hereby in the name of any
Person other than the Holder hereof; provided, however, that if box (3) or (4)
is checked, the Transfer Agent may require, prior to registering any such
transfer of the Preferred Securities, such legal opinions, certifications and
other information as the Trust has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, as
amended; provided, further, that if box (2) is checked, by acceptance hereof,
the transferee shall be deemed to have certified that it is a "qualified
institutional buyer" acquiring the Preferred Securities for its own account or
for the account of another "qualified institutional buyer" over which it
exercises sole investment discretion and that it is aware that the Holder is
relying upon the exemption from registration afforded by Rule 144A in respect of
the Holder's transfer of Preferred Securities to it; provided, further, that
after the date that a registration statement has been filed and so long as such
Registration Statement continues to be effective, only then may the Transfer
Agent permit transfers for which (5) has been checked.
_____________________________
Signature
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<PAGE> 85
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
THIS CERTIFICATE IS NOT TRANSFERABLE SUBJECT
TO THE TERMS OF THE AGREEMENT (AS DEFINED HEREIN)
Certificate Number Number of Common
Securities
CS-001 ___________
Certificate Evidencing Common Securities
of
HERCULES TRUST VI
Floating Rate Common Securities
(liquidation amount $1,000 per Common Security)
HERCULES TRUST VI, a statutory business trust created under
the laws of the State of Delaware (the "Trust"), hereby certifies that Hercules
Incorporated (the "Holder") is the registered owner of 5,258 securities of the
Trust representing undivided beneficial interests in the assets of the Trust
designated the Floating Rate Common Securities (liquidation amount $1,000 per
Common Security) (the "Common Securities"). The Common Securities are not
transferable. The designation, rights, privileges, restrictions, preferences and
other terms and provisions of the Common Securities represented hereby are
issued and shall in all respects be subject to the provisions of the Amended and
Restated Trust Agreement of the Trust dated as of December 23, 1999, as the same
may be amended from time to time (the "Agreement"), including the designation of
the terms of the Common Securities as set forth in Annex I to the Agreement.
Capitalized terms used but not defined herein shall have the
meaning given them in the Agreement. The Sponsor will provide a copy of the
Agreement, the Common Securities Guarantee and the Indenture to a Holder without
charge upon written request to the Trust at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the
Agreement and is entitled to the benefits thereunder and to the benefits of the
Common Securities Guarantee to the extent provided therein.
By acceptance, the Holder agrees to treat, for United States
Federal income tax purposes, the Debentures as indebtedness and the Common
Securities as evidence of indirect beneficial ownership in the Debentures.
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<PAGE> 86
IN WITNESS WHEREOF, the Trust has executed this certificate
this __________ day of _______________, 1999.
HERCULES TRUST VI
By: ________________________________
Name:
Title: Administrative Trustee
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<PAGE> 87
[FORM OF REVERSE OF SECURITY]
Distributions on the Common Securities will be payable at a rate per
annum, reset quarterly, equal to LIBOR (as defined in the Agreement) plus 245
basis points (2.45%) of the $1,000 liquidation amount per security (the
"Distribution Rate"). The Distribution Rate for any Distribution period will at
no time be higher than the maximum rate then permitted by New York law, as the
same may be modified by United States law. Distributions in arrears for more
than one quarterly period will bear additional distributions thereon compounded
quarterly at the applicable periodic Distribution Rate (to the extent permitted
by applicable law). The term "Distributions", as used herein, includes any such
additional distributions unless otherwise stated. A Distribution is payable only
to the extent that payments are made in respect of the Debentures held by the
Property Trustee and to the extent the Property Trustee has funds legally
available therefor.
Distributions on the Common Securities will be cumulative, will be
payable quarterly in arrears on March 29, 2000, June 29, 2000, September 29,
2000 and December 29, 2000 (each, a "Distribution Date"), will accumulate from
and including the most recent date to which Distributions have been paid or, if
no Distributions have been paid, from and including December 23, 1999, to but
excluding the related Distribution Date (a "Distribution Period").
The amount of Distributions payable for any Distribution Period will be
computed on the basis of the actual number of days in such Distribution Period
and a year of 360 days. If a Distribution Date is not a Business Day, then such
Distribution Date will be postponed to the next succeeding Business Day.
However, if the next succeeding Business Day is in the next succeeding calendar
month, such Distribution Date will be the immediately preceding Business Day.
Distributions on a Distribution Date will be payable to the Holders
thereof as they appear on the books and records of the Trust on the day
immediately preceding such Distribution Date. If the Preferred Securities are
ever issued in the form of Definitive Preferred Securities, the record date for
the payment of Distributions shall be the 15th day of the calendar month in
which the Distribution Date occurs, even if that day is not a Business Day. The
relevant record dates for the Common Securities shall be the same as the record
dates for the Preferred Securities. Distributions payable on any Securities that
are not punctually paid or duly provided for on any Distribution Date, as a
result of the Debenture Issuer having failed to make a payment under the
Debentures, will cease to be payable to the Holder on the relevant record date,
and such defaulted Distributions will instead be payable to the Person in whose
name such Preferred Securities are registered on the Special Record Date or
other specified date for the Debentures determined in accordance with the
Indenture.
As long as no Event of Default has occurred and is continuing under the
Indenture, the Debenture Issuer has the right under the Indenture to defer
payments of interest on the Debentures by extending the interest payment period
at any time and from time to time (each
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<PAGE> 88
period as to which interest payments have been deferred is referred to herein as
an "Extension Period"), provided that an Extension Period must end on an
Interest Payment Date for the Debentures and may not extend beyond December 29,
2000 (the "Stated Maturity Date"). As a consequence of such deferral,
Distributions on the Common Securities will also be deferred during an Extension
Period. Despite such deferral, quarterly Distributions will continue to
accumulate with additional interest thereon (to the extent permitted by
applicable law but not at a rate greater than the rate at which interest is then
accruing on the Debentures) at the Distribution Rate then in effect, compounded
quarterly during any Extension Period. Prior to the termination of an Extension
Period, the Debenture Issuer may further defer payments of interest by further
extending such Extension Period; provided that an Extension Period, together
with all such previous and further extensions, may not extend beyond the Stated
Maturity Date. At the end of an Extension Period, all accumulated and unpaid
Distributions (but only to the extent payments are made in respect of the
Debentures held by the Property Trustee and to the extent the Property Trustee
has funds legally available therefor) will be payable to the Holders as they
appear on the books and records of the Trust on the record date immediately
preceding the end of the Extension Period. Upon the termination of any Extension
Period (or any extension thereof) and the payment of all amounts then due, the
Debenture Issuer may commence a new Extension Period, subject to the foregoing
requirements.
Subject to other conditions set forth in the Agreement and the
Indenture, the Property Trustee may, at the direction of the Sponsor, dissolve
the Trust at any time and cause the Debentures to be distributed to the Holders
of the Preferred Securities in liquidation of the Trust or, simultaneously with
any redemption of the Debentures, cause a Like Amount of the Preferred
Securities to be redeemed by the Trust.
The Common Securities shall be redeemable as provided in the
Agreement.
A2-4
<PAGE> 1
EXHIBIT 4-AA
PREFERRED SECURITIES GUARANTEE AGREEMENT
HERCULES INCORPORATED
Dated as of December 23, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 1
DEFINITIONS AND INTERPRETATION
SECTION 1.01. Definitions and Interpretation.................................................. 2
ARTICLE 2
TRUST INDENTURE ACT
SECTION 2.01. Trust Indenture Act; Application................................................ 6
SECTION 2.02. List of Holders of Securities................................................... 6
SECTION 2.03. Reports by the Preferred Securities Guarantee Trustee........................... 6
SECTION 2.04. Periodic Reports to Preferred Securities Guarantee
Trustee.................................................................. 7
SECTION 2.05. Evidence of Compliance with Conditions Precedent................................ 7
SECTION 2.06. Events of Default; Waiver....................................................... 7
SECTION 2.07. Event of Default; Notice........................................................ 7
SECTION 2.08. Conflicting Interests........................................................... 8
ARTICLE 3
POWERS, DUTIES AND RIGHTS OF PREFERRED SECURITIES GUARANTEE TRUSTEE
SECTION 3.01. Powers and Duties of the Preferred Securities Guarantee
Trustee.................................................................. 8
SECTION 3.02. Certain Rights of Preferred Securities Guarantee Trustee........................ 10
SECTION 3.03. Not Responsible for Recitals or Issuance of Preferred
Securities Guarantee...................................................... 13
ARTICLE 4
PREFERRED SECURITIES GUARANTEE TRUSTEE
SECTION 4.01. Preferred Securities Guarantee Trustee; Eligibility............................. 13
SECTION 4.02. Appointment, Removal and Resignation of Preferred
Securities Guarantee Trustee............................................. 14
ARTICLE 5
GUARANTEE
SECTION 5.01. Guarantee....................................................................... 15
SECTION 5.02. Waiver of Notice and Demand..................................................... 15
SECTION 5.03. Obligations Not Affected........................................................ 15
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 5.04. Rights of Holders............................................................... 16
SECTION 5.05. Guarantee of Payment............................................................ 16
SECTION 5.06. Subrogation..................................................................... 16
SECTION 5.07. Independent Obligations......................................................... 17
ARTICLE 6
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.01. Limitation of Transactions...................................................... 17
SECTION 6.02. Ranking......................................................................... 18
ARTICLE 7
TERMINATION
SECTION 7.01. Termination..................................................................... 18
ARTICLE 8
EXCULPATION, INDEMNIFICATION AND COMPENSATION
SECTION 8.01. Exculpation..................................................................... 18
SECTION 8.02. Indemnification................................................................. 19
SECTION 8.03. Compensation.................................................................... 19
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Successors and Assigns.......................................................... 20
SECTION 9.02. Amendments...................................................................... 20
SECTION 9.03. Notices......................................................................... 20
SECTION 9.04. Benefit......................................................................... 22
SECTION 9.05. Governing Law................................................................... 22
</TABLE>
ii
<PAGE> 4
PREFERRED SECURITIES GUARANTEE AGREEMENT
THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (the "PREFERRED
SECURITIES GUARANTEE"), dated as of December 23, 1999 is executed and delivered
by Hercules Incorporated, a Delaware corporation (the "GUARANTOR"), and The
Chase Manhattan Bank, a New York banking corporation, as trustee (the "PREFERRED
SECURITIES GUARANTEE TRUSTEE"), for the benefit of the Holders (as defined
herein) from time to time of the Preferred Securities (as defined herein) of
Hercules Trust VI, a statutory business trust formed under the laws of the State
of Delaware (the "ISSUER").
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"TRUST AGREEMENT"), dated as of December 23, 1999, among the Trustees of the
Issuer, the Guarantor, as Sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Issuer, the Issuer is
issuing on the date hereof 170,000 Floating Rate Preferred Securities, having an
aggregate Liquidation Amount of $170,000,000 (collectively, the "PREFERRED
SECURITIES").
WHEREAS, as an incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to pay to the
Holders of the Preferred Securities the Guarantee Payments (as defined herein)
and to make certain other payments on the terms and conditions set forth herein.
WHEREAS, the Guarantor is also executing and delivering a guarantee
agreement (the "COMMON SECURITIES GUARANTEE") with substantially identical terms
to this Preferred Securities Guarantee, for the benefit of the holders of the
Common Securities (as defined herein), except that if an event of default under
the Trust Agreement has occurred and is continuing, the rights of holders of the
Common Securities to receive Guarantee Payments under the Common Securities
Guarantee are subordinated, to the extent and in the manner set forth in the
Common Securities Guarantee, to the rights of holders of Preferred Securities to
receive Guarantee Payments under, and as defined in, this Preferred Securities
Guarantee.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby acknowledges shall
benefit the Guarantor, the Guarantor executes and delivers this Preferred
Securities Guarantee for the benefit of the Holders.
<PAGE> 5
ARTICLE 1
DEFINITIONS AND INTERPRETATION
SECTION 1.01. Definitions and Interpretation. In this Preferred
Securities Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Preferred Securities Guarantee but
not defined in the preamble above have the respective meanings assigned to them
in this Section 1.01;
(b) terms defined in the Trust Agreement as at the date of execution
of this Preferred Securities Guarantee have the same meaning when used in this
Preferred Securities Guarantee unless otherwise defined in this Preferred
Securities Guarantee;
(c) a term defined anywhere in this Preferred Securities Guarantee has
the same meaning throughout;
(d) all references to "THE PREFERRED SECURITIES GUARANTEE" or "THIS
PREFERRED SECURITIES GUARANTEE" are to this Preferred Securities Guarantee as
modified, supplemented or amended from time to time;
(e) all references in this Preferred Securities Guarantee to Articles
and Sections are to Articles and Sections of this Preferred Securities
Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning
when used in this Preferred Securities Guarantee, unless otherwise defined in
this Preferred Securities Guarantee or unless the context otherwise requires;
and
(g) a reference to the singular includes the plural and vice versa.
"AFFILIATE" has the same meaning as given to that term in Rule 405
under the Securities Act of 1933, as amended, or any successor rule thereunder.
"BUSINESS DAY" means any day other than a Saturday or a Sunday, or a
day on which banking institutions in The City of New York or Wilmington,
Delaware are authorized or required by law, regulation or executive order to
close and that is also a London Banking Day.
"COMMON SECURITIES" means the securities representing common undivided
beneficial interests in the assets of the Issuer.
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<PAGE> 6
"CORPORATE TRUST OFFICE" means the office of the Preferred Securities
Guarantee Trustee for the conduct of corporate trust business at which matters
related to this Preferred Securities Guarantee shall, at any particular time, be
principally administered, which office at the date of execution of this
Preferred Securities Guarantee is located at One Liberty Place, 52nd Floor, 1650
Market Street, Philadelphia, PA 19103.
"COVERED PERSON" means any Holder or beneficial owner of Preferred
Securities.
"DEBENTURES" means the series of junior subordinated debt securities of
the Guarantor designated Floating Rate Junior Subordinated Deferrable Interest
Debentures due 2000, held by the Property Trustee (as defined in the Trust
Agreement) of the Issuer.
"EVENT OF DEFAULT" means a default by the Guarantor in respect of any
of its payment or other obligations under this Preferred Securities Guarantee.
"GUARANTEE PAYMENTS" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by the Issuer: (i) any accumulated and unpaid Distributions (as
defined in the Trust Agreement) required to be paid on such Preferred
Securities, to the extent the Issuer has funds legally available therefor at
such time, (ii) the applicable redemption price with respect to Preferred
Securities called for redemption, to the extent that the Issuer has funds
legally available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution and liquidation of the Issuer (other than in connection
with the distribution of the Debentures to Holders of the Common Securities and
the Preferred Securities or the redemption or exchange of such Preferred
Securities, the lesser of (a) the amounts due upon the dissolution and
liquidation of the Issuer, to the extent that the Issuer has funds legally
available therefor at the time and (b) the amount of assets of the Issuer
remaining available for distribution to Holders of its Preferred Securities
after satisfaction of liabilities to creditors of the Issuer as required by
applicable law. If an event of default under the Trust Agreement has occurred
and is continuing, no Guarantee Payments under the Common Securities Guarantee
with respect to the Common Securities or any guarantee payment under any Other
Common Securities Guarantees shall be made until the Holders of Preferred
Securities shall be paid in full the Guarantee Payments to which they are
entitled under this Preferred Securities Guarantee.
"HOLDER" shall mean any holder, as registered on the books and records
of the Issuer, of any Preferred Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Preferred
Securities have given
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<PAGE> 7
any request, notice, consent or waiver hereunder, "HOLDER" shall not include the
Guarantor or any Affiliate of the Guarantor.
"INDEMNIFIED PERSON" means the Preferred Securities Guarantee Trustee,
any Affiliate of the Preferred Securities Guarantee Trustee, or any officers,
directors, shareholders, members, partners, employees, representatives,
nominees, custodians or agents of the Preferred Securities Guarantee Trustee.
"INDENTURE" means the Junior Subordinated Debentures Indenture dated as
of November 12, 1998, between the Hercules Incorporated, as Issuer (the
"DEBENTURE ISSUER"), and The Chase Manhattan Bank, as Trustee, as supplemented
by the Fourth Supplemental Indenture dated as of December 23, 1999, pursuant to
which the Debentures are to be issued to the Property Trustee of the Issuer.
"LIQUIDATION AMOUNT" means $1,000 per Preferred Security.
"LIST OF HOLDERS" has the meaning set forth in Section 2.02.
"LONDON BANKING DAY" means any day other than a Saturday or Sunday, on
which banks are open for business in London.
"MAJORITY IN LIQUIDATION AMOUNT OF THE PREFERRED SECURITIES" means,
except as provided by the Trust Indenture Act, a vote by Holder(s) of Preferred
Securities, voting separately as a class, of more than 50% of the aggregate
Liquidation Amount (including the amount payable on redemption, liquidation or
otherwise, plus accumulated and unpaid Distributions to the date upon which the
voting percentages are determined) of all Preferred Securities.
"OFFICERS' CERTIFICATE" means, with respect to any person, a
certificate signed by the Chief Executive Officer, the President, a Vice
President or the Chief Financial Officer and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Guarantor. Any
Officers' Certificate delivered with respect to compliance with a condition or
covenant provided for in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definitions
relating thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer in rendering
the Officers' Certificate;
4
<PAGE> 8
(c) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is
necessary to enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"OTHER COMMON SECURITIES GUARANTEES" shall have the same meaning as
"OTHER GUARANTEES" in the Common Securities Guarantee.
"OTHER DEBENTURES" means all junior subordinated debentures issued by
the Guarantor from time to time and sold to trusts established by the Guarantor,
in each case similar to the Issuer.
"OTHER GUARANTEES" means all guarantees issued by the Guarantor with
respect to preferred securities similar to the Preferred Securities issued by
other trusts established by the Guarantor, in each case similar to the Issuer.
"PERSON" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"PREFERRED SECURITIES GUARANTEE TRUSTEE" means The Chase Manhattan
Bank, a New York banking corporation, until a Successor Preferred Securities
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Preferred Securities Guarantee and thereafter means each
such Successor Preferred Securities Guarantee Trustee.
"RESPONSIBLE OFFICER" means, with respect to the Preferred Securities
Guarantee Trustee, any officer within the Corporate Trust Office of the
Preferred Securities Guarantee Trustee, including any vice president, any
assistant vice president, any assistant secretary, the treasurer, any assistant
treasurer or other officer of the Corporate Trust Office of the Preferred
Securities Guarantee Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer of the Preferred
Securities Guarantee Trustee to whom such matter is referred because of that
officer's knowledge of and familiarity with the particular subject.
"SUCCESSOR PREFERRED SECURITIES GUARANTEE TRUSTEE" means a successor
Preferred Securities Guarantee Trustee possessing the qualifications to act as
Preferred Securities Guarantee Trustee under Section 4.01.
5
<PAGE> 9
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
amended.
"TRUST SECURITIES" means, collectively, the Common Securities and the
Preferred Securities.
ARTICLE 2
TRUST INDENTURE ACT
SECTION 2.01. Trust Indenture Act; Application. (a) This Preferred
Securities Guarantee is subject to the provisions of the Trust Indenture Act
that are required to be part of this Preferred Securities Guarantee and shall,
to the extent applicable, be governed by such provisions.
(b) If and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.
SECTION 2.02. Lists of Holders of Securities. (a) The Guarantor shall
provide the Preferred Securities Guarantee Trustee (unless the Preferred
Securities Guarantee Trustee is otherwise the registrar of the Preferred
Securities) with a list, in such form as the Preferred Securities Guarantee
Trustee may reasonably require, of the names and addresses of the Holders of the
Preferred Securities ("LIST OF HOLDERS"), (i) within 14 days after each record
date for payment of Distributions, as of such record date and (ii) at any other
time within 30 days of receipt by the Guarantor of a written request for a List
of Holders as of a date no more than 14 days before such List of Holders is
given to the Preferred Securities Guarantee Trustee, provided that the Guarantor
shall not be obligated to provide such List of Holders at any time the List of
Holders does not differ from the most recent List of Holders given to the
Preferred Securities Guarantee Trustee by the Guarantor. The Preferred
Securities Guarantee Trustee may destroy any List of Holders previously given to
it on receipt of a new List of Holders.
(b) The Preferred Securities Guarantee Trustee shall comply with the
obligations set forth under Sections 311(a), 311(b) and 312(b) of the Trust
Indenture Act.
SECTION 2.03. Reports by the Preferred Securities Guarantee Trustee.
Within 60 days after September 1 of each year, commencing September 1, 2000, the
Preferred Securities Guarantee Trustee shall provide to the Holders of the
Preferred Securities such reports as are specified by Section 313 of the Trust
Indenture Act, if any, in the form and in the manner provided by Section 313 of
6
<PAGE> 10
the Trust Indenture Act. The Preferred Securities Guarantee Trustee shall also
comply with the requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.04. Periodic Reports to Preferred Securities Guarantee
Trustee. The Guarantor shall provide to the Preferred Securities Guarantee
Trustee such documents, reports and information as required by Section 314 of
the Trust Indenture Act (if any) and the compliance certificate required by
Section 314 of the Trust Indenture Act in the form, in the manner and at the
times required by Section 314 of the Trust Indenture Act. Delivery of such
reports, information and documents to the Preferred Securities Guarantee Trustee
is for informational purposes only and the Preferred Securities Guarantee
Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Guarantor's compliance with any of its covenants
hereunder (as to which the Preferred Securities Guarantee Trustee is entitled to
rely exclusively on Officers' Certificates).
SECTION 2.05. Evidence of Compliance with Conditions Precedent. The
Guarantor shall provide to the Preferred Securities Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Preferred Securities Guarantee that relate to any of the matters set forth
in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c)(1) may be given in
the form of an Officers' Certificate.
SECTION 2.06. Events of Default; Waiver. The Holders of a Majority in
Liquidation Amount of Preferred Securities may, by vote, on behalf of the
Holders of all of the Preferred Securities, waive any past Event of Default and
its consequences. Upon such waiver, any such Event of Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Preferred Securities Guarantee, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent thereon.
SECTION 2.07. Event of Default; Notice. (a) The Preferred Securities
Guarantee Trustee shall, within 90 days after the occurrence of a default with
respect to this Preferred Securities Guarantee, mail by first class postage
prepaid, to all Holders of the Preferred Securities, notices of all defaults
actually known to a Responsible Officer of the Preferred Securities Guarantee
Trustee, unless such defaults have been cured before the giving of such notice,
provided, that, except in the case of default in the payment of any Guarantee
Payment, the Preferred Securities Guarantee Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee, or a trust committee of directors and/or Responsible Officers of the
Preferred Securities Guarantee
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<PAGE> 11
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of the Preferred Securities.
(b) The Preferred Securities Guarantee Trustee shall not be deemed to
have knowledge of any Event of Default unless the Preferred Securities Guarantee
Trustee shall have received written notice, or a Responsible Officer of the
Preferred Securities Guarantee Trustee shall have obtained actual knowledge, of
such Event of Default.
SECTION 2.08. Conflicting Interests. The Indenture shall be deemed to
be specifically described in this Preferred Securities Guarantee for the
purposes of clause (i) of the first proviso contained in Section 310(b) of the
Trust Indenture Act.
ARTICLE 3
POWERS, DUTIES AND RIGHTS OF PREFERRED SECURITIES GUARANTEE TRUSTEE
SECTION 3.01. Powers and Duties of the Preferred Securities Guarantee
Trustee. (a) This Preferred Securities Guarantee shall be held by the Preferred
Securities Guarantee Trustee for the benefit of the Holders of the Preferred
Securities, and the Preferred Securities Guarantee Trustee shall not transfer
this Preferred Securities Guarantee to any Person except a Holder of Preferred
Securities exercising his or her rights pursuant to Section 5.04(b) or to a
Successor Preferred Securities Guarantee Trustee on acceptance by such Successor
Preferred Securities Guarantee Trustee of its appointment to act as Successor
Preferred Securities Guarantee Trustee. The right, title and interest of the
Preferred Securities Guarantee Trustee shall automatically vest in any Successor
Preferred Securities Guarantee Trustee, and such vesting and succession of title
shall be effective whether or not conveyancing documents have been executed and
delivered pursuant to the appointment of such Successor Preferred Securities
Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible Officer of
the Preferred Securities Guarantee Trustee has occurred and is continuing, the
Preferred Securities Guarantee Trustee shall enforce this Preferred Securities
Guarantee for the benefit of the Holders of the Preferred Securities. In such
event, any moneys collected shall first be paid to the Preferred Securities
Guarantee Trustee for amounts due under Section 8.03 and then to the Holders of
the Preferred Securities.
(c) The Preferred Securities Guarantee Trustee, before the occurrence
of any Event of Default and after the curing of all Events of Default that may
have
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occurred, shall undertake to perform only such duties as are specifically set
forth in this Preferred Securities Guarantee, and no implied covenants shall be
read into this Preferred Securities Guarantee against the Preferred Securities
Guarantee Trustee. In case an Event of Default has occurred (that has not been
cured or waived pursuant to Section 2.06) and is actually known to a Responsible
Officer of the Preferred Securities Guarantee Trustee, the Preferred Securities
Guarantee Trustee shall exercise such of the rights and powers vested in it by
this Preferred Securities Guarantee, and use the same degree of care and skill
in its exercise thereof, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(d) No provision of this Preferred Securities Guarantee shall be
construed to relieve the Preferred Securities Guarantee Trustee from liability
for its own negligent action, its own negligent failure to act, its own bad
faith or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Preferred
Securities Guarantee Trustee shall be determined solely by the
express provisions of this Preferred Securities Guarantee, and
the Preferred Securities Guarantee Trustee shall not be liable
except for the performance of such duties and obligations as
are specifically set forth in this Preferred Securities
Guarantee, and no implied covenants or obligations shall be
read into this Preferred Securities Guarantee against the
Preferred Securities Guarantee Trustee; and
(B) in the absence of bad faith on the part of the
Preferred Securities Guarantee Trustee, the Preferred
Securities Guarantee Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished
to the Preferred Securities Guarantee Trustee and conforming
to the requirements of this Preferred Securities Guarantee;
provided, however, that in the case of any such certificates
or opinions that by any provision hereof are specifically
required to be furnished to the Preferred Securities Guarantee
Trustee, the Preferred Securities Guarantee Trustee shall be
under a duty to examine the same to determine whether or not
they conform to the requirements of this Preferred Securities
Guarantee (but shall not be required to confirm or investigate
the accuracy of mathematical calculations or other facts
stated therein);
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(ii) the Preferred Securities Guarantee Trustee shall not be
liable for any error of judgment made in good faith by a Responsible
Officer of the Preferred Securities Guarantee Trustee, unless it shall
be proved that the Preferred Securities Guarantee Trustee was negligent
in ascertaining the pertinent facts upon which such judgment was made;
(iii) the Preferred Securities Guarantee Trustee shall not be
liable with respect to any action taken or omitted to be taken by it in
good faith in accordance with the direction of the Holders of a
Majority in Liquidation Amount of the Preferred Securities relating to
the time, method and place of conducting any proceeding for any remedy
available to the Preferred Securities Guarantee Trustee, or exercising
any trust or power conferred upon the Preferred Securities Guarantee
Trustee under this Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee shall
require the Preferred Securities Guarantee Trustee to expend or risk
its own funds or otherwise incur personal financial liability in the
performance of any of its duties or in the exercise of any of its
rights or powers, if the Preferred Securities Guarantee Trustee shall
have reasonable grounds for believing that the repayment of such funds
or liability is not reasonably assured to it under the terms of this
Preferred Securities Guarantee or indemnity reasonably satisfactory to
the Preferred Securities Guarantee Trustee against such risk or
liability is not reasonably assured to it.
SECTION 3.02. Certain Rights of Preferred Securities Guarantee Trustee.
(a) Subject to the provisions of Section 3.01:
(i) The Preferred Securities Guarantee Trustee may
conclusively rely and shall be fully protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by this
Preferred Securities Guarantee may be sufficiently evidenced by an
Officers' Certificate.
(iii) Whenever, in the administration of this Preferred
Securities Guarantee, the Preferred Securities Guarantee Trustee shall
deem it desirable that a matter be proved or established before taking,
suffering or
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omitting any action hereunder, the Preferred Securities Guarantee
Trustee (unless other evidence is herein specifically prescribed) may,
in the absence of bad faith on its part, request and conclusively rely
upon an Officers' Certificate which, upon receipt of such request,
shall be promptly delivered by the Guarantor.
(iv) The Preferred Securities Guarantee Trustee shall have no
duty to see to any recording, filing or registration of any instrument
(including any financing or any continuation statement or any filing
under tax or securities laws) or any re-recording, refiling or
registration thereof.
(v) The Preferred Securities Guarantee Trustee may consult
with counsel or other experts of its selection, and the advice or
opinion of such counsel and experts with respect to legal matters or
advice within the scope of such experts' area of expertise shall be
full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion. Such counsel may be counsel to
the Guarantor or any of its Affiliates and may include any of its
employees. The Preferred Securities Guarantee Trustee shall have the
right at any time to seek instructions concerning the administration of
this Preferred Securities Guarantee from any court of competent
jurisdiction.
(vi) The Preferred Securities Guarantee Trustee shall be under
no obligation to exercise any of the rights or powers vested in it by
this Preferred Securities Guarantee at the request or direction of any
Holder, unless such Holder shall have provided to the Preferred
Securities Guarantee Trustee such security and indemnity, reasonably
satisfactory to the Preferred Securities Guarantee Trustee, against the
costs, expenses (including reasonable attorneys' fees and expenses and
the expenses of the Preferred Securities Guarantee Trustee's agents,
nominees or custodians) and liabilities that might be incurred by it in
complying with such request or direction, including such reasonable
advances as may be requested by the Preferred Securities Guarantee
Trustee, provided, that nothing contained in this Section 3.02(a)(vi)
shall be taken to relieve the Preferred Securities Guarantee Trustee,
upon the occurrence of an Event of Default, of its obligation to
exercise the rights and powers vested in it by the terms of this
Preferred Securities Guarantee.
(vii) The Preferred Securities Guarantee Trustee shall not be
bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document, but the
Preferred Securities
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Guarantee Trustee may make, in its discretion, such further inquiry or
investigation into such facts or matters as it may see fit.
(viii) The Preferred Securities Guarantee Trustee may execute any
of the trusts or powers hereunder or perform any duties hereunder
either directly or by or through agents, nominees, custodians or
attorneys, and the Preferred Securities Guarantee Trustee shall not be
responsible for any misconduct or negligence on the part of any agent
or attorney appointed with due care by it hereunder.
(ix) Any action taken by the Preferred Securities Guarantee
Trustee or its agents hereunder shall bind the Holders of the Preferred
Securities, and the signature of the Preferred Securities Guarantee
Trustee or its agents alone shall be sufficient and effective to
perform any such action and no third party shall be required to inquire
as to the authority of the Preferred Securities Guarantee Trustee to so
act or as to its compliance with any of the terms and provisions of
this Preferred Securities Guarantee, both of which shall be
conclusively evidenced by the Preferred Securities Guarantee Trustee's
or its agent's taking such action.
(x) Whenever in the administration of this Preferred
Securities Guarantee the Preferred Securities Guarantee Trustee shall
deem it desirable to receive instructions with respect to enforcing any
remedy or right or taking any other action hereunder, the Preferred
Securities Guarantee Trustee (A) may request instructions from the
Holders of a Majority in Liquidation Amount of the Preferred
Securities, (B) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received, and (C)
shall be protected in conclusively relying on or acting in accordance
with such instructions.
(xi) Except as otherwise expressly provided by this Preferred
Securities Guarantee, the Preferred Securities Guarantee Trustee shall
not be under any obligation to take any action that is discretionary
under the provisions of this Preferred Securities Guarantee.
(xii) The Preferred Securities Guarantee Trustee shall not be
liable for any action taken, suffered, or omitted to be taken by it in
good faith, without negligence, and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Preferred Securities Guarantee.
(b) No provision of this Preferred Securities Guarantee shall be
deemed to impose any duty or obligation on the Preferred Securities Guarantee
Trustee to perform any act or acts or exercise any right, power, duty or
obligation conferred
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<PAGE> 16
or imposed on it in any jurisdiction in which it shall be illegal, or in which
the Preferred Securities Guarantee Trustee shall be unqualified or incompetent
in accordance with applicable law, to perform any such act or acts or to
exercise any such right, power, duty or obligation. No permissive power or
authority available to the Preferred Securities Guarantee Trustee shall be
construed to be a duty.
SECTION 3.03. Not Responsible for Recitals or Issuance of Preferred
Securities Guarantee. The recitals contained in this Preferred Securities
Guarantee shall be taken as the statements of the Guarantor, and the Preferred
Securities Guarantee Trustee does not assume any responsibility for their
correctness. The Preferred Securities Guarantee Trustee makes no representation
as to the validity or sufficiency of this Preferred Securities Guarantee.
ARTICLE 4
PREFERRED SECURITIES GUARANTEE TRUSTEE
SECTION 4.01. Preferred Securities Guarantee Trustee; Eligibility. (a)
There shall at all times be a Preferred Securities Guarantee Trustee which
shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof
or of the District of Columbia, or a corporation or Person permitted by
the Securities and Exchange Commission to act as an indenture trustee
under the Trust Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at
least $50,000,000, and subject to supervision or examination by
Federal, State, Territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the supervising or examining authority
referred to above, then, for the purposes of this Section 4.01(a)(ii),
the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent
report of condition so published.
(b) If at any time the Preferred Securities Guarantee Trustee shall
cease to be eligible to so act under Section 4.01(a), the Preferred Securities
Guarantee Trustee shall immediately resign in the manner and with the effect set
out in Section 4.02(c).
(c) If the Preferred Securities Guarantee Trustee has or shall acquire
any "conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture
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<PAGE> 17
Act, the Preferred Securities Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
SECTION 4.02. Appointment, Removal and Resignation of Preferred
Securities Guarantee Trustee.
(a) Subject to Section 4.02(b), the Preferred Securities Guarantee
Trustee may be appointed or removed without cause at any time by the Guarantor
except during the occurrence and continuation of an Event of Default.
(b) The Preferred Securities Guarantee Trustee shall not be removed in
accordance with Section 4.02(a) until a Successor Preferred Securities Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Preferred Securities Guarantee Trustee and
delivered to the Guarantor.
(c) The Preferred Securities Guarantee Trustee shall hold office until
a Successor Preferred Securities Guarantee Trustee shall have been appointed or
until its removal or resignation. The Preferred Securities Guarantee Trustee may
resign from office (without need for prior or subsequent accounting) by an
instrument in writing executed by the Preferred Securities Guarantee Trustee and
delivered to the Guarantor, which resignation shall not take effect until a
Successor Preferred Securities Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Preferred Securities Guarantee Trustee and delivered to the Guarantor and the
resigning Preferred Securities Guarantee Trustee.
(d) If no Successor Preferred Securities Guarantee Trustee shall have
been appointed and accepted appointment as provided in this Section 4.02 within
60 days after delivery of an instrument of removal or resignation, the Preferred
Securities Guarantee Trustee resigning or being removed may petition any court
of competent jurisdiction for appointment of a Successor Preferred Securities
Guarantee Trustee. Such court may thereupon, after prescribing such notice, if
any, as it may deem proper, appoint a Successor Preferred Securities Guarantee
Trustee.
(e) No Preferred Securities Guarantee Trustee shall be liable for the
acts or omissions to act of any Successor Preferred Securities Guarantee
Trustee.
(f) Upon termination of this Preferred Securities Guarantee or removal
or resignation of the Preferred Securities Guarantee Trustee pursuant to this
Section 4.02, the Guarantor shall pay to the Preferred Securities Guarantee
Trustee all amounts due to the Preferred Securities Guarantee Trustee accrued to
the date of such termination, removal or resignation.
14
<PAGE> 18
ARTICLE 5
GUARANTEE
SECTION 5.01. Guarantee. The Guarantor irrevocably and unconditionally
agrees to pay in full to the Holders the Guarantee Payments (without duplication
of amounts theretofore paid by the Issuer), as and when due, regardless of any
defense, right of set-off or counterclaim that the Issuer may have or assert.
The Guarantor's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by the Guarantor to the Holders or by
causing the Issuer to pay such amounts to the Holders.
SECTION 5.02. Waiver of Notice and Demand. The Guarantor hereby waives
notice of acceptance of this Preferred Securities Guarantee and of any liability
to which it applies or may apply, presentment, demand for payment, any right to
require a proceeding first against the Issuer or any other Person before
proceeding against the Guarantor, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
SECTION 5.03. Obligations Not Affected. The obligations, covenants,
agreements and duties of the Guarantor under this Preferred Securities Guarantee
shall in no way be affected or impaired by reason of the happening from time to
time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Issuer;
(b) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred Securities, or
any action on the part of the Issuer granting indulgence or extension of any
kind;
(c) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;
(d) any invalidity of, or defect or deficiency in, the Preferred
Securities;
15
<PAGE> 19
(e) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
(f) any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor; it being the intent of
this Section 5.03 that the obligations of the Guarantor with respect to the
Guarantee Payments shall be absolute and unconditional under any and all
circumstances.
There shall be no obligation of the Holders to give notice to,
or obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.04. Rights of Holders. (a) The Holders of a Majority in
Liquidation Amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Preferred Securities Guarantee Trustee in respect of this Preferred
Securities Guarantee or exercising any trust or power conferred upon the
Preferred Securities Guarantee Trustee under this Preferred Securities
Guarantee.
(b) If the Preferred Securities Guarantee Trustee fails to enforce
this Preferred Securities Guarantee, any Holder of Preferred Securities may
institute a legal proceeding directly against the Guarantor to enforce the
rights of such Holder under this Preferred Securities Guarantee, without first
instituting a legal proceeding against the Issuer, the Preferred Securities
Guarantee Trustee or any other person or entity. The Guarantor waives any right
or remedy to require that any action be brought first against the Issuer or any
other person or entity before proceeding directly against the Guarantor.
Notwithstanding the foregoing, if the Guarantor has failed to make a
required Guarantee Payment, a Holder of Preferred Securities may directly
institute a proceeding against the Guarantor for enforcement of this Preferred
Securities Guarantee for such Guarantee Payment.
SECTION 5.05. Guarantee of Payment. This Preferred Securities Guarantee
creates a guarantee of payment and not of collection.
SECTION 5.06. Subrogation. The Guarantor shall be subrogated to all (if
any) rights of the Holders of Preferred Securities against the Issuer in respect
of any amounts paid to such Holders by the Guarantor under this Preferred
Securities Guarantee; provided, however, that the Guarantor shall not (except to
the extent required by mandatory provisions of law) be entitled to enforce or
exercise any right that it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under this
Preferred Securities Guarantee, if, at the time of any such payment, any amounts
are due
16
<PAGE> 20
and unpaid under this Preferred Securities Guarantee. If any amount shall be
paid to the Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over such amount
to the Holders.
SECTION 5.07. Independent Obligations. The Guarantor acknowledges that
its obligations hereunder are independent of the obligations of the Issuer with
respect to the Preferred Securities, and that the Guarantor shall be liable as
principal and as debtor hereunder to make Guarantee Payments pursuant to the
terms of this Preferred Securities Guarantee notwithstanding the occurrence of
any event referred to in subsections (a) through (f), inclusive, of Section 5.03
hereof.
ARTICLE 6
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.01. Limitation of Transactions. So long as any Preferred
Securities remain outstanding, the Guarantor shall not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Guarantor's capital stock (which
includes common and preferred stock), (ii) make any payment of principal,
interest or premium, if any, on or repay or repurchase or redeem any debt
securities of the Guarantor (including any Other Debentures) that rank pari
passu with or junior in right of payment to the Debentures or (iii) make any
guarantee payments with respect to any guarantee by the Guarantor of the debt
securities of any subsidiary of the Guarantor (including Other Guarantees) if
such guarantee ranks pari passu or junior in right of payment to the Debentures
(other than (a) dividends or distributions in shares of, or options, warrants or
rights to subscribe for or purchase shares of, common stock of the Guarantor;
(b) any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto; (c)
payments under this Preferred Securities Guarantee; (d) as a result of a
reclassification of the Guarantor's capital stock or the exchange or the
conversion of one class or series of the Guarantor's capital stock for another
class or series of the Guarantor's capital stock; (e) the purchase of fractional
interests in shares of the Guarantor's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted or
exchanged; and (f) purchases of common stock related to the issuance of common
stock or rights under any of the Guarantor's benefit and compensation plans for
its directors, officers or employees or any of the Guarantor's dividend
reinvestment plans) if at such time (x) there shall have occurred any event of
which the Guarantor has actual knowledge that is, or with
17
<PAGE> 21
the giving of notice or the lapse of time, or both, would be an Event of
Default, (y) the Guarantor shall be in default with respect to its payment
obligations under this Preferred Securities Guarantee or (z) the Guarantor shall
have given notice of its election of the exercise of its right to extend the
interest payment period pursuant to Section 4.01(b) of the Indenture and shall
not have rescinded such notice, and any such extension shall have commenced and
be continuing.
SECTION 6.02. Ranking. This Preferred Securities Guarantee will
constitute an unsecured obligation of the Guarantor and will rank (i)
subordinate and junior in right of payment to all other liabilities of the
Guarantor, including the Debenture, except any liabilities (including the Other
Guarantees, the Common Securities Guarantee and the Other Common Securities
Guarantees) made pari passu or subordinate by their terms, and (ii) senior to
all capital stock now or hereafter issued by the Guarantor and to any guarantee
now or hereafter entered into by the Guarantor in respect of any of its capital
stock. The foregoing subordination shall not apply to amounts payable under
Article 8.
ARTICLE 7
TERMINATION
SECTION 7.01. Termination. This Preferred Securities Guarantee shall
terminate and be of no further force and effect upon (i) full payment of the
applicable Redemption Price of all Preferred Securities or (ii) liquidation of
the Issuer, upon full payment of all amounts due upon the dissolution and
liquidation of the Issuer or upon the exchange of all the Preferred Securities
upon distribution of the Debentures to the Holders of the Preferred Securities
and the Common Securities. Notwithstanding the foregoing, this Preferred
Securities Guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any Holder of Preferred Securities must restore
payment of any sums paid under the Preferred Securities or under this Preferred
Securities Guarantee.
ARTICLE 8
EXCULPATION, INDEMNIFICATION AND COMPENSATION
SECTION 8.01. Exculpation. (a) No Indemnified Person shall be liable,
responsible or accountable in damages or otherwise to the Guarantor or any
Covered Person for any loss, damage, liability, expense or claim incurred by
reason of any act or omission performed or omitted by such Indemnified Person in
good faith in accordance with this Preferred Securities Guarantee and in a
manner that such Indemnified Person reasonably believed to be within the scope
of the
18
<PAGE> 22
authority conferred on such Indemnified Person by this Preferred Securities
Guarantee or by law, except that this provision shall not be deemed to modify
Section 3.01(d).
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.
SECTION 8.02. Indemnification. The Guarantor agrees to indemnify each
Indemnified Person for, and to hold each Indemnified Person harmless against,
any and all loss, liability, damage, claim or expense incurred without
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder, including the
costs and expenses (including reasonable legal fees and expenses) of defending
itself against, or investigating, any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The obligation
to indemnify as set forth in this Section 8.02 shall survive the termination of
this Preferred Securities Guarantee or the resignation of removal of the
Preferred Securities Guarantee Trustee.
The Preferred Securities Guarantee Trustee will not claim or exact any
lien or charge on any Guarantee Payments as a result of any amount due to it
under this Preferred Securities Guarantee.
SECTION 8.03. Compensation. The Guarantor agrees:
(a) to pay to the Preferred Securities Guarantee Trustee from time to
time such compensation as shall be agreed in writing between the Guarantor and
the Preferred Securities Guarantee Trustee for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust); and
(b) to reimburse the Preferred Securities Guarantee Trustee upon its
request for reasonable expenses, disbursements and advances incurred or made by
the Preferred Securities Guarantee Trustee in accordance with any provision of
this Preferred Securities Guarantee (including the reasonable compensation and
the expenses and advances of its agents and counsel), except any such expense or
advance as may be attributable to its negligence or bad faith.
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<PAGE> 23
Subject to Section 8.02, the Preferred Securities Guarantee Trustee
shall have a claim and lien prior to the Holders as to all property and funds
held by it hereunder for any amount owing to it or any predecessor Preferred
Securities Guarantee Trustee for fees and expenses pursuant to this Article.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Successors and Assigns. All guarantees and agreements
contained in this Preferred Securities Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of the Guarantor and shall
inure to the benefit of the Holders of the Preferred Securities then
outstanding.
Except in connection with any merger or consolidation of the Guarantor
with or into another entity permitted by the Indenture or any sale, transfer or
lease of the Guarantor's assets to another entity permitted by the Indenture,
the Guarantor may not assign its rights or delegate its obligations under this
Preferred Securities Guarantee.
SECTION 9.02. Amendments. Except with respect to any changes that do
not materially adversely affect the rights of Holders (in which case no approval
of Holders will be required), this Preferred Securities Guarantee may only be
amended with the prior approval of the Holders of a Majority in Liquidation
Amount of the outstanding Preferred Securities (including the amount payable on
redemption, liquidation or otherwise, plus accumulated and unpaid Distributions
to the date upon which the voting percentages are determined). The provisions of
Section 12.2 of the Trust Agreement with respect to meetings of Holders of the
Securities apply to the giving of such approval. Except in connection with any
permitted merger or consolidation of the Guarantor with or into another entity
or any permitted sale, transfer or lease of the Guarantor's assets to another
entity (as described in Article 5 of the Indenture), the Guarantor may not
assign its rights or delegate its obligations under this Preferred Securities
Guarantee without the prior approval of the Holders of a Majority in Liquidation
Amount of the Preferred Securities then outstanding.
SECTION 9.03. Notices. All notices provided for in this Preferred
Securities Guarantee shall be in writing, duly signed by the party giving such
notice, and shall be delivered, telecopied or mailed by first class mail, as
follows:
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<PAGE> 24
(a) If given to the Issuer, in care of the Administrative Trustee at
the Issuer's mailing address set forth below (or such other address as the
Issuer may give notice of to the Holders of the Common Securities):
Hercules Trust VI
c/o Hercules Incorporated
Hercules Plaza
1313 North Market Street
Wilmington, Delaware 19894-0001
Attention: Israel J. Floyd, Administrative Trustee
Telecopy: (302) 594-7252
(b) If given to the Preferred Securities Guarantee Trustee, at the
Preferred Securities Guarantee Trustee's mailing address set forth below (or
such other address as the Preferred Securities Guarantee Trustee may give notice
of to the Holders of the Preferred Securities):
The Chase Manhattan Bank
c/o Chase Manhattan Trust Company,
National Association
One Liberty Place, 52nd Floor
1650 Market Street
Philadelphia, Pennsylvania 19103
Attention: Capital Markets Fiduciary Services
Telecopy: (215) 972-8372
(c) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Preferred Securities):
Hercules Incorporated
Hercules Plaza
1313 North Market Street
Wilmington, Delaware 19894-0001
Attention: Assistant Treasurer of Hercules and
Corporate Secretary of Hercules
Telecopy: (302) 594-7252
(d) If given to any Holder of Preferred Securities, at the address set
forth on the books and records of the Issuer.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be
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<PAGE> 25
delivered because of a changed address of which no notice was given, such notice
or other document shall be deemed to have been delivered on the date of such
refusal or inability to deliver.
SECTION 9.04. Benefit. This Preferred Securities Guarantee is solely
for the benefit of the Holders of the Preferred Securities and, subject to
Section 3.01(a), is not separately transferable from the Preferred Securities.
SECTION 9.05. Governing Law.
THIS PREFERRED SECURITIES GUARANTEE AND THE RIGHTS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED
BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
22
<PAGE> 26
THIS PREFERRED SECURITIES GUARANTEE is executed as of the day and year
first above written.
HERCULES INCORPORATED,
as Guarantor
By:
---------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
as Preferred Securities Guarantee
Trustee
By:
---------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4-AD
AMENDMENT NO. 3 TO THE
AMENDED AND RESTATED TRUST AGREEMENT
This AMENDMENT NO. 3 (the "AMENDMENT") is made as of January 24, 2000,
by Israel J. Floyd, Stuart C. Shears and Michael J. Scott (collectively, the
"ADMINISTRATIVE TRUSTEES"), The Chase Manhattan Bank, as Property Trustee
("CHASE"), Hercules Incorporated, a Delaware corporation (the "SPONSOR"), and by
the Holders, from time to time, of undivided beneficial interests in the assets
of Hercules Trust V (the "TRUST"), a business trust created pursuant to a Trust
Agreement dated as of October 14, 1998, as amended by the Amended and Restated
Trust Agreement dated as of November 12, 1998, the Amendment to the Amended and
Restated Trust Agreement dated as of July 6, 1999 and the Amendment No. 2 to the
Amended and Restated Trust Agreement dated as of October 25, 1999 (as amended,
the "TRUST AGREEMENT").
WHEREAS, the Trustees and the Sponsor have established the Trust
pursuant to the Trust Agreement for the sole purpose of issuing and selling
certain securities representing undivided beneficial interests in the assets of
the Trust and investing the proceeds thereof in the Auction Rate Reset Junior
Subordinated Notes Series A of the Sponsor (the "SUBORDINATED NOTES") and
engaging in only those activities necessary, advisable or incidental thereto;
WHEREAS, the Trust Agreement provides for the issuance of one class of
preferred securities representing undivided beneficial interests in the assets
of the Trust (the "PREFERRED SECURITIES") having such terms as are set forth in
Annex I thereto ("ANNEX I");
WHEREAS, the Trust Agreement and Annex I provide for amendment of the
Trust Agreement and the Preferred Securities, subject to satisfaction of certain
requirements;
WHEREAS, the parties hereto desire to extend the Mandatory Redemption
Date (as defined in the Trust Agreement) of the Preferred Securities;
WHEREAS, this Amendment does not affect the rights, powers, duties,
obligations or immunities of the Property Trustee or of the Delaware Trustee;
WHEREAS, all things necessary to make this Amendment a valid amendment
and agreement according to its terms have been done;
NOW THEREFORE, in consideration of their mutual covenants contained
herein and in the Trust Agreement, the parties hereto, intending to be legally
bound, hereby mutually covenant and agree as follows:
<PAGE> 2
Article 1
Section 1.01. Definitions. The definition of "Mandatory Redemption
Date" contained in Section 1.01 of the Trust Agreement is hereby amended to read
in its entirety as follows:
""MANDATORY REDEMPTION DATE" means February 28, 2000."
Article 2
Section 2.01. Ratification of the Trust Agreement; this Amendment. The
Trust Agreement is in all respects ratified and confirmed, and this Amendment
shall be deemed part of the Trust Agreement in the manner and to the extent
herein and therein provided. The provisions of this Amendment shall supersede
the provisions of the Trust Agreement to extent the Trust Agreement is
inconsistent herewith.
Section 2.02. Trustees Not Responsible for Recitals. The recitals
herein contained are made by the Sponsor and not by the Trustees, and the
Trustees assumes no responsibility for the correctness thereof. The Trustees
make no representation as to the validity or sufficiency of this Amendment.
Section 2.03. Governing Law. This Amendment and the rights of the
parties hereunder shall be governed by and construed in accordance with the laws
of the State of Delaware, and all rights and remedies shall be governed by such
laws, without regard to its principles of conflicts of laws.
Section 2.04. Severability. If any provision in the Trust Agreement or
this Amendment shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 2.05. Counterparts. The parties may sign any number of copies
of this Amendment. Each signed copy shall be an original, but all of them
together represent the same agreement. Any signed copy shall be sufficient proof
of this Amendment.
Section 2.06. Terms Defined. All terms defined elsewhere in the Trust
Agreement shall have the same meanings when used herein.
Section 2.07. Waiver of Tax Opinion. The parties hereto (including the
Holder of the Preferred Securities by its separate consent to this Amendment)
waive the requirement set out in Section 8 of Annex I to the Trust Agreement for
a reasoned Opinion of Counsel of independent tax counsel.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have signed this Amendment as of the
date and year first above written.
-------------------------------------------
Israel J. Floyd, not in his individual
capacity but solely as Administrative
Trustee of the Trust
-------------------------------------------
Michael J. Scott, not in his individual
capacity but solely as Administrative
Trustee of the Trust
-------------------------------------------
Stuart C. Shears, not in his individual
capacity but solely as Administrative
Trustee of the Trust
-------------------------------------------
HERCULES INCORPORATED,
as Sponsor and Holder of the
Common Securities
By:
-------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, not
in its individual capacity, but solely as
Property Trustee of the Trust
By:
-------------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4-AE
---------------------------------
FIFTH SUPPLEMENTAL INDENTURE
between
HERCULES INCORPORATED,
as Issuer
and
THE CHASE MANHATTAN BANK,
as Trustee
Dated as of January 24, 2000
---------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1
SECTION 1.01. Definitions................................................................... 2
ARTICLE 2
SECTION 2.01. Ratification of Base Indenture, the First Supplemental Indenture,
the Second Supplemental Indenture and the Third
Supplemental Indenture:
Fifth Supplemental Indenture Controls............................. 2
SECTION 2.02. Trustee Not Responsible for Recitals.......................................... 2
SECTION 2.03. Governing Law................................................................. 2
SECTION 2.04. Severability.................................................................. 2
SECTION 2.05. Counterparts.................................................................. 2
SECTION 2.06. Terms Defined................................................................. 2
</TABLE>
<PAGE> 3
FIFTH SUPPLEMENTAL INDENTURE, dated as of January 24, 2000 (the "FIFTH
SUPPLEMENTAL INDENTURE"), between Hercules Incorporated, a Delaware corporation
(the "Company"), and The Chase Manhattan Bank, a New York banking corporation,
as trustee (the "TRUSTEE").
WHEREAS, the Company and the Trustee are parties to the Junior
Subordinated Debentures Indenture dated as of November 12, 1998 between the
Company and the Trustee (the "BASE INDENTURE"), as supplemented by a First
Supplemental Indenture dated as of November 12, 1998 between the Company and the
Trustee (the "FIRST SUPPLEMENTAL INDENTURE"), a Second Supplemental Indenture
dated as of July 6, 1999 (the "SECOND SUPPLEMENTAL INDENTURE") and a Third
Supplemental Indenture dated as of October 25, 1999 (the "THIRD SUPPLEMENTAL
INDENTURE" and together with the Base Indenture, the First Supplemental
Indenture, the Second Supplemental Indenture and this Fifth Supplemental
Indenture, the "INDENTURE");
WHEREAS, the Company executed and delivered the Base Indenture to the
Trustee to provide for the issuance of the Company's unsecured junior
subordinated debentures (the "DEBENTURES") to be issued from time to time in one
or more series as might be determined by the Company under the Indenture, in an
unlimited aggregate principal amount which may be authenticated and delivered as
provided in the Base Indenture;
WHEREAS, pursuant to the terms of the Indenture in the First
Supplemental Indenture, the Company provided for the establishment of a new
series of its Debentures known as its Auction Rate Reset Junior Subordinated
Notes Series A (the "SUBORDINATED NOTES");
WHEREAS, the Indenture provides that the Company and the Trustee may
amend the Indenture, with the consent of at least a majority in the aggregate
principal amount of the Debentures affected thereby, to provide for, among other
things, a change in the stated maturity of that series of Debentures;
WHEREAS, the Company and the Trustee desire to modify certain
provisions of the Indenture to extend the maturity date of the Subordinated
Notes;
WHEREAS, all things necessary to make this Fifth Supplemental Indenture
a valid indenture and agreement according to its terms have been done;
NOW THEREFORE, in consideration of the purchase and acceptance of the
Subordinated Notes by the Holder thereof, and for the purpose of amending and
restating certain terms of the Indenture relating to the stated maturity of the
Subordinated Notes, the Company covenants and agrees with the Trustee as
follows:
<PAGE> 4
ARTICLE 1
SECTION 1.01. Definitions. The definition of "Maturity Date" contained
in Section 1.01 of the Second Supplemental Indenture is hereby amended to read
in its entirety as follows:
""MATURITY DATE" means February 28, 2000."
ARTICLE 2
SECTION 2.01. Ratification of Base Indenture, the First Supplemental
Indenture, the Second Supplemental Indenture and the Third Supplemental
Indenture: Fifth Supplemental Indenture Controls. The Base Indenture, as
supplemented by the First Supplemental Indenture, the Second Supplemental
Indenture, the Third Supplemental Indenture and this Fifth Supplemental
Indenture, is in all respects ratified and confirmed, and this Fifth
Supplemental Indenture shall be deemed part of the Base Indenture in the manner
and to the extent herein and therein provided. The provisions of this Fifth
Supplemental Indenture shall supersede the provisions of the Base Indenture, the
First Supplemental Indenture, the Second Supplemental Indenture and the Third
Supplemental Indenture to the extent the Base Indenture, the First Supplemental
Indenture, the Second Supplemental Indenture or the Third Supplemental Indenture
is inconsistent herewith.
SECTION 2.02. Trustee Not Responsible for Recitals. The recitals herein
contained are made by the Company and not by the Trustee, and the Trustee
assumes no responsibility for the correctness thereof. The Trustee makes no
representation as to the validity or sufficiency of this Fifth Supplemental
Indenture.
SECTION 2.03. Governing Law. This Fifth Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York,
as applied to contracts made and performed within the State of New York, without
regard to its principles of conflicts of laws.
SECTION 2.04. Severability. If any provision in the Base Indenture, the
First Supplemental Indenture, the Second Supplemental Indenture, the Third
Supplemental Indenture, this Fifth Supplemental Indenture or in the Subordinated
Notes shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 2.05. Counterparts. The parties may sign any number of copies
of this Fifth Supplemental Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. Any signed copy shall be
sufficient proof of this Fifth Supplemental Indenture.
SECTION 2.06. Terms Defined. All terms defined elsewhere in the
Indenture shall have the same meanings when used herein.
2
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Fifth
Supplemental Indenture to be duly executed as of the day and year first above
written.
HERCULES INCORPORATED,
as Issuer
By:
-----------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
as Trustee
By:
-----------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4-AF
AMENDMENT NO. 4 TO THE
AMENDED AND RESTATED TRUST AGREEMENT
This AMENDMENT NO. 4 (the "AMENDMENT") is made as of February 9, 2000,
by Israel J. Floyd, Stuart C. Shears and Michael J. Scott (collectively, the
"ADMINISTRATIVE TRUSTEES"), The Chase Manhattan Bank, as Property Trustee
("CHASE"), Hercules Incorporated, a Delaware corporation (the "SPONSOR"), and by
the Holders, from time to time, of undivided beneficial interests in the assets
of Hercules Trust V (the "TRUST"), a business trust created pursuant to a Trust
Agreement dated as of October 14, 1998, as amended by the Amended and Restated
Trust Agreement dated as of November 12, 1998, the Amendment to the Amended and
Restated Trust Agreement dated as of July 6, 1999, the Amendment No. 2 to the
Amended and Restated Trust Agreement dated as of October 25, 1999 and the
Amendment No. 3 to the Amended and Restated Trust Agreement dated as of January
24, 2000 (as amended, the "TRUST AGREEMENT").
WHEREAS, the Trustees and the Sponsor have established the Trust
pursuant to the Trust Agreement for the sole purpose of issuing and selling
certain securities representing undivided beneficial interests in the assets of
the Trust (the "SECURITIES") having such terms as are set forth in Annex I
thereto ("ANNEX I") and investing the proceeds thereof in the Auction Rate Reset
Junior Subordinated Notes Series A of the Sponsor (the "SUBORDINATED NOTES") and
engaging in only those activities necessary, advisable or incidental thereto;
WHEREAS, the Trust Agreement and Annex I provide for amendment of the
Trust Agreement and the Securities, subject to satisfaction of certain
requirements;
WHEREAS, the parties hereto desire to extend the Mandatory Redemption
Date (as defined in the Trust Agreement) and change the Distribution Rate (as
defined in Annex I) of the Securities and to provide for remarketing of the
Securities in certain circumstances;
WHEREAS, this Amendment does not affect the rights, powers, duties,
obligations or immunities of the Property Trustee or of the Delaware Trustee;
WHEREAS, all things necessary to make this Amendment a valid amendment
and agreement according to its terms have been done;
NOW THEREFORE, in consideration of their mutual covenants contained
herein and in the Trust Agreement, the parties hereto, intending to be legally
bound, hereby mutually covenant and agree as follows:
<PAGE> 2
ARTICLE 1
SECTION 1.01. Amended Definitions. The following definitions contained
in Section 1.01 of the Trust Agreement are hereby amended to read in their
entirety as follows:
""FAILED REMARKETING" has the meaning set forth in the
Remarketing Agreement."
""FINAL RESET DATE" has the meaning set forth in Section
6.02(a)(ii)."
""MANDATORY REDEMPTION DATE" means February 9, 2002; provided,
that on and after the settlement of the sale of the Preferred
Securities in a successful Remarketing, the Mandatory Redemption Date
shall be the Remarketed Redemption Date; and provided, further, that,
in accordance with Section 6.02(a)(iv), in the event the Sponsor elects
to pay the aggregate Liquidation Amount of and accumulated and unpaid
Distributions on the Preferred Securities upon receipt of the
Remarketing Notice, and notifies the Remarketing Agent of such election
within five Business Days thereafter, the Mandatory Redemption Date
shall be the date eight Business Days after receipt of the Remarketing
Notice."
""REMARKETING AGENT" means Banc of America Securities LLC."
""REMARKETING AGREEMENT" means the Remarketing and Contingent
Purchase Agreement dated as of February 9, 2000 among the Subordinated
Note Issuer, the Trust and the Remarketing Agent."
""REMARKETING PRICE" means 100% of the aggregate stated
Liquidation Amount of the Preferred Securities."
""SECONDARY PURCHASE AGREEMENT" means an agreement to be dated
as of the Reset Date (or such other date as permitted by applicable
law) among the Sponsor, the Trust, the Remarketing Agent and the
Secondary Purchaser, in the form agreed among the Sponsor, the Trust,
the Remarketing Agent and the Secondary Purchaser."
SECTION 1.02. Additional Definitions. The following definitions are
hereby inserted in the appropriate alphabetical order in Section 1.01 of the
Trust Agreement:
""AFFILIATED BIDDER" has the meaning set forth in Section
6.02(b)."
2
<PAGE> 3
""FINAL RESET DATE" has the meaning set forth in Section
6.02(a)(ii)."
""PRE-REMARKETING DISTRIBUTION DATE" has the meaning set forth
in Section 2(b) of Annex I hereto."
""REMARKETED REDEMPTION DATE" means the later of (i) the first
anniversary of the Remarketing Settlement Date on which Replacement
Securities are issued, and (ii) February 9, 2002."
""REMARKETING NOTICE" has the meaning set forth in Section
6.02(a)(i)."
""REQUESTING HOLDERS" has the meaning set forth in Section
6.02(a)(i)."
SECTION 1.03. Deleted Definitions. The definitions of "Maturity
Extension Date" and "Remarketed Maturity Date" are hereby deleted in their
entirety from Section 1.01 of the Trust Agreement.
ARTICLE 2
SECTION 2.01. Application of Articles 1, 2 and 3. The provisions of
Article 1, Article 2 and Article 3 hereof shall apply to the Securities and the
certificates therefor shall be appropriately amended.
SECTION 2.02. Amendment of Distribution Rate. Section 2 of Annex I is
hereby amended to read in its entirety as follows:
"2. Distributions.
(a) "DISTRIBUTIONS" with respect to the Liquidation Amount of
$1,000 per Security (the "LIQUIDATION AMOUNT") of each Security will
accrue and be payable at a rate (the "DISTRIBUTION RATE") (such rate
being the rate of interest payable on the Subordinated Notes to be held
by the Property Trustee) per annum equal to
(i) from and including November 12, 1998 to but
excluding February 9, 2000, LIBOR plus 175 basis points;
(ii) from and including February 9, 2000 to but
excluding the earlier of (A) the Remarketing Settlement Date
on which
3
<PAGE> 4
Replacement Securities are issued and (B) the date such
Security is redeemed, LIBOR plus 150 basis points;
(iii) from and including the Remarketing Settlement
Date on which Replacement Securities are issued to but
excluding the date such Security is redeemed, the Winning Bid
Rate; and
(iv) notwithstanding clauses (i), (ii) and (iii)
above, if such Security is not redeemed because the
Subordinated Note Issuer fails to pay the principal amount of
the Subordinated Notes on the date such amount becomes due,
then from and including such due date to but excluding the
date such Security is redeemed, the applicable Distribution
Rate in effect on the due date, compounded quarterly, but only
to the extent permitted by applicable law.
Distributions that are not paid when due will bear additional
distributions ("ADDITIONAL DISTRIBUTIONS") thereon compounded quarterly
at the applicable Distribution Rate in effect on the due date specified
above (to the extent permitted by applicable law). A Distribution is
payable only to the extent that payments are made in respect of the
Subordinated Notes held by the Property Trustee and to the extent the
Property Trustee has funds on hand legally available therefor.
(b) Until the Remarketing Settlement Date on which
Replacement Securities are issued, Distributions on the Securities will
be payable quarterly in arrears (i) on February 12, May 12, August 12
and November 12 of each year, commencing February 12, 1999 and (ii) on
such Remarketing Settlement Date (each, a "PRE-REMARKETING DISTRIBUTION
DATE"), and will accumulate from and including the most recent date to
which Distributions have been paid or, if no Distributions have been
paid, from November 12, 1998, to but excluding the related
Pre-Remarketing Distribution Date, except as otherwise described below.
The Distribution Rate in effect for the period from and including
November 12, 1998 to but excluding February 12, 1999 shall be the rate
determined by the Calculation Agent two London Banking Days prior to
November 12, 1998 and shall equal LIBOR plus 175 basis points. The
Distribution Rate in effect from and including February 12, 1999 to but
excluding February 9, 2000, for each quarterly period from and
including the immediately preceding Pre-Remarketing Distribution Date
to but excluding the applicable Pre-Remarketing Distribution Date,
shall be determined by the Calculation Agent two London Banking Days
prior to such immediately preceding Pre-Remarketing Distribution Date
(a "DATE
4
<PAGE> 5
OF DETERMINATION") and shall equal LIBOR plus 175 basis points. The
Distribution Rate in effect thereafter, for each quarterly period from
and including the immediately preceding Pre-Remarketing Distribution
Date to but excluding the applicable Pre-Remarketing Distribution Date,
shall be determined by the Calculation Agent two London Banking Days
prior to such immediately preceding Pre-Remarketing Distribution Date
and shall equal LIBOR plus 150 basis points. The amount of the
Distribution payable on February 12, 2000 shall reflect the pro rata
application of the two Distribution Rates applicable to the calculation
period for such Distribution for each day on which the applicable
Distribution Rate was in effect. The amount of Distributions payable
for any quarterly period shall be computed on the basis of a 360-day
year of twelve 30-day months. Except as provided in the last sentence
of this paragraph, the amount of Distributions payable for any period
shorter than a full quarterly period for which Distributions are
computed will be computed on the basis of the actual number of days
elapsed per 30-day month. If a Pre-Remarketing Distribution Date is not
a Business Day, then such Pre-Remarketing Distribution Date will be the
next succeeding Business Day, except if such Business Day is in the
next succeeding calendar month, such Pre-Remarketing Distribution Date
will be the immediately preceding Business Day.
All percentages resulting from any calculations on the Securities will
be rounded, if necessary, to the nearest one hundred-thousandth of a
percentage point, with five one-millionths of a percentage point
rounded upward (e.g., 9.876545% (or .09876545) being rounded to
9.87655% (or .0987655)), and all dollar amounts used in or resulting
from such calculation will be rounded to the nearest cent (with
one-half cent being rounded upward).
(c) From and including the Remarketing Settlement Date on
which Replacement Securities are issued, Distributions on the
Replacement Securities and on the Common Securities will be payable
quarterly in arrears (i) on February 12, May 12, August 12 and November
12 of each year, commencing on such Remarketing Settlement Date and
(ii) on the Mandatory Redemption Date (each, a "DISTRIBUTION DATE"),
and will accumulate from the most recent date to which Distributions
have been paid or, if no Distributions have been paid, from and
including such Remarketing Settlement Date, to but excluding the
related Distribution Date, except as otherwise described below. The
amount of Distributions payable for any quarterly period shall be
computed on the basis of a 360-day year of twelve 30-day months. Except
as provided in the last sentence of this paragraph, the amount of
Distributions payable for any period shorter than a full quarterly
period for which Distributions are
5
<PAGE> 6
computed will be computed on the basis of the actual number of days
elapsed per 30-day month. If a Distribution Date is not a Business Day,
then such Distribution Date will be postponed to the next succeeding
Business Day (and without any interest or other payment in respect of
any such delay); provided, that if such Business Day is in the next
succeeding calendar month, such Distribution Date will be the
immediately preceding Business Day.
(d) Distributions on the Securities will be payable to the
Holders thereof as they appear on the books and records of the Trust on
the fifteenth day prior to each Pre-Remarketing Distribution Date or
Distribution Date, as the case may be. Subject to any applicable laws
and regulations and the provisions of the Agreement, each such payment
in respect of the Preferred Securities will be made in respect of any
global certificate representing Preferred Securities, to the Depository
(or other applicable Depository), which shall credit the relevant
accounts at the Depository (or such other Depository) on the applicable
payment dates, or in respect of Preferred Securities in certified form,
by check mailed to the address of the Holder entitled thereto as such
address shall appear on the register; provided that at the written
request of any Holder of at least $10,000,000 aggregate Liquidation
Amount of Preferred Securities received by the Property Trustee not
later than the fifteenth day prior to the applicable Pre-Remarketing
Distribution Date or Distribution Date, Distributions accrued on such
Preferred Securities will be payable by wire transfer within the
continental United States in immediately available funds to the bank
account number of such holder specified in such request. The relevant
record dates for the Common Securities shall be the same as the record
dates for the Preferred Securities. Distributions payable on any
Securities that are not punctually paid on any Distribution Date, as a
result of the Subordinated Note Issuer having failed to make a payment
under the Subordinated Notes, will cease to be payable to the Holder on
the relevant record date, and such defaulted Distributions will instead
be payable to the Person in whose name such Securities are registered
on the special record date or other specified date determined in
accordance with the Indenture.
(e) The Distribution Rate on the Securities (as well as the
interest rate on the Subordinated Notes) shall be reset in the manner
provided in Section 6.03 of the Agreement and in the Indenture.
(f) In the event that there is any money or other property
held by or for the Trust that is not accounted for hereunder, such
property shall be distributed Pro Rata (as defined herein) among the
Holders of the Securities."
6
<PAGE> 7
SECTION 2.03. Amendment of Securities. Each Holder of Common Securities
and each Holder of Preferred Securities (by signing a separate consent to this
Amendment) agrees to surrender the certificates representing the Securities to
the Property Trustee in exchange for new certificates reflecting the amended
terms provided for in this Amendment in the forms set forth as Exhibits A-1 and
A-2 attached hereto. Such replacement certificates shall be executed by an
Administrative Trustee, and authenticated (in the case of Preferred Securities)
and delivered by the Property Trustee to such Holders upon surrender to the
Property Trustee of the old certificates. The surrendered certificates shall be
canceled by the Property Trustee and shall no longer be outstanding.
ARTICLE 3
SECTION 3.01. Remarketing of Preferred Securities. (a) Section 4.03(e)
of the Trust Agreement is hereby amended to read in its entirety as follows:
"(e) negotiate the terms of, enter into, sign on behalf of the
Trust and deliver the Purchase Agreement, in the form of Exhibit C,
providing for the sale of the Preferred Securities, the Remarketing
Agreement, providing for the Remarketing of the Preferred Securities,
or under certain circumstances, the Subordinated Notes, and the
Secondary Purchase Agreement providing for the resale of the Preferred
Securities."
(b) Article 6 of the Trust Agreement is hereby amended to read in its
entirety as follows:
"ARTICLE 6
DISTRIBUTIONS; RESET RATE; REMARKETING
SECTION 6.01. Distributions. Holders shall receive Distributions in
accordance with the applicable terms of the relevant Holder's Securities.
Distributions shall be made on the Securities in accordance with the respective
terms and preferences set forth below and in Annex I. If and to the extent that
the Subordinated Note Issuer makes a payment of interest, premium and/or
principal on the Subordinated Notes held by the Property Trustee (the amount of
any such payment being a "PAYMENT AMOUNT"), the Property Trustee shall and is
directed, to the extent funds are available for that purpose, to make a
distribution (a "DISTRIBUTION") of the Payment Amount to Holders.
7
<PAGE> 8
SECTION 6.02. Remarketing Procedures.
(a) (i) Subject to Section 6.04, the Holders of a Majority in
Liquidation Amount of the Securities, acting together as a single class
(the "REQUESTING HOLDERS") have the right to require Remarketing of the
Preferred Securities at any time. The Requesting Holders may exercise
this right by delivering a written notice to the Remarketing Agent at
any time requesting a Remarketing of the Preferred Securities. Upon the
receipt of such notice, the Remarketing Agent shall immediately deliver
a written notice to the Sponsor on behalf of the Requesting Holders
(the "REMARKETING NOTICE"). If the Requesting Holders exercise their
right to require the Remarketing of the Preferred Securities, the Reset
Date shall be the sixth Business Day (the "EXPECTED RESET DATE") after
the date on which the Remarketing Notice is received by the Sponsor.
(ii) Notwithstanding Section 6.02(a)(i):
(A) the Sponsor may, by notice to the Remarketing
Agent, direct that the Reset Date be delayed if the Sponsor
believes it will be unable to meet the conditions to
Remarketing in the absence of such a delay; and
(B) the Remarketing Agent may, by notice to the
Sponsor, direct that the Reset Date be delayed if the
Remarketing Agent believes that a Remarketing will not be
successful in the absence of such a delay;
provided that the Sponsor and the Remarketing Agent, in either such
event, will use their reasonable best efforts to establish a delayed
Reset Date that is within five Business Days after the Expected Reset
Date, but in no event later than the 15th Business Day following the
date on which the related Remarketing Notice was received, or the 20th
Business Day in the case of a Renewed Remarketing (as hereinafter
defined) to which the provisions of Section 6.04 are applicable (as
applicable, the "FINAL RESET DATE").
(iii) If the Sponsor and the Remarketing Agent have not
agreed, on or prior to the sixth Business Day preceding the Final Reset
Date, to a Reset Date that is not later than the Final Reset Date, a
Failed Remarketing shall be deemed to have occurred.
(iv) Notwithstanding the provisions of this Article 6, upon
receipt of a Remarketing Notice the Sponsor shall have the right, in
its sole discretion, to elect to pay the aggregate Liquidation Amount
of and
8
<PAGE> 9
accumulated and unpaid Distributions on the Preferred Securities,
rather than proceed with the Remarketing. The Sponsor shall make such
election by sending written notice, within five Business Days after the
receipt of the Remarketing Notice, to the Remarketing Agent and the
Property Trustee. If the Sponsor makes such election, it shall pay the
aggregate Liquidation Amount of and accumulated and unpaid
Distributions on the Preferred Securities to the Holders thereof on the
date eight Business Days after receipt of the Remarketing Notice.
(b) The Sponsor shall, by notice to the Remarketing Agent no
later than five Business Days prior to the Reset Date, select and
specify three Reference Corporate Dealers. By 3:00 p.m., New York City
time, on the Reset Date, the Remarketing Agent shall request Bids from
such Reference Corporate Dealers. The Remarketing Agent or an Affiliate
or Associated Person thereof (any such person, an "AFFILIATED BIDDER")
may, at its option, also enter a Bid. The Remarketing Agent shall
disclose to the Sponsor the Bids obtained and determine the lowest Bid
Rate (the "WINNING BID RATE") from among the Bids obtained on the Reset
Date. By approximately 4:30 p.m., New York City time, on the Reset
Date, the Remarketing Agent shall notify the Sponsor and the Property
Trustee of the Winning Bid Rate. If on a Reset Date, Bids are not
submitted by at least two Reference Corporate Dealers, or if the lowest
Bid submitted would result in a Winning Bid Rate in excess of the rate
permitted by applicable law, such Remarketing shall be deemed to be a
Failed Remarketing on the corresponding Remarketing Settlement Date.
The Winning Bid Rate determined by the Remarketing Agent, absent
manifest error, shall be binding and conclusive upon the Holders of the
Trust Securities, the Sponsor and the Trust.
(c) On the Reset Date, the Remarketing Agent shall designate
as the Secondary Purchaser (the "SECONDARY PURCHASER") the Reference
Corporate Dealer providing the Bid containing the Winning Bid Rate. If
the Winning Bid Rate is specified in the Bids submitted by two or more
bidders, the Remarketing Agent shall, in consultation with the Sponsor,
designate one of such bidders as the Secondary Purchaser.
(d) On the Reset Date, the Secondary Purchaser shall enter
into a Secondary Purchase Agreement for the purchase by such Secondary
Purchaser at the Remarketing Price of the aggregate Liquidation Amount
of the Preferred Securities, with a Distribution Rate equal to the
Winning Bid Rate and with a Mandatory Redemption Date on the Remarketed
Redemption Date.
9
<PAGE> 10
(e) If a Remarketing has occurred pursuant to this Section
6.02 but settlement of the purchase and sale of the Preferred
Securities does not occur on the corresponding Remarketing Settlement
Date, then, unless the provisions of Section 6.04 with respect to a
Renewed Remarketing shall apply, a Failed Remarketing shall be deemed
to have occurred on such Remarketing Settlement Date.
(f) At the time and in the manner specified in the Secondary
Purchase Agreement, the Secondary Purchaser shall pay on the
Remarketing Settlement Date to the Remarketing Agent on behalf of the
Holders of the Preferred Securities, an amount of cash equal to the
Remarketing Price.
(g) Unless otherwise agreed among the Remarketing Agent, the
Paying Agent and any Former Holder, the Remarketing Agent shall pay the
Remarketing Price to the Paying Agent, acting solely as agent for the
Former Holders, and the Paying Agent shall promptly pay such amounts to
the Former Holders on the Remarketing Settlement Date in the manner
specified in Section 5(g) of Annex I hereto for payments with respect
to redemptions of the Preferred Securities. Any amounts held by the
Paying Agent for payment to the Former Holders shall not be property of
the Trust.
(h) The obligation of the Remarketing Agent to make payment
to the Former Holders in connection with the Remarketing shall be
limited to the extent that the Secondary Purchaser has delivered the
Remarketing Price therefor to the Remarketing Agent.
(i) Any outstanding Preferred Securities purchased on the
Remarketing Settlement Date shall be deemed to be transferred to the
Secondary Purchaser and shall be replaced in the manner provided in
Section 6.02(j). After the Remarketing Settlement Date (except in the
event of (y) a Failed Remarketing or (z) a failure by the Trust to pay
on the Remarketing Settlement Date all accrued and unpaid Distributions
(including any Additional Distributions) to such Remarketing Settlement
Date), (A) the Trust shall make no further payments to, and the Trust
shall have no further obligations under this Agreement in respect of,
the Holders of such replaced Preferred Securities (the "FORMER
HOLDERS"), (B) the Trust shall only be obligated to make payments to
the Holders of Replacement Securities and (C) the Preferred Securities
of the Former Holders shall no longer represent an obligation of or
interest in the Trust but shall only represent a right to receive the
proceeds of the Remarketing from the Paying Agent.
10
<PAGE> 11
(j) The Sponsor shall cause replacement certificates
evidencing the remarketed Preferred Securities (the "REPLACEMENT
SECURITIES") to be executed by an Administrative Trustee on behalf of
the Trust and authenticated by the Property Trustee in accordance with
the provisions of Section 7.03. The Replacement Securities shall be
delivered to the purchaser or purchasers of the remarketed Preferred
Securities in accordance with the terms of the Secondary Purchase
Agreement.
SECTION 6.03. Reset of Distribution Rate and Mandatory Redemption Date.
From and including the Remarketing Settlement Date on which Replacement
Securities are issued, the Distribution Rate on the Securities shall be
the Winning Bid Rate and the Mandatory Redemption Date shall be the
Remarketed Redemption Date.
SECTION 6.04. Renewed Remarketing. If a Remarketing has occurred
pursuant to Section 6.02 that would be a Failed Remarketing pursuant to
Section 6.02(e), because the purchase and sale of the Preferred
Securities do not take place on the corresponding Remarketing
Settlement Date, and such failure, in the good faith determination of
the Remarketing Agent, results from facts or circumstances other than
the action or inaction of the Sponsor, then the provisions of Section
6.02 shall apply to a second remarketing (a "RENEWED REMARKETING") of
the Preferred Securities, except that the Expected Reset Date shall be
the sixth Business Day following such corresponding Remarketing
Settlement Date; provided that upon the occurrence of a Failed
Remarketing pursuant to Section 6.02(e), only one Renewed Remarketing
may occur pursuant to this Section 6.04, and no Renewed Remarketing
shall occur after the Final Reset Date.
SECTION 6.05. Failed Remarketing. The Remarketing Agent shall give
notice of any Failed Remarketing by 4:00 p.m., New York City time, on
the date such Failed Remarketing occurs or is deemed to have occurred
to the Sponsor and the Property Trustee.
SECTION 6.06. Payment of Taxes, Duties, Etc. of the Trust. Upon receipt
under the Subordinated Notes of Additional Interest, the Property
Trustee shall promptly pay from such Additional Interest any taxes,
duties or governmental charges of whatever nature (other than
withholding taxes) imposed on the Trust by the United States or any
other taxing authority."
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<PAGE> 12
(c) The following Section 3 is hereby inserted into Annex I:
"3. Remarketing.
The Preferred Securities shall be remarketed in accordance with the
provisions of Article 6 of the Agreement.
FROM AND AFTER THE REMARKETING SETTLEMENT DATE ON WHICH REPLACEMENT
SECURITIES ARE ISSUED, THIS CERTIFICATE SHALL REPRESENT ONLY THE RIGHT
TO RECEIVE THE REMARKETING PRICE, AS PROVIDED IN THE AGREEMENT (AS
DEFINED BELOW), AND SHALL NO LONGER REPRESENT AN OBLIGATION OF OR
INTEREST IN THE TRUST."
ARTICLE 4
SECTION 4.01. Ratification of the Trust Agreement; this Amendment. The
Trust Agreement is in all respects ratified and confirmed, and this Amendment
shall be deemed part of the Trust Agreement in the manner and to the extent
herein and therein provided. The provisions of this Amendment shall supersede
the provisions of the Trust Agreement to extent the Trust Agreement is
inconsistent herewith.
SECTION 4.02. Trustees Not Responsible for Recitals. The recitals
herein contained are made by the Sponsor and not by the Trustees, and the
Trustees assumes no responsibility for the correctness thereof. The Trustees
make no representation as to the validity or sufficiency of this Amendment.
SECTION 4.03. Governing Law. This Amendment and the rights of the
parties hereunder shall be governed by and construed in accordance with the laws
of the State of Delaware, and all rights and remedies shall be governed by such
laws, without regard to its principles of conflicts of laws.
SECTION 4.04. Severability. If any provision in the Trust Agreement or
this Amendment shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 4.05. Counterparts. The parties may sign any number of copies
of this Amendment. Each signed copy shall be an original, but all of them
together represent the same agreement. Any signed copy shall be sufficient proof
of this Amendment.
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<PAGE> 13
SECTION 4.06. Terms Defined. All terms defined elsewhere in the Trust
Agreement shall have the same meanings when used herein.
SECTION 4.07. Waiver of Tax Opinion. The parties hereto (including the
Holder of the Preferred Securities by its separate consent to this Amendment)
waive the requirement set out in Section 8 of Annex I and in Section
3.07(a)(vii)(D)(2) of the Trust Agreement for a reasoned Opinion of Counsel of
independent tax counsel.
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<PAGE> 14
IN WITNESS WHEREOF, the parties have signed this Amendment as of the
date and year first above written.
-----------------------------------------------
Israel J. Floyd, not in his individual
capacity but solely as Administrative Trustee
of the Trust
-----------------------------------------------
Michael J. Scott, not in his individual
capacity but solely as Administrative Trustee
of the Trust
-----------------------------------------------
Stuart C. Shears, not in his individual
capacity but solely as Administrative Trustee
of the Trust
-----------------------------------------------
HERCULES INCORPORATED, as Sponsor and Holder
of the Common Securities
-----------------------------------------------
By:
Name:
Title:
-----------------------------------------------
THE CHASE MANHATTAN BANK, not in its
individual capacity, but solely as Property
Trustee of the Trust
-----------------------------------------------
By:
Name:
Title:
<PAGE> 15
EXHIBIT A-1
FORM OF PREFERRED SECURITY CERTIFICATE
PREFERRED SECURITY CERTIFICATE
(prior to Remarketing Settlement Date)
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2)
AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE
TO SALES OF THE SECURITIES EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE
SECURITIES ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE TRANSFER THE
SECURITIES EVIDENCED HEREBY EXCEPT (A) TO HERCULES INCORPORATED OR ANY
SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT OR (C) TO A SECONDARY PURCHASER (AS DEFINED
IN THE AMENDED AND RESTATED TRUST AGREEMENT OF HERCULES TRUST V DATED AS OF
NOVEMBER 12, 1998 (AS AMENDED FROM TIME TO TIME, THE "TRUST AGREEMENT")) THAT
HAS ENTERED INTO A SECONDARY PURCHASE AGREEMENT (AS DEFINED IN THE TRUST
AGREEMENT) WITH THE TRUST, (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THE SECURITIES EVIDENCED HEREBY ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND AND (4) AGREES, WITH RESPECT TO ANY TRANSFER OCCURRING
PRIOR TO THE REMARKETING DATE ON WHICH REPLACEMENT SECURITIES ARE ISSUED, TO
PROVIDE TO THE PROPERTY TRUSTEE A DULY EXECUTED CERTIFICATE SUBSTANTIALLY TO THE
EFFECT OF CLAUSES (1), (2) AND (3), ABOVE. THIS LEGEND WILL BE REMOVED AFTER THE
EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO THE SALES OF THE SECURITIES
EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT.
FROM AND AFTER THE REMARKETING SETTLEMENT DATE ON WHICH REPLACEMENT SECURITIES
ARE ISSUED, THIS CERTIFICATE SHALL REPRESENT ONLY THE RIGHT TO RECEIVE THE
REMARKETING PRICE, AS PROVIDED IN THE AGREEMENT (AS DEFINED BELOW), AND SHALL NO
LONGER REPRESENT AN OBLIGATION OF OR INTEREST IN THE TRUST.
A-1-1
<PAGE> 16
Certificate Number Number of Preferred Securities
PS-03 200,000
CUSIP NO. __________
Certificate Evidencing Preferred Securities
of
HERCULES TRUST V
Auction Rate Reset Preferred Securities
(Liquidation Amount $1,000 per Preferred Security)
HERCULES TRUST V, a statutory business trust created under the laws of
the State of Delaware (the "TRUST"), hereby certifies that NMS Services, Inc.
(the "HOLDER") is the registered owner of 200,000 securities of the Trust
representing undivided beneficial interests in the assets of the Trust
designated the Auction Reset Rate Preferred Securities (Liquidation Amount
$1,000 per Preferred Security) (the "PREFERRED SECURITIES"). This Preferred
Security is transferable on the books and records of the Trust, in person or by
a duly authorized attorney, upon surrender of this certificate duly endorsed and
in proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Preferred Securities
represented hereby are issued and shall in all respects be subject to the
provisions of the Amended and Restated Trust Agreement of the Trust dated as of
November 12, 1998, as the same has been and may be amended from time to time,
including the designation of the terms of the Preferred Securities as set forth
in Annex I to the Agreement (the "AGREEMENT"). Capitalized terms used but not
defined herein shall have the meaning given them in the Agreement. The Sponsor
will provide a copy of the Agreement, the Preferred Securities Guarantee and the
Indenture to a Holder without charge upon written request to the Trust at its
principal place of business.
Upon receipt of this certificate, the Holder is bound by the Agreement
and is entitled to the benefits thereunder and to the benefits of the Preferred
Securities Guarantee to the extent provided therein.
By acceptance, the Holder agrees to treat, for United States Federal
income tax purposes, the Subordinated Notes as indebtedness and the Preferred
Securities as evidence of indirect beneficial ownership in the Subordinated
Notes.
A-1-2
<PAGE> 17
IN WITNESS WHEREOF, the Trust has executed this certificate this 9th
day of February, 2000.
HERCULES TRUST V
By:
----------------------------------
Name: Israel J. Floyd
Title: Administrative Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Preferred Securities referred to in the
within-mentioned Agreement.
Dated: February 9, 2000
THE CHASE MANHATTAN BANK,
as Property Trustee
By:
-----------------------------------
Authorized Signatory
<PAGE> 18
[REVERSE OF SECURITY]
(a) "DISTRIBUTIONS" with respect to the Liquidation Amount of $1,000
per Preferred Security (the "LIQUIDATION AMOUNT") of each Security will accrue
and be payable at a rate (the "DISTRIBUTION RATE") (such rate being the rate of
interest payable on the Subordinated Notes to be held by the Property Trustee)
per annum equal to
(i) from and including November 12, 1998 to but
excluding February 9, 2000, LIBOR plus 175 basis points;
(ii) from and including February 9, 2000 to but
excluding the earlier of (A) the Remarketing Settlement Date
on which Replacement Securities are issued and (B) the date
such Security is redeemed, LIBOR plus 150 basis points;
(iii) from and including the Remarketing Settlement
Date on which Replacement Securities are issued to but
excluding the date such Security is redeemed, the Winning Bid
Rate; and
(iv) notwithstanding clauses (i), (ii) and (iii)
above, if such Security is not redeemed because the
Subordinated Note Issuer fails to pay the principal amount of
the Subordinated Notes on the date such amount becomes due,
then from and including such due date to but excluding the
date such Security is redeemed, the applicable Distribution
Rate in effect on the due date, compounded quarterly, but only
to the extent permitted by applicable law.
Distributions that are not paid when due will bear additional distributions
("ADDITIONAL DISTRIBUTIONS") thereon compounded quarterly at the applicable
Distribution Rate in effect on the due date specified above (to the extent
permitted by applicable law). A Distribution is payable only to the extent that
payments are made in respect of the Subordinated Notes held by the Property
Trustee and to the extent the Property Trustee has funds on hand legally
available therefor.
(b) Until the Remarketing Settlement Date on which Replacement
Securities are issued, Distributions on the Securities will be payable quarterly
in arrears (i) on February 12, May 12, August 12 and November 12 of each year,
commencing February 12, 1999 and (ii) on such Remarketing Settlement Date (each,
a "PRE-REMARKETING DISTRIBUTION DATE"), and will accumulate from and including
the most recent date to which Distributions have been paid or, if no
Distributions have been paid, from November 12, 1998, to but excluding the
related Pre-Remarketing Distribution Date, except as otherwise described below.
A-1-4
<PAGE> 19
The Distribution Rate in effect for the period from and including
November 12, 1998 to but excluding February 12, 1999 shall be the rate
determined by the Calculation Agent two London Banking Days prior to November
12, 1998 and shall equal LIBOR plus 175 basis points. The Distribution Rate in
effect from and including February 12, 1999 to but excluding February 9, 2000,
for each quarterly period from and including the immediately preceding
Pre-Remarketing Distribution Date to but excluding the applicable
Pre-Remarketing Distribution Date, shall be determined by the Calculation Agent
two London Banking Days prior to such immediately preceding Pre-Remarketing
Distribution Date (a "DATE OF DETERMINATION") and shall equal LIBOR plus 175
basis points. The Distribution Rate in effect thereafter, for each quarterly
period from and including the immediately preceding Pre-Remarketing Distribution
Date to but excluding the applicable Pre-Remarketing Distribution Date, shall be
determined by the Calculation Agent two London Banking Days prior to such
immediately preceding Pre-Remarketing Distribution Date and shall equal LIBOR
plus 150 basis points. The amount of the Distribution payable on February 12,
2000 shall reflect the pro rata application of the two Distribution Rates
applicable to the calculation period for such Distribution for each day on which
the applicable Distribution Rate was in effect. The amount of Distributions
payable for any quarterly period shall be computed on the basis of a 360-day
year of twelve 30-day months. Except as provided in the last sentence of this
paragraph, the amount of Distributions payable for any period shorter than a
full quarterly period for which Distributions are computed will be computed on
the basis of the actual number of days elapsed per 30-day month. If a
Pre-Remarketing Distribution Date is not a Business Day, then such
Pre-Remarketing Distribution Date will be the next succeeding Business Day,
except if such Business Day is in the next succeeding calendar month, such
Pre-Remarketing Distribution Date will be the immediately preceding Business
Day.
All percentages resulting from any calculations on the Preferred
Securities will be rounded, if necessary, to the nearest one hundred-thousandth
of a percentage point, with five one-millionths of a percentage point rounded
upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)),
and all dollar amounts used in or resulting from such calculation will be
rounded to the nearest cent (with one-half cent being rounded upward).
(c) From and including the Remarketing Settlement Date on which
Replacement Securities are issued, Distributions on the Replacement Securities
and on the Common Securities will be payable quarterly in arrears (i) on
February 12, May 12, August 12 and November 12 of each year, commencing on such
Remarketing Settlement Date and (ii) on the Mandatory Redemption Date (each, a
"DISTRIBUTION DATE"), and will accumulate from the most recent date to which
A-1-5
<PAGE> 20
Distributions have been paid or, if no Distributions have been paid, from and
including such Remarketing Settlement Date, to but excluding the related
Distribution Date, except as otherwise described below. The amount of
Distributions payable for any quarterly period shall be computed on the basis of
a 360-day year of twelve 30-day months. Except as provided in the last sentence
of this paragraph, the amount of Distributions payable for any period shorter
than a full quarterly period for which Distributions are computed will be
computed on the basis of the actual number of days elapsed per 30-day month. If
a Distribution Date is not a Business Day, then such Distribution Date will be
postponed to the next succeeding Business Day (and without any interest or other
payment in respect of any such delay); provided, that if such Business Day is in
the next succeeding calendar month, such Distribution Date will be the
immediately preceding Business Day.
Subject to other conditions set forth in the Agreement and the Indenture, the
Property Trustee may, at the direction of the Sponsor, at any time dissolve the
Trust and cause the Subordinated Notes to be distributed to the Holders of the
Securities in liquidation of the Trust or, simultaneously with any redemption of
the Subordinated Notes, cause a Like Amount of the Securities to be redeemed by
the Trust.
This Preferred Security shall be redeemable as provided in the Agreement.
A-1-6
<PAGE> 21
---------------------
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security Certificate to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
to transfer this Preferred Security Certificate on the books of the Trust. The
agent may substitute another to act for him or her.
Date:
------------------------
Signature:
-------------------
(Sign exactly as your name appears on the other side of this Preferred Security
Certificate)
Signature Guarantee(1):
-----------------------------------
- --------
(1) Signature must be guaranteed by an "eligible guarantor institution"
that is a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities and
Exchange Act of 1934, as amended.
A-1-7
<PAGE> 22
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
COMMON SECURITY CERTIFICATE
THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT IN COMPLIANCE WITH APPLICABLE LAW
AND THE PROVISIONS OF THE AMENDED AND RESTATED TRUST AGREEMENT OF HERCULES TRUST
V DATED AS OF NOVEMBER 12, 1998, AS AMENDED FROM TIME TO TIME.
A-2-1
<PAGE> 23
Certificate Number Number of Common Securities
CS-03 6,200
Certificate Evidencing Common Securities
of
HERCULES TRUST V
Auction Rate Reset Common Securities
(Liquidation Amount $1,000 per Common Security)
HERCULES TRUST V, a statutory business trust created under the laws of
the State of Delaware (the "TRUST"), hereby certifies that Hercules Incorporated
(the "HOLDER") is the registered owner of 6,200 securities of the Trust
representing undivided beneficial interests in the assets of the Trust
designated the Auction Rate Reset Common Securities (Liquidation Amount $1,000
per Common Security) (the "COMMON SECURITIES"). Except as set forth in the
Agreement (as defined herein), the Common Securities are not transferable. The
designation, rights, privileges, restrictions, preferences and other terms and
provisions of the Common Securities represented hereby are issued and shall in
all respects be subject to the provisions of the Amended and Restated Trust
Agreement of the Trust dated as of November 12, 1998, as the same has been and
may be amended from time to time, including the designation of the terms of the
Common Securities as set forth in Annex I to the Agreement (the "AGREEMENT").
Capitalized terms used but not defined herein shall have the meaning given them
in the Agreement. The Sponsor will provide a copy of the Agreement, the Common
Securities Guarantee and the Indenture to a Holder without charge upon written
request to the Trust at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the Agreement
and is entitled to the benefits thereunder and to the benefits of the Common
Securities Guarantee to the extent provided therein.
By acceptance, the Holder agrees to treat, for United States Federal
income tax purposes, the Subordinated Notes as indebtedness and the Common
Securities as evidence of indirect beneficial ownership in the Subordinated
Notes.
A-2-2
<PAGE> 24
IN WITNESS WHEREOF, the Trust has executed this certificate this 9th
day of February, 2000.
HERCULES TRUST V
By: _______________________________
Name: Israel J. Floyd
Title: Administrative Trustee
<PAGE> 25
[REVERSE OF COMMON SECURITY]
(a) "DISTRIBUTIONS" with respect to the Liquidation Amount of
$1,000 per Common Security (the "LIQUIDATION AMOUNT") of each Security will
accrue and be payable at a rate (the "DISTRIBUTION RATE") (such rate being the
rate of interest payable on the Subordinated Notes to be held by the Property
Trustee) per annum equal to
(i) from and including November 12, 1998 to but
excluding February 9, 2000, LIBOR plus 175 basis points;
(ii) from and including February 9, 2000 to but excluding
the earlier of (A) the Remarketing Settlement Date on which
Replacement Securities are issued and (B) the date such
Security is redeemed, LIBOR plus 150 basis points;
(iii) from and including the Remarketing Settlement Date
on which Replacement Securities are issued to but excluding
the date such Security is redeemed, the Winning Bid Rate; and
(iv) notwithstanding clauses (i), (ii) and (iii) above,
if such Security is not redeemed because the Subordinated Note
Issuer fails to pay the principal amount of the Subordinated
Notes on the date such amount becomes due, then from and
including such due date to but excluding the date such
Security is redeemed, the applicable Distribution Rate in
effect on the due date, compounded quarterly, but only to the
extent permitted by applicable law.
Distributions that are not paid when due will bear additional distributions
("ADDITIONAL DISTRIBUTIONS") thereon compounded quarterly at the applicable
Distribution Rate in effect on the due date specified above (to the extent
permitted by applicable law). A Distribution is payable only to the extent that
payments are made in respect of the Subordinated Notes held by the Property
Trustee and to the extent the Property Trustee has funds on hand legally
available therefor.
(b) Until the Remarketing Settlement Date on which Replacement
Securities are issued, Distributions on the Securities will be payable quarterly
in arrears (i) on February 12, May 12, August 12 and November 12 of each year,
commencing February 12, 1999 and (ii) on such Remarketing Settlement Date (each,
a "PRE-REMARKETING DISTRIBUTION DATE"), and will accumulate from and including
the most recent date to which Distributions have been paid or, if no
Distributions have been paid, from November 12, 1998, to but excluding the
related Pre-Remarketing Distribution Date, except as otherwise described below.
A-2-4
<PAGE> 26
The Distribution Rate in effect for the period from and including
November 12, 1998 to but excluding February 12, 1999 shall be the rate
determined by the Calculation Agent two London Banking Days prior to November
12, 1998 and shall equal LIBOR plus 175 basis points. The Distribution Rate in
effect from and including February 12, 1999 to but excluding February 9, 2000,
for each quarterly period from and including the immediately preceding
Pre-Remarketing Distribution Date to but excluding the applicable
Pre-Remarketing Distribution Date, shall be determined by the Calculation Agent
two London Banking Days prior to such immediately preceding Pre-Remarketing
Distribution Date (a "DATE OF DETERMINATION") and shall equal LIBOR plus 175
basis points. The Distribution Rate in effect thereafter, for each quarterly
period from and including the immediately preceding Pre-Remarketing Distribution
Date to but excluding the applicable Pre-Remarketing Distribution Date, shall be
determined by the Calculation Agent two London Banking Days prior to such
immediately preceding Pre-Remarketing Distribution Date and shall equal LIBOR
plus 150 basis points. The amount of the Distribution payable on February 12,
2000 shall reflect the pro rata application of the two Distribution Rates
applicable to the calculation period for such Distribution for each day on which
the applicable Distribution Rate was in effect. The amount of Distributions
payable for any quarterly period shall be computed on the basis of a 360-day
year of twelve 30-day months. Except as provided in the last sentence of this
paragraph, the amount of Distributions payable for any period shorter than a
full quarterly period for which Distributions are computed will be computed on
the basis of the actual number of days elapsed per 30-day month. If a
Pre-Remarketing Distribution Date is not a Business Day, then such
Pre-Remarketing Distribution Date will be the next succeeding Business Day,
except if such Business Day is in the next succeeding calendar month, such
Pre-Remarketing Distribution Date will be the immediately preceding Business
Day.
All percentages resulting from any calculations on the Common
Securities will be rounded, if necessary, to the nearest one hundred-thousandth
of a percentage point, with five one-millionths of a percentage point rounded
upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)),
and all dollar amounts used in or resulting from such calculation will be
rounded to the nearest cent (with one-half cent being rounded upward).
(c) From and including the Remarketing Settlement Date on which
Replacement Securities are issued, Distributions on the Replacement Securities
and on the Common Securities will be payable quarterly in arrears (i) on
February 12, May 12, August 12 and November 12 of each year, commencing on such
Remarketing Settlement Date and (ii) on the Mandatory Redemption Date (each, a
"DISTRIBUTION DATE"), and will accumulate from the most recent date to which
Distributions have been paid or, if no Distributions have been paid, from and
A-2-5
<PAGE> 27
including such Remarketing Settlement Date, to but excluding the related
Distribution Date, except as otherwise described below. The amount of
Distributions payable for any quarterly period shall be computed on the basis of
a 360-day year of twelve 30-day months. Except as provided in the last sentence
of this paragraph, the amount of Distributions payable for any period shorter
than a full quarterly period for which Distributions are computed will be
computed on the basis of the actual number of days elapsed per 30-day month. If
a Distribution Date is not a Business Day, then such Distribution Date will be
postponed to the next succeeding Business Day (and without any interest or other
payment in respect of any such delay); provided, that if such Business Day is in
the next succeeding calendar month, such Distribution Date will be the
immediately preceding Business Day.
Subject to other conditions set forth in the Agreement and the
Indenture, the Property Trustee may, at the direction of the Sponsor, at any
time dissolve the Trust and cause the Subordinated Notes to be distributed to
the Holders to the Securities in liquidation of the Trust or, simultaneously
with any redemption of the Subordinated Notes, cause a Like Amount of the
Securities to be redeemed by the Trust.
This Common Security shall be redeemable as provided in the Agreement.
A-2-6
<PAGE> 1
EXHIBIT 4-AG
SIXTH SUPPLEMENTAL INDENTURE
between
HERCULES INCORPORATED,
as Issuer
and
THE CHASE MANHATTAN BANK,
as Trustee
Dated as of February 9, 2000
<PAGE> 2
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
SECTION 1.01. Amended Definitions....................................... 2
SECTION 1.02. Additional Definitions.................................... 2
SECTION 1.03. Section 1.01(h)........................................... 3
SECTION 1.04. Deleted Definition........................................ 3
SECTION 1.05. Amendment of the Subordinated Notes....................... 3
SECTION 1.06. Application of Articles 1, 2 and 3........................ 3
ARTICLE 2
SECTION 2.01. Amendment of Interest Rate Calculation on the
Subordinated Notes.............................................. 3
ARTICLE 3
SECTION 3.01. Remarketing............................................... 7
ARTICLE 4
SECTION 4.01. Ratification of Base Indenture, the First Supplemental
Indenture, the Second Supplemental Indenture, the Third
Supplemental Indenture and the Fifth Supplemental Indenture:
Sixth Supplemental Indenture Controls........................... 11
SECTION 4.02. Trustee Not Responsible for Recitals...................... 12
SECTION 4.03. Governing Law............................................. 12
SECTION 4.04. Severability.............................................. 12
SECTION 4.05. Counterparts.............................................. 12
SECTION 4.06. Terms Defined............................................. 12
</TABLE>
<PAGE> 3
SIXTH SUPPLEMENTAL INDENTURE, dated as of February 9, 2000 (the "SIXTH
SUPPLEMENTAL INDENTURE"), between Hercules Incorporated, a Delaware corporation,
as issuer (the "COMPANY"), and The Chase Manhattan Bank, a New York banking
corporation, as trustee (the "TRUSTEE").
WHEREAS, the Company and the Trustee are parties to the Junior
Subordinated Debentures Indenture dated as of November 12, 1998 between the
Company and the Trustee (the "BASE INDENTURE"), as supplemented by a First
Supplemental Indenture dated as of November 12, 1998 between the Company and the
Trustee (the "FIRST SUPPLEMENTAL INDENTURE"), a Second Supplemental Indenture
dated as of July 6, 1999 (the "SECOND SUPPLEMENTAL INDENTURE"), a Third
Supplemental Indenture dated as of October 25, 1999 (the "THIRD SUPPLEMENTAL
INDENTURE"), a Fifth Supplemental Indenture dated as of January 24, 2000 (the
"FIFTH SUPPLEMENTAL INDENTURE" and together with the Base Indenture, the First
Supplemental Indenture, the Second Supplemental Indenture, the Third
Supplemental Indenture and this Sixth Supplemental Indenture, the "INDENTURE");
WHEREAS, the Company executed and delivered the Base Indenture to the
Trustee to provide for the issuance of the Company's unsecured junior
subordinated debentures (the "DEBENTURES") to be issued from time to time in one
or more series as might be determined by the Company under the Indenture, in an
unlimited aggregate principal amount which may be authenticated and delivered as
provided in the Base Indenture;
WHEREAS, pursuant to the terms of the Indenture in the First
Supplemental Indenture, the Company provided for the establishment of a new
series of its Debentures known as its Auction Rate Reset Junior Subordinated
Notes Series A (the "SUBORDINATED NOTES");
WHEREAS, the Indenture provides that the Company and the Trustee may
amend the Indenture, with the consent of each Holder of any Debenture affected
thereby, to provide for, among other things, changes in the stated maturity and
interest rate of that series of Debentures;
WHEREAS, the Company and the Trustee desire to modify certain
provisions of the Indenture to extend the maturity date and change the interest
rate of the Subordinated Notes and to provide for remarketing of the
Subordinated Notes in certain circumstances;
WHEREAS, all things necessary to make this Sixth Supplemental Indenture
a valid indenture and agreement according to its terms have been done;
<PAGE> 4
NOW THEREFORE, in consideration of the purchase and acceptance of
the Subordinated Notes by the Holder thereof, and for the purpose of amending
and restating certain terms of the Indenture relating to the stated maturity,
interest rate and remarketing of the Subordinated Notes, the Company covenants
and agrees with the Trustee as follows:
ARTICLE 1
SECTION 1.01. Amended Definitions. The definition of "Maturity Date"
contained in Section 1.01 of the Second Supplemental Indenture is hereby
amended to read in its entirety as follows:
""MATURITY DATE" means February 9, 2002; provided, that in the
event of a successful Remarketing of the Subordinated Notes or the
Preferred Securities, as the case may be, the Maturity Date shall be
the Remarketed Redemption Date; and provided, further, that, in
accordance with Section 10.02(a)(iv), in the event the Company elects
to pay the outstanding principal of and accrued and unpaid interest on
the Subordinated Notes upon receipt of the Remarketing Notice, and
notifies the Remarketing Agent of such election within five Business
Days thereafter, the Maturity Date shall be the date eight Business
Days after receipt of the Remarketing Notice."
SECTION 1.02. Additional Definitions. Section 1.01 of the First
Supplemental Indenture is hereby amended by inserting the following definitions
in the appropriate alphabetical order:
""AFFILIATED BIDDER" has the meaning set forth in Section
10.02(b)."
""DATE OF DETERMINATION" has the meaning set forth in Section
2.05(b)."
""PRE-REMARKETING INTEREST PAYMENT DATE" has the meaning set
forth in Section 2.05(b)."
""PRE-REMARKETING REGULAR RECORD DATE" has the meaning set
forth in Section 2.05(c)."
2
<PAGE> 5
""REMARKETED REDEMPTION DATE" means the later of (i) the first
anniversary of the Remarketing Settlement Date on which Replacement Securities
are issued, and (ii) February 9, 2002."
""REMARKETING NOTICE" has the meaning set forth in Section
10.02(a)(i)."
""REQUESTING HOLDERS" has the meaning set forth in Section
10.02(a)(i)."
SECTION 1.03. Section 1.01(h). The term "ASSOCIATED PERSON" is hereby
added to the list of defined terms contained in Section 1.01(h) of the First
Supplemental Indenture.
SECTION 1.04. Deleted Definition. The term "MATURITY EXTENSION DATE"
is hereby deleted in its entirety from Section 1.01(h) of the First Supplemental
Indenture.
SECTION 1.05. Amendment of the Subordinated Notes. The Company shall
execute replacement Subordinated Notes in the form attached hereto as Exhibit A
to reflect the amended terms provided for in this Sixth Supplemental Indenture,
and the Trustee shall authenticate and make such new Subordinated Notes
available for delivery to the Holders of the Subordinated Notes upon surrender
of the prior certificates therefor. The surrendered prior certificates
representing the Subordinated Notes shall be canceled by the Trustee and shall
no longer be outstanding.
SECTION 1.06. Application of Articles 1, 2 and 3. The provisions of
Article 1, Article 2 and Article 3 hereof shall apply to the Subordinated Notes
and the certificates therefor shall be appropriately amended.
ARTICLE 2
SECTION 2.01. Amendment of Interest Rate Calculation on the
Subordinated Notes. Section 2.05 of the First Supplemental Indenture is hereby
amended to read in its entirety as follows:
"SECTION 2.05. Interest. (a) Interest on the principal amount
of each Subordinated Note will accrue and be payable at a rate (the
"INTEREST RATE") per annum equal to
(i) from and including November 12, 1998 to but excluding
February 9, 2000, LIBOR plus 175 basis points;
3
<PAGE> 6
(ii) from and including February 9, 2000 to but excluding
the earlier of (A) the Remarketing Settlement Date on which
Replacement Notes are issued and (B) the date such principal
amount is paid, LIBOR plus 150 basis points;
(iii) from and including the Remarketing Settlement Date on
which Replacement Notes are issued to but excluding the date
such principal amount is paid, the Winning Bid Rate; and
(iv) notwithstanding clauses (i), (ii) and (iii) above, if
the Company fails to pay the principal amount on the date such
amount becomes due, then from and including such due date to
but excluding the date such principal amount is paid, the
applicable Interest Rate in effect on the due date, compounded
quarterly, but only to the extent permitted by applicable law.
Interest that is not paid when due will bear additional
interest thereon compounded quarterly at the applicable Interest Rate
in effect on the due date specified above (to the extent permitted by
applicable law). The term "INTEREST", as used herein, includes any such
additional interest unless otherwise stated.
(b) Until the Remarketing Settlement Date on which Replacement Notes
are issued, interest on the Subordinated Notes will be payable
quarterly in arrears (A) on February 12, May 12, August 12 and November
12 of each year, commencing February 12, 1999 and (B) on such
Remarketing Settlement Date (each, a "PRE-REMARKETING INTEREST PAYMENT
DATE"), and will accrue from and including the most recent date to
which interest has been paid or, if no interest has been paid, from
November 12, 1998, to but excluding the related Pre-Remarketing
Interest Payment Date, except as otherwise described below.
The Interest Rate in effect for the period from and including
November 12, 1998 to but excluding February 12, 1999 shall be the rate
determined by the Calculation Agent two London Banking Days prior to
November 12, 1998 and shall equal LIBOR plus 175 basis points. The
Interest Rate in effect from and including February 12, 1999 to but
excluding February 9, 2000, for each quarterly period from and
including the immediately preceding Pre-Remarketing Interest Payment
Date to but excluding the applicable Pre-Remarketing Interest Payment
Date, shall be determined by the Calculation Agent two London Banking
Days prior to such immediately preceding Pre-Remarketing Interest
Payment Date (a "DATE OF DETERMINATION") and shall equal LIBOR plus 175
basis points.
4
<PAGE> 7
The Interest Rate in effect thereafter, for each quarterly period from
and including the immediately preceding Pre-Remarketing Interest
Payment Date to but excluding the applicable Pre-Remarketing Interest
Payment Date, shall be determined by the Calculation Agent two London
Banking Days prior to such immediately preceding Pre-Remarketing
Interest Payment Date and shall equal LIBOR plus 150 basis points. The
amount of interest payable on February 12, 2000 shall reflect the pro
rata application of the two Interest Rates applicable to the
calculation period for such interest payment for each day on which the
applicable Interest Rate was in effect. The amount of interest payable
for any quarterly period shall be computed on the basis of a 360-day
year of twelve 30-day months. Except as provided in the last sentence
of this paragraph, the amount of interest payable for any period
shorter than a full quarterly period for which interest is computed
will be computed on the basis of the actual number of days elapsed per
30-day month. If a Pre-Remarketing Interest Payment Date is not a
Business Day, then such Pre-Remarketing Interest Payment Date will be
the next succeeding Business Day, except if such Business Day is in the
next succeeding calendar month, such Pre-Remarketing Distribution Date
will be the immediately preceding Business Day.
All percentages resulting from any calculations on the
Subordinated Notes will be rounded, if necessary, to the nearest one
hundred-thousandth of a percentage point, with five one-millionths of a
percentage point rounded upward (e.g., 9.876545% (or .09876545) being
rounded to 9.87655% (or .0987655)), and all dollar amounts used in or
resulting from such calculation will be rounded to the nearest cent
(with one-half cent being rounded upward).
(c) Interest shall be paid to the Person in whose name such
Subordinated Note or any predecessor Subordinated Note is registered on
the books and records of the Company at the close of business on the
Regular Record Date for such interest installment, which shall be
fifteen (15) days prior to a Pre-Remarketing Interest Payment Date (the
"PRE-REMARKETING REGULAR RECORD DATE").
(d) From and including the Remarketing Settlement Date on
which Replacement Notes are issued, interest on the Replacement Notes
will be payable quarterly in arrears (A) on February 12, May 12, August
12 and November 12 of each year, commencing on the first such date
following such Remarketing Settlement Date and (B) on the Maturity Date
(each, an "INTEREST PAYMENT DATE"), and will accrue from the most
recent date to which interest has been paid or, if no interest has been
paid, from and including such Remarketing Settlement Date, to but
excluding the
5
<PAGE> 8
related Interest Payment Date, except as otherwise described below. The
amount of interest payable for any quarterly period shall be computed
on the basis of a 360-day year of twelve 30-day months. Except as
provided in the last sentence of this paragraph, the amount of interest
payable for any period shorter than a full quarterly period for which
interest is computed will be computed on the basis of the actual number
of days elapsed per 30-day month. If an Interest Payment Date is not a
Business Day, then such Interest Payment Date will be postponed to the
next succeeding Business Day (and without any interest or other payment
in respect of any such delay); provided, that if such Business Day is
in the next succeeding calendar month, such Interest Payment Date will
be the immediately preceding Business Day.
(e) Interest shall be paid to the Person in whose name the
Subordinated Note or any predecessor Subordinated Note is registered on
the books and records of the Company, at the close of business on the
Regular Record Date for such interest installment, which, in respect of
(i) Subordinated Notes of which the Property Trustee is the Holder or
(ii) a Global Subordinated Note, shall be the close of business on the
Business Day next preceding that Interest Payment Date (the "REGULAR
RECORD DATE"). If the Subordinated Notes are not held by the Property
Trustee and are not represented by a Global Subordinated Note, the
Regular Record Date for such interest installment shall be fifteen (15)
days prior to that Interest Payment Date.
(f) If, at any time while the Property Trustee is the Holder
of any Subordinated Notes, the Trust or the Property Trustee is
required to pay any taxes, duties, assessments or governmental charges
of whatever nature (other than withholding taxes) imposed by the United
States, or any other taxing authority, then, in any such case, the
Company will pay as additional interest ("ADDITIONAL INTEREST") on the
Subordinated Notes held by the Property Trustee, such additional
amounts as shall be required so that the net amounts received and
retained by the Trust and the Property Trustee after paying such taxes,
duties, assessments or other governmental charges will be equal to the
amounts the Trust and the Property Trustee would have received had no
such taxes, duties, assessments or other government charges been
imposed."
6
<PAGE> 9
ARTICLE 3
SECTION 3.01. Remarketing. (a) Article 10 of the First Supplemental
Indenture is hereby amended to read in its entirety as follows:
"ARTICLE 10
REMARKETING; RESET RATE
SECTION 10.01. Effectiveness of this Article; Incorporation of
Remarketing Agreement. (a) Sections 10.02 and 10.04 shall become
effective if and only if the Subordinated Notes have been distributed
to the holders of the Trust Securities prior to Remarketing.
Notwithstanding the foregoing, on the Remarketing Settlement Date
(except in the case of a Failed Remarketing), the certificates
representing the Subordinated Notes held by the Property Trustee shall
be exchanged for certificates representing the Replacement Notes.
(b) Every Person, by virtue of having become a Holder in
accordance with the terms of this Agreement, shall be deemed to have
expressly assented and agreed to the terms of, and shall be bound by,
this First Supplemental Indenture, including the terms of Exhibit B.
Exhibit B is hereby incorporated in and expressly made a part of this
First Supplemental Indenture.
SECTION 10.02. Remarketing Procedure.
(a) (i) Subject to Section 10.04, the holders of a majority in
principal amount of the Subordinated Notes (the "REQUESTING HOLDERS")
have the right to require Remarketing of the Subordinated Notes at any
time. The Requesting Holders may exercise this right by delivering a
written notice to the Remarketing Agent at any time requesting a
Remarketing of the Subordinated Notes. Upon the receipt of such notice,
the Remarketing Agent shall immediately deliver a written notice to the
Company on behalf of the Requesting Holders (the "REMARKETING NOTICE").
If the Requesting Holders exercise their right to require the
Remarketing of the Subordinated Notes, the Reset Date shall be the
sixth Business Day (the "EXPECTED RESET DATE") after the date on which
the Remarketing Notice is received by the Company.
(ii) Notwithstanding Section 10.02(a)(i):
7
<PAGE> 10
(A) the Company may, by notice to the
Remarketing Agent, direct that the Reset Date be
delayed if the Company believes it will be unable to
meet the conditions to Remarketing in the absence of
such a delay; and
(B) the Remarketing Agent may, by notice to
the Company, direct that the Reset Date be delayed if
the Remarketing Agent believes that a Remarketing
will not be successful in the absence of such a
delay;
provided that the Company and the Remarketing Agent, in either such
event, will use their reasonable best efforts to establish a delayed
Reset Date that is within five Business Days after the Expected Reset
Date, but in no event later than the 15th Business Day following the
date on which the related Remarketing Notice was received, or the 20th
Business Day in the case of a Renewed Remarketing (as hereinafter
defined) to which the provisions of Section 10.04 apply (as applicable,
the "FINAL RESET DATE").
(iii) If the Company and the Remarketing Agent have
not agreed, on or prior to the sixth Business Day preceding
the Final Reset Date, to a Reset Date that is not later than
the Final Reset Date, a Failed Remarketing shall be deemed to
have occurred.
(iv) Notwithstanding the provisions of this Article
10, upon receipt of a Remarketing Notice the Company shall
have the right, in its sole discretion, to elect to pay the
outstanding principal of and accrued and unpaid interest on
the Subordinated Notes, rather than proceed with the
Remarketing. The Company shall make such election by sending
written notice, within five Business Days after the receipt of
the Remarketing Notice, to the Remarketing Agent and the
Trustee. If the Company makes such election, it shall pay the
outstanding principal of and accrued and unpaid interest on
the Subordinated Notes to the Holders thereof on the date
eight Business Days after receipt of the Remarketing Notice.
(b) The Company shall, by notice to the Remarketing Agent no
later than five Business Days prior to the Reset Date, select and
specify three Reference Corporate Dealers. By 3:00 p.m., New York City
time, on the Reset Date, the Remarketing Agent shall request Bids from
such Reference Corporate Dealers. The Remarketing Agent or an Affiliate
or Associated Person thereof (any such person, an "AFFILIATED BIDDER")
may, at its option, enter a Bid. The Remarketing Agent shall disclose
to the
8
<PAGE> 11
Company the Bids obtained and determine the lowest Bid Rate from among
the Bids obtained on the Reset Date (the "WINNING BID RATE"). By
approximately 4:30 p.m., New York City time, on the Reset Date, the
Remarketing Agent shall notify the Company and the Trustee of the
Winning Bid Rate. If on a Reset Date, Bids are not submitted by at
least two Reference Corporate Dealers, or if the lowest Bid submitted
would result in a Winning Bid Rate in excess of the rate permitted by
applicable law, the Remarketing shall be deemed to be a Failed
Remarketing on the corresponding Remarketing Settlement Date. The
Winning Bid Rate determined by the Remarketing Agent, absent manifest
error, shall be binding and conclusive upon the holders of the
Subordinated Notes, the Company and the Trust.
(c) On the Reset Date, the Remarketing Agent shall designate
as the Secondary Purchaser (the "SECONDARY PURCHASER") the Reference
Corporate Dealer providing the Bid containing the Winning Bid Rate. If
the Winning Bid Rate is specified in the Bids submitted by two or more
bidders, the Remarketing Agent shall, in consultation with the Company,
designate one of such bidders as the Secondary Purchaser.
(d) On the Reset Date, the Secondary Purchaser shall enter
into a Secondary Purchase Agreement for the purchase by such Secondary
Purchaser at the Remarketing Price of the aggregate principal amount of
Subordinated Notes, with an Interest Rate equal to the Winning Bid Rate
and with a Maturity Date on the Remarketed Redemption Date.
(e) If a Remarketing has occurred pursuant to this Section
10.02 but settlement of the purchase and sale of the Subordinated Notes
does not occur on the corresponding Remarketing Settlement Date, then,
unless the provisions of Section 10.04 with respect to a Renewed
Remarketing shall apply, a Failed Remarketing shall be deemed to have
occurred on such Remarketing Settlement Date.
(f) At the time and in the manner specified in the Secondary
Purchase Agreement, the Secondary Purchaser shall pay on the
Remarketing Settlement Date to the Remarketing Agent on behalf of the
Holders of the Subordinated Notes an amount of cash equal to the
Remarketing Price.
(g) Unless otherwise agreed among the Remarketing Agent, the
Paying Agent and any Former Holder, the Remarketing Agent shall
promptly pay the Remarketing Price to the Paying Agent, acting solely
as agent for the Former Holders, and the Paying Agent shall pay such
amount to the Former Holders in the manner specified in Section 2.02 of
the Base
9
<PAGE> 12
Indenture for payments of interest and as is otherwise specified
herein, except that the Record Date therefor shall be the Business Day
immediately preceding the Remarketing Settlement Date.
(h) The obligation of the Remarketing Agent to make payment to
the Former Holders in connection with the Remarketing shall be limited
to the extent that the Secondary Purchaser has delivered the
Remarketing Price therefor to the Remarketing Agent.
(i) Any outstanding Subordinated Notes purchased on the
Remarketing Settlement Date shall be deemed to be transferred to the
Secondary Purchaser and shall be replaced in the manner provided in
Section 10.02(j). On and after the Remarketing Settlement Date (except
in the event of (y) a Failed Remarketing or (z) a failure by the
Company to pay on the Remarketing Settlement Date all accrued interest
on the Subordinated Notes to such Remarketing Settlement Date), (A) the
Company shall make no further payments to, and the Company shall have
no further obligations under this First Supplemental Indenture (or the
Indenture) in respect of, the holders of such replaced Subordinated
Notes (the "FORMER HOLDERS"), (B) the Company shall only be obligated
to make payments to the holders of Replacement Notes and (C) the
Subordinated Notes of the Former Holders shall no longer represent an
obligation of the Company, but shall only represent a right to receive
the proceeds of the Remarketing from the Paying Agent.
(j) The Company shall cause replacement certificates
evidencing the remarketed Subordinated Notes (or, if the Preferred
Securities have been remarketed, appropriately revised Subordinated
Notes) to be executed by the Company and authenticated by the Trustee
in accordance with the provisions of Section 2.03 of the Base Indenture
(the "REPLACEMENT NOTES"). If the Subordinated Notes were Remarketed,
the Replacement Notes shall be delivered to the purchaser or purchasers
of the remarketed Subordinated Notes in accordance with the terms of
the Secondary Purchase Agreement. If the Preferred Securities were
Remarketed, the Replacement Notes shall be delivered to the Property
Trustee of the Trust.
SECTION 10.03. Reset of Interest Rate and Maturity Date. From
and including the Remarketing Settlement Date on which Replacement
Notes are issued, if the Subordinated Notes are remarketed pursuant to
Article 10 or the Preferred Securities are remarketed pursuant to
Article 6 of the Trust Agreement, the Interest Rate on the Subordinated
Notes shall be the Winning Bid Rate and the Maturity Date shall be the
Remarketed Maturity Date.
10
<PAGE> 13
SECTION 10.04. Renewed Remarketing. If a Remarketing has
occurred pursuant to Section 10.02 that would be a Failed Remarketing
pursuant to Section 10.02(e), because the purchase and sale of the
Subordinated Notes do not take place on the corresponding Remarketing
Settlement Date, and the reason for such failure shall, in the good
faith determination of the Remarketing Agent, result from facts or
circumstances that are not due to the action or inaction of the
Company, then the provisions of Section 10.02 shall apply to a second
remarketing (a "RENEWED REMARKETING") of the Subordinated Notes, except
that the Expected Reset Date shall be the sixth Business Day following
such corresponding Remarketing Settlement Date; provided that upon the
occurrence of a Failed Remarketing pursuant to Section 10.02, only one
Renewed Remarketing may occur pursuant to this Section 10.04, and no
Renewed Remarketing shall occur after the Final Reset Date.
SECTION 10.05. Failed Remarketing. The Remarketing Agent shall
give notice of any Failed Remarketing on the date such Failed
Remarketing occurs, or is deemed to occur, by 4:00 p.m., New York City
time, on the date of such Failed Remarketing, to the Company, the
Trustee and the Paying Agent."
ARTICLE 4
SECTION 4.01. Ratification of Base Indenture, the First Supplemental
Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture
and the Fifth Supplemental Indenture: Sixth Supplemental Indenture Controls. The
Base Indenture, as supplemented by the First Supplemental Indenture, the Second
Supplemental Indenture, the Third Supplemental Indenture, the Fifth Supplemental
Indenture and this Sixth Supplemental Indenture, is in all respects ratified and
confirmed, and this Sixth Supplemental Indenture shall be deemed part of the
Base Indenture in the manner and to the extent herein and therein provided. The
provisions of this Sixth Supplemental Indenture shall supersede the provisions
of the Base Indenture, the First Supplemental Indenture, the Second Supplemental
Indenture, the Third Supplemental Indenture and the Fifth Supplemental Indenture
to the extent the Base Indenture, the First Supplemental Indenture, the Second
Supplemental Indenture, the Third Supplemental Indenture or the Fifth
Supplemental Indenture is inconsistent herewith.
SECTION 4.02. Trustee Not Responsible for Recitals. The recitals herein
contained are made by the Company and not by the Trustee, and the Trustee
assumes no responsibility for the correctness thereof. The Trustee makes no
11
<PAGE> 14
representation as to the validity or sufficiency of this Sixth Supplemental
Indenture.
SECTION 4.03. Governing Law. This Sixth Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York,
as applied to contracts made and performed within the State of New York, without
regard to its principles of conflicts of laws.
SECTION 4.04. Severability. If any provision in the Base Indenture, the
First Supplemental Indenture, the Second Supplemental Indenture, the Third
Supplemental Indenture, the Fifth Supplemental Indenture, this Sixth
Supplemental Indenture or in the Subordinated Notes shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 4.05. Counterparts. The parties may sign any number of copies
of this Sixth Supplemental Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. Any signed copy shall be
sufficient proof of this Sixth Supplemental Indenture.
SECTION 4.06. Terms Defined. All terms defined elsewhere in the
Indenture shall have the same meanings when used herein.
12
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Sixth
Supplemental Indenture to be duly executed as of the day and year first above
written.
HERCULES INCORPORATED,
as Issuer
By: __________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
as Trustee
By: __________________________
Name:
Title:
<PAGE> 16
EXHIBIT A
FORM OF SUBORDINATED NOTE
SUBORDINATED NOTE
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2)
AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE
TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES
ACT (OR ANY SUCCESSOR PROVISION) RESELL OR OTHERWISE TRANSFER THE SECURITY
EVIDENCED HEREBY EXCEPT (A) TO HERCULES INCORPORATED OR ANY SUBSIDIARY THEREOF,
(B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT OR (C) TO A SECONDARY PURCHASER (AS DEFINED IN THE AMENDED AND
RESTATED TRUST AGREEMENT OF HERCULES TRUST V DATED AS OF NOVEMBER 12, 1998 (AS
AMENDED FROM TIME TO TIME, THE "TRUST AGREEMENT")) THAT HAS ENTERED INTO A
SECONDARY PURCHASE AGREEMENT (AS DEFINED IN THE TRUST AGREEMENT) WITH THE TRUST,
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED
HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND AND
(4) AGREES WITH RESPECT TO ANY TRANSFER OCCURRING PRIOR TO THE REMARKETING DATE
ON WHICH REPLACEMENT NOTES ARE ISSUED TO ANY PERSON OTHER THAN THE PROPERTY
TRUSTEE, TO PROVIDE TO THE INDENTURE TRUSTEE A DULY EXECUTED CERTIFICATE
SUBSTANTIALLY TO THE EFFECT OF CLAUSES (1), (2) AND (3), ABOVE. AT THE REQUEST
OF THE HOLDER, THIS LEGEND WILL BE REMOVED AFTER THE EXPIRATION OF THE HOLDING
PERIOD APPLICABLE TO THE SALE OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K)
UNDER THE SECURITIES ACT.
FROM AND AFTER THE REMARKETING SETTLEMENT DATE ON WHICH REPLACEMENT NOTES ARE
ISSUED TO ANY PERSON OTHER THAN THE PROPERTY TRUSTEE, THIS CERTIFICATE SHALL
REPRESENT ONLY THE RIGHT TO RECEIVE THE REMARKETING PRICE, AS PROVIDED IN THE
TRUST AGREEMENT, AND SHALL NO LONGER REPRESENT AN OBLIGATION OF THE COMPANY.
A-1
<PAGE> 17
THIS SECURITY WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL
INCOME TAX PURPOSES. THE ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE
DATE AND YIELD TO MATURITY WILL BE PROMPTLY MADE AVAILABLE UPON REQUEST TO THE
VICE PRESIDENT - TAXES (AT (302) 594-5887) OR THE SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER (AT (302) 594-5175), HERCULES INCORPORATED, HERCULES
PLAZA, 1313 NORTH MARKET STREET, WILMINGTON, DE 19894-0001.
A-2
<PAGE> 18
No. SN-03 CUSIP NO. ________
HERCULES INCORPORATED
AUCTION RATE RESET JUNIOR SUBORDINATED NOTE SERIES A
Hercules Incorporated, a Delaware corporation (the "COMPANY",
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to The Chase Manhattan
Bank, as Property Trustee, for Hercules Trust V, or registered assigns, the
principal sum of Two Hundred Six Million Two Hundred Thousand Dollars
($206,200,000) on February 9, 2002, or such other date as may be provided
pursuant to the terms of the Indenture.
(a) Interest on the principal amount of each Subordinated Note will
accrue and be payable at a rate (the "INTEREST RATE") per annum equal to:
(i) from and including November 12, 1998 to but
excluding February 9, 2000, LIBOR plus 175 basis points;
(ii) from and including February 9, 2000 to but
excluding the earlier of (A) the Remarketing Settlement Date
on which Replacement Notes are issued and (B) the date such
principal amount is paid, LIBOR plus 150 basis points;
(iii) from and including the Remarketing Settlement
Date on which Replacement Notes are issued to but excluding
the date such principal amount is paid, the Winning Bid Rate;
and
(iv) notwithstanding clauses (i), (ii) and (iii)
above, if the Company fails to pay the principal amount on the
date such amount becomes due, then from and including such due
date to but excluding the date such principal amount is paid,
the applicable Interest Rate in effect on the due date,
compounded quarterly, but only to the extent permitted by
applicable law.
Interest that is not paid when due will bear additional
interest thereon compounded quarterly at the applicable Interest Rate in effect
on the due date specified above (to the extent permitted by applicable law). The
term "INTEREST", as used herein, includes any such additional interest unless
otherwise stated.
A-3
<PAGE> 19
(b) Until the Remarketing Settlement Date on which Replacement Notes
are issued, interest on the Subordinated Notes will be payable quarterly in
arrears (A) on February 12, May 12, August 12 and November 12 of each year,
commencing February 12, 1999 and (B) on such Remarketing Settlement Date (each,
a "PRE-REMARKETING INTEREST PAYMENT DATE"), and will accrue from and including
the most recent date to which interest has been paid or, if no interest has been
paid, from November 12, 1998, to but excluding the related Pre-Remarketing
Interest Payment Date, except as otherwise described below.
The Interest Rate in effect for the period from and including
November 12, 1998 to but excluding February 12, 1999 shall be the rate
determined by the Calculation Agent two London Banking Days prior to November
12, 1998 and shall equal LIBOR plus 175 basis points. The Interest Rate in
effect from and including February 12, 1999 to but excluding February 9, 2000,
for each quarterly period from and including the immediately preceding
Pre-Remarketing Interest Payment Date to but excluding the applicable
Pre-Remarketing Interest Payment Date, shall be determined by the Calculation
Agent two London Banking Days prior to such immediately preceding
Pre-Remarketing Interest Payment Date (a "DATE OF DETERMINATION") and shall
equal LIBOR plus 175 basis points. The Interest Rate in effect thereafter, for
each quarterly period from and including the immediately preceding
Pre-Remarketing Interest Payment Date to but excluding the applicable
Pre-Remarketing Interest Payment Date, shall be determined by the Calculation
Agent two London Banking Days prior to such immediately preceding
Pre-Remarketing Interest Payment Date and shall equal LIBOR plus 150 basis
points. The amount of interest payable on February 12, 2000 shall reflect the
pro rata application of the two Interest Rates applicable to the calculation
period for such interest payment for each day on which the applicable Interest
Rate was in effect. The amount of interest payable for any quarterly period
shall be computed on the basis of a 360-day year of twelve 30-day months. Except
as provided in the last sentence of this paragraph, the amount of interest
payable for any period shorter than a full quarterly period for which interest
is computed will be computed on the basis of the actual number of days elapsed
per 30-day month. If a Pre-Remarketing Interest Payment Date is not a Business
Day, then such Pre-Remarketing Interest Payment Date will be the next succeeding
Business Day, except if such Business Day is in the next succeeding calendar
month, such Pre-Remarketing Distribution Date will be the immediately preceding
Business Day.
All percentages resulting from any calculations on the Subordinated Notes
will be rounded, if necessary, to the nearest one hundred-thousandth of a
percentage point, with five one-millionths of a percentage point rounded upward
(e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)), and
all dollar amounts used in or resulting from such calculation will be rounded to
the nearest cent (with one-half cent being rounded upward).
A-4
<PAGE> 20
(c) Interest shall be paid to the Person in whose name such Subordinated Note or
any predecessor Subordinated Note is registered on the books and records of the
Company at the close of business on the Regular Record Date for such interest
installment, which shall be fifteen (15) days prior to a Pre-Remarketing
Interest Payment Date (the "PRE-REMARKETING REGULAR RECORD DATE").
(d) From and including the Remarketing Settlement Date on which Replacement
Notes are issued, interest on the Replacement Notes will be payable quarterly in
arrears (A) on February 12, May 12, August 12 and November 12 of each year,
commencing on the first such date following such Remarketing Settlement Date and
(B) on the Maturity Date (each, an "INTEREST PAYMENT DATE"), and will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from and including such Remarketing Settlement Date, to but excluding
the related Interest Payment Date, except as otherwise described below. The
amount of interest payable for any quarterly period shall be computed on the
basis of a 360-day year of twelve 30-day months. Except as provided in the last
sentence of this paragraph, the amount of interest payable for any period
shorter than a full quarterly period for which interest is computed will be
computed on the basis of the actual number of days elapsed per 30-day month. If
an Interest Payment Date is not a Business Day, then such Interest Payment Date
will be postponed to the next succeeding Business Day (and without any interest
or other payment in respect of any such delay); provided, that if such Business
Day is in the next succeeding calendar month, such Interest Payment Date will be
the immediately preceding Business Day.
(e) Interest shall be paid to the Person in whose name the Subordinated Note or
any predecessor Subordinated Note is registered on the books and records of the
Company, at the close of business on the Regular Record Date for such interest
installment, which, in respect of (i) Subordinated Notes of which the Property
Trustee is the Holder or (ii) a Global Subordinated Note, shall be the close of
business on the Business Day next preceding that Interest Payment Date (the
"REGULAR RECORD DATE"). If the Subordinated Notes are not held by the Property
Trustee and are not represented by a Global Subordinated Note, the Regular
Record Date for such interest installment shall be fifteen (15) days prior to
that Interest Payment Date.
The indebtedness evidenced by this Subordinated Note is, to the extent provided
in the Indenture, subordinate and junior in right of payment to the prior
payment in full of all existing and future Senior Indebtedness, and this
Subordinated Note is issued subject to the provisions of the Indenture with
respect thereto. Each Holder of this Subordinated Note, by accepting the same,
(a) agrees to and shall be bound by such provisions, (b) authorizes and directs
the Trustee on his or her behalf to take such action as may be necessary or
appropriate to acknowledge or effectuate the subordination so provided and (c)
appoints the Trustee his or her
A-5
<PAGE> 21
attorney-in-fact for any and all such purposes. Each Holder hereof, by his or
her acceptance hereof, hereby waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder of
Senior Indebtedness, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.
This Subordinated Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
The provisions of this Subordinated Note are continued on the reverse side
hereof and such continued provisions shall for all purposes have the same effect
as though fully set forth at this place.
A-6
<PAGE> 22
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
HERCULES INCORPORATED
By: ____________________________________
Name:
Title
Attest:
By: ______________________________
Name:
Title:
<PAGE> 23
CERTIFICATE OF AUTHENTICATION
This is one of the Subordinated Notes of the series of Debentures described in
the within-mentioned Indenture.
Dated:
THE CHASE MANHATTAN BANK,
as Trustee or as Authentication Agent
By _______________________________ By _________________________________
Authorized Signatory Authorized Signatory
<PAGE> 24
[REVERSE OF NOTE]
This Subordinated Note is one of a duly authorized series of Debentures
of the Company (herein sometimes referred to as the "DEBENTURES"), specified in
the Indenture, all issued or to be issued in one or more series under and
pursuant to a Junior Subordinated Debenture Indenture dated as of November 12,
1998, duly executed and delivered between the Company and The Chase Manhattan
Bank, as Trustee (the "TRUSTEE"), as supplemented by a First Supplemental
Indenture dated as of November 12, 1998, a Second Supplemental Indenture dated
as of July 6, 1999, a Third Supplemental Indenture dated as of October 25, 1999,
a Fifth Supplemental Indenture dated as of January 24, 2000 and a Sixth
Supplemental Indenture dated as of February 9, 2000 (the Indenture as so
supplemented, the "INDENTURE"), to which Indenture and all indentures
supplemental thereto reference is hereby made for a description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Trustee, the Company and the Holders of the Subordinated Notes. By the terms of
the Indenture, the Debentures are issuable thereunder in series that may vary as
to amount, date of maturity, rate of interest and in other respects as provided
in the Indenture. This series of Debentures is limited in aggregate principal
amount as specified in said Sixth Supplemental Indenture and herein sometimes
referred to as the "SUBORDINATED NOTES."
Because of the occurrence and continuation of a Special Event or a
Failed Remarketing, in certain circumstances, this Subordinated Note may become
due and payable at the principal amount together with any interest accrued
thereon (the "REDEMPTION PRICE"). The Redemption Price shall be paid prior to
12:00 noon, New York City time, on the date of such redemption or at such
earlier time as the Company determines.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Subordinated Notes may
be declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the Holders of at least a majority in aggregate
principal amount of the Debentures of each series affected thereby then
outstanding (and, in the case of any series of Debentures held as assets of a
Trust and with respect to which a Dissolution Event has not theretofore
occurred, such consent of holders of the Preferred Securities and the Common
Securities of such Trust as may be required under the Trust Agreement), as
defined in the Indenture, to reduce the principal amount of such Debentures;
reduce the percentage of the principal amount of such Debentures the Holders of
which must consent to an amendment of this Indenture or a waiver; change (i) the
stated maturity of the
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<PAGE> 25
principal of or the interest on such Debentures, or (ii) the rate of interest
(or the manner of calculation thereof) on such Debentures, change adversely to
the Holders the redemption, conversion or exchange provisions applicable to such
Debentures, if any; change the currency in respect of which the payments on such
Debentures are to be made; make any change in the Subordination provisions of
the Indenture (Article 10) that adversely affects the rights of the Holders of
the Debentures or any change to any other Section hereof that adversely affects
their rights; or change the direct action rights of holders of Preferred
Securities; provided that, in the case of the outstanding Debentures of a series
then held by a Trust, no such amendment shall be made that adversely affects the
holders of the Preferred Securities of that Trust, and no waiver of any Event of
Default with respect to the Debentures of that series or compliance with any
covenant under this Indenture shall be effective, without the prior consent of
the holders of at least a majority of the aggregate liquidation amount of the
outstanding Preferred Securities of that Trust or the holder of each such
Preferred Security, as applicable.
A supplemental indenture that changes or eliminates any covenant or
other provision of this Indenture that has expressly been included solely for
the benefit of one or more particular series of Debentures, or which modifies
the rights of the Holders of Debentures of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Debentures of any other series.
No reference herein to the Indenture and no provision of this
Subordinated Note or of the Indenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Subordinated Note at the time and place
and at the rate or rates and in the currency herein prescribed.
As provided in the Indenture and subject to certain limitations herein
and therein set forth, this Subordinated Note is transferable by the registered
Holder hereof on the Register of the Company, upon surrender of this
Subordinated Note for registration of transfer at the office or agency of the
Trustee in the City and State of New York accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company or the Trustee duly
executed by the registered Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Subordinated Notes of authorized
denominations and for the same aggregate principal amount and series will be
issued to the designated transferee or transferees. No service charge will be
made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
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<PAGE> 26
Prior to due presentment for registration of transfer of this
Subordinated Note, the Company, the Trustee, any paying agent and the Registrar
may deem and treat the registered holder hereof as the absolute owner hereof
(whether or not this Subordinated Note shall be overdue and notwithstanding any
notice of ownership or writing hereon made by anyone other than the Registrar)
for the purpose of receiving payment of or on account of the principal hereof
and premium, if any, and interest due hereon and for all other purposes, and
neither the Company nor the Trustee nor any paying agent nor any Registrar shall
be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Subordinated Note, or for any claim based hereon, or otherwise
in respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.
The Subordinated Notes of this series are issuable only in registered
form without coupons in denominations of $1,000 and any integral multiple of
$1,000 thereof. The Subordinated Notes may be transferred or exchanged only in
minimum denominations of $100,000 and integral multiples of $1,000 in excess
thereof, and any attempted transfer, sale or other disposition of Subordinated
Notes in a denomination of less than $100,000 shall be deemed void and of no
legal effect whatsoever.
All terms used in this Subordinated Note that are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
THE INDENTURE AND THE DEBENTURES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS
PRINCIPLES OF CONFLICTS OF LAWS.
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<PAGE> 1
EXHIBIT 4-AH
REMARKETING AND CONTINGENT PURCHASE
AGREEMENT
among
HERCULES INCORPORATED,
HERCULES TRUST V
and
BANC OF AMERICA SECURITIES LLC
Dated as of February 9, 2000
<PAGE> 2
REMARKETING AND CONTINGENT PURCHASE AGREEMENT
REMARKETING AND CONTINGENT PURCHASE AGREEMENT dated as of February 9, 2000
by and among Hercules Incorporated, a Delaware corporation (the "COMPANY"),
Hercules Trust V, a Delaware statutory business trust (the "TRUST"), and Banc of
America Securities LLC, as remarketing agent (the "REMARKETING AGENT").
WITNESSETH:
WHEREAS, the Trust has issued 200,000 Auction Rate Reset Preferred
Securities (the "PREFERRED SECURITIES") in an aggregate stated liquidation
amount of $200,000,000 and 6,200 Auction Rate Reset Common Securities (the
"COMMON SECURITIES", and together with the Preferred Securities, the "TRUST
SECURITIES") in an aggregate stated liquidation amount of $6,200,000 under the
Amended and Restated Trust Agreement dated as of November 12, 1998 among the
Company, the Administrative Trustees, the Delaware Trustee and the Property
Trustee (as the same has been and may be amended from time to time, the "TRUST
AGREEMENT");
WHEREAS, the sole assets of the Trust consist of $206,200,000 aggregate
principal amount of Auction Rate Reset Junior Subordinated Notes Series A (the
"SUBORDINATED NOTES") of the Company purchased by the Trust from the Company
with the proceeds of the sale of the Trust Securities;
WHEREAS, at the request of the Holders of a Majority in Liquidation
Amount of the Trust Securities, the Preferred Securities (or, following the
distribution of Subordinated Notes to Holders of Preferred Securities upon the
dissolution of the Trust, the Subordinated Notes) may be remarketed in
accordance with the terms hereof;
WHEREAS, the Company and the Trust have requested that Banc of America
Securities LLC ("BAS") act as the Remarketing Agent and, as such, perform the
duties described herein; and
WHEREAS, BAS is willing to act as Remarketing Agent and, as such, to
perform such duties on the terms and conditions expressly set forth herein;
NOW, THEREFORE, in consideration of the covenants herein made, and
subject to the conditions herein set forth, the parties hereto agree as follows:
SECTION 1. Definitions. Capitalized terms used and not defined in this
Agreement shall have the meanings assigned to them in the Trust Agreement. In
<PAGE> 3
addition, as used in this Agreement, the following terms shall have the
following definitions:
"1934 ACT REPORTS" has the meaning set forth in Section 2(b)(iv).
"AFFILIATED BIDDER" has the meaning set forth in Section 5(b).
"ASSOCIATED PERSON" has the meaning set forth in Article 1(ee) of the
ByLaws of the National Association of Securities Dealers, Inc.
"BAS" has the meaning set forth in the fourth recital hereto.
"BID" means an irrevocable offer to purchase the aggregate outstanding
Liquidation Amount of Preferred Securities at the Remarketing Price or,
following any distribution of Subordinated Notes to Holders, the aggregate
outstanding principal amount of such Subordinated Notes, as the case may be,
with a Distribution Rate or interest rate, as applicable, equal to the Bid Rate
specified in such Bid and with a redemption date or maturity date, as the case
may be, on the Remarketed Redemption Date.
"BID RATE" means the proposed Distribution Rate on the Preferred
Securities and/or interest rate on Subordinated Notes specified in a Bid.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which banking institutions in The City of New York or London are authorized
or required by law, regulation or executive order to close.
"CHANGE OF CONTROL" shall be deemed to have occurred if (i) any Person
or group of Persons (within the meaning of Section 13 or 14 of the Exchange Act)
shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of
the Exchange Act) of 30% or more of the Voting Stock of the Company or (ii)
Continuing Directors shall cease to be a majority of the members of the Board of
Directors of the Company.
"COMMISSION" means the Securities and Exchange Commission.
"COMPANY" has the meaning set forth in the initial paragraph hereto.
"CONTINUING DIRECTORS" means (i) the members of the Board of Directors
of the Company on the date hereof and (ii) future members of such Board of
Directors who were nominated or appointed by a majority of the Continuing
Directors at the date of their nomination or appointment.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
2
<PAGE> 4
"EXCHANGE ACT REGULATIONS" means the rules and regulations promulgated
under the Exchange Act.
"EXPECTED RESET DATE" has the meaning set forth in Section 5(a)(i).
"FAILED REMARKETING" means an event deemed to have occurred if,
following the giving of notice by the Requesting Holders to the Remarketing
Agent as contemplated by Section 5(a)(i), the settlement of a purchase and sale
of the Preferred Securities (or, if applicable, the Subordinated Notes) shall
not have occurred within the applicable time limit specified in this Agreement
and in any event if such a settlement shall not have occurred by the 23rd
Business Day following the delivery of the related Remarketing Notice, giving
effect, if applicable, to the provisions of Section 7.
"FINAL RESET DATE" has the meaning set forth in Section 5(a)(ii).
"FORMER HOLDERS" has the meaning set forth in Section 5(i).
"GUARANTEE AGREEMENT" means the Preferred Securities Guarantee
Agreement dated as of November 12, 1998, executed by the Company for the benefit
of Holders of the Preferred Securities, as amended, supplemented, modified or
superseded from time to time.
"INDENTURE" means the Indenture (the "BASE INDENTURE") dated as of
November 12, 1998 between the Company and The Chase Manhattan Bank, as Indenture
Trustee, as supplemented by a First Supplemental Indenture dated as of November
12, 1998, a Second Supplemental Indenture dated as of July 6, 1999, a Third
Supplemental Indenture dated as of October 25, 1999, a Fifth Supplemental
Indenture dated as of January 24, 2000 and a Sixth Supplemental Indenture dated
as of February 9, 2000 and as further amended, supplemented, modified or
superceded from time to time.
"INDENTURE TRUSTEE" means the Trustee pursuant to the Indenture.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended.
"MATERIAL ADVERSE CHANGE" means any development that could reasonably
be expected to result in a material adverse change in the business, properties
or financial condition of the Company and its subsidiaries, taken as a whole.
"OFFERING MEMORANDUM" has the meaning set forth in Section 12.
3
<PAGE> 5
"PREFERRED SECURITIES" has the meaning set forth in the first recital
hereto.
"REFERENCE CORPORATE DEALER" means a leading dealer of publicly traded
debt securities selected by the Company, which dealer shall be a Qualified
Institutional Buyer (as defined in Rule 144A under the Securities Act).
"REMARKETED REDEMPTION DATE" means the later of (i) the first
anniversary of the Remarketing Settlement Date on which Replacement Securities
are issued and (ii) February 9, 2002.
"REMARKETING" means a remarketing of Preferred Securities or
Subordinated Notes pursuant to Section 5.
"REMARKETING NOTICE" has the meaning set forth in Section 5(a)(i).
"REMARKETING PRICE" means (i) with respect to the Preferred Securities,
a price equal to 100% of the aggregate outstanding Liquidation Amount of the
Preferred Securities and (ii) with respect to the Subordinated Notes, a price
equal to 100% of the aggregate outstanding principal amount of the Subordinated
Notes.
"REMARKETING SETTLEMENT DATE" means the third Business Day immediately
following the Reset Date.
"RENEWED REMARKETING" has the meaning set forth in Section 7.
"REPLACEMENT PREFERRED SECURITIES" has the meaning set forth in Section
5(j).
"REPLACEMENT SECURITIES" has the meaning set forth in Section 5(j).
"REPLACEMENT SUBORDINATED NOTES" has the meaning set forth in Section
5(j).
"REPRESENTATION DATE" has the meaning set forth in Section 2(a).
"REQUESTING HOLDERS" has the meaning set forth in Section 5(a)(i).
"RESET DATE" means any date established as a Reset Date pursuant to
Section 5.
"RESET RATE" means the Winning Bid Rate.
"SECONDARY PURCHASE AGREEMENT" means an agreement to be dated as of the
Reset Date (or such other date permitted by applicable law) among the
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<PAGE> 6
Company, the Trust, the Remarketing Agent and the Secondary Purchaser providing
for the purchase of the Preferred Securities, or the Subordinated Notes, as the
case may be, by the Secondary Purchaser, in a form customary for transactions of
this type and as otherwise agreed among the Company, the Trust, the Remarketing
Agent and the Secondary Purchaser.
"SECONDARY PURCHASER" has the meaning set forth in Section 5(c).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBORDINATED NOTES" has the meaning set forth in the second recital
hereto.
"TRANSACTION DOCUMENTS" means this Agreement, the Purchase Agreement,
the Trust Agreement, the Guarantee Agreement, the Indenture, the Common
Securities, the Secondary Purchase Agreement, the Preferred Securities and the
Subordinated Notes; provided that for any representation made as of the date
hereof pursuant to Section 2(b), Transaction Documents means this Agreement, the
Purchase Agreement, the Trust Agreement, the Guarantee Agreement, the Indenture,
the Common Securities, the Letter Agreement, the Preferred Securities and the
Subordinated Notes.
"TRUST" has the meaning set forth in the initial paragraph hereto.
"TRUST AGREEMENT" has the meaning set forth in the initial paragraph
hereto.
"TRUST SECURITIES" has the meaning set forth in the first recital
hereto.
"WINNING BID RATE" has the meaning set forth in Section 5(b).
"VOTING STOCK" means capital stock of the Company having ordinary
voting power for the election of directors.
SECTION 2. Representations and Warranties. (a) Basic Warranties. Each
of the Company and the Trust, on the one hand, and the Remarketing Agent, on the
other hand, represents and warrants to the other as of the date hereof, the
Reset Date and the Remarketing Settlement Date (each of the foregoing dates
being hereinafter referred to as a "REPRESENTATION DATE") that:
(i) Status. It is a duly and validly existing entity under the
laws of the jurisdiction of its creation, formation or incorporation
and, if relevant under such laws, in good standing.
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<PAGE> 7
(ii) Powers. It has the corporate or trust power and authority
to execute, enter into and perform its obligations under, or
contemplated under, this Agreement and consummate the transactions
contemplated hereby.
(iii) No Violation or Conflict. The execution, delivery and
performance by such party of this Agreement, the consummation of the
transactions herein contemplated and compliance by such party with its
obligations hereunder (A) do not violate or conflict with (1) any
provision of its organizational documents, (2) any law applicable to
it, any order or judgment of any court or other agency of government
applicable to it or any of its assets that affects the legality,
validity or enforceability of this Agreement and (B) do not and will
not conflict with or constitute a breach of any contractual restriction
binding on or affecting it or any of its assets.
(iv) Consents. All governmental and other consents that are
required to have been obtained by it with respect to the performance by
such party of its obligations under this Agreement have been obtained
and are in full force and effect and all conditions of any such
consents have been complied with.
(v) Obligations Binding. Its obligations under this Agreement
constitute its legal, valid and binding obligations, enforceable
against it in accordance with the terms of this Agreement, except as of
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights or by
general equitable principles.
(vi) Absence of Litigation. There is not pending or, to the
best of its knowledge, threatened against or affecting it or any of its
Affiliates any action, suit or proceeding at law or in equity or before
any court, tribunal, governmental body, agency or official or any
arbitrator that could reasonably be expected to materially and
adversely affect the legality, validity or enforceability against it of
this Agreement or its ability to perform its obligations under this
Agreement.
(vii) Non-Reliance. It is acting for its own account, and it
has made its own independent decision to enter into this Agreement and
as to whether this Agreement is appropriate or proper for it based upon
its own judgment and upon advice from such advisers as it has deemed
necessary. It is not relying on any communication (written or oral) of
any other party as investment advice or as a recommendation to enter
into this Agreement, it being understood that information and
explanations related to the terms and conditions of this Agreement
shall not be considered investment
6
<PAGE> 8
advice or a recommendation to enter into this Agreement. No
communication (written or oral) received from any other party shall be
deemed to be an assurance or guarantee as to the expected results of
this Agreement. No other party is acting as a fiduciary for or an
adviser to it with respect to this Agreement.
(viii) Assessment and Understanding. It is capable of
assessing the merits of and understanding (on its own behalf or through
independent professional advice), and understands and accepts, the
terms, conditions and risks of this Agreement. It is also capable of
assuming, and assumes, the risks of this Agreement.
(b) Representations and Warranties of the Company and the Trust. Each
of the Company and the Trust further represents and warrants to the Remarketing
Agent as of each Representation Date, as applicable to each such entity, that:
(i) Securities Validly Issued. The Preferred Securities and
Subordinated Notes have been, and the Replacement Preferred Securities
and the Replacement Subordinated Notes will be, validly authorized and
executed by the Trust and the Company, as the case may be, and
authenticated, issued and delivered in the manner provided for in the
Trust Agreement and the Indenture, as the case may be, and delivered
against payment of the purchase price therefor as provided in the
Purchase Agreement, and constitute, or will constitute, legally binding
obligations of the Trust or the Company, as the case may be, entitled
to the benefits of the Trust Agreement and Indenture.
(ii) No Event of Default. No Event of Default under the Trust
Agreement and no Event of Default under the Indenture has occurred and
is continuing and no such event or circumstance would occur as a result
of its entering into or performing its obligations under this
Agreement.
(iii) Compliance with Exchange Act Requirements. The Company
has made all the filings with the Commission that it is required to
make under the Exchange Act and the Exchange Act Regulations, and each
such filing complies in all material respects with the requirements of
the Exchange Act and Exchange Act Regulations.
(iv) No Material Misstatements. The Company's most recent
Annual Report on Form 10-K, and its Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K filed after the end of the fiscal year to
which such Annual Report relates (collectively, the "1934 ACT
REPORTS"), as supplemented by material press releases, at the time they
were filed did
7
<PAGE> 9
not, and, after giving effect to the transactions contemplated by the
Transaction Documents do not, contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(v) No Material Adverse Change. Since the respective dates as
of which information is given in the 1934 Act Reports, except as
otherwise stated therein, or as supplemented by material press
releases, there has been no Material Adverse Change.
(vi) Not an Investment Company. Neither the Company nor the
Trust is an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment
Company Act.
SECTION 3. Covenants. (a) The Company hereby covenants with the
Remarketing Agent as follows:
(i) Maintain Authorizations. The Company shall use all
reasonable efforts to maintain in full force and effect all consents of
any governmental or other authority that are required to be obtained by
it with respect to this Agreement and shall use all reasonable efforts
to obtain any such consents that may become necessary in the future.
(ii) Comply with Laws. The Company shall comply in all
material respects with all applicable laws and orders to which it may
be subject if failure so to comply would materially impair its ability
to perform its obligations under this Agreement.
(iii) Furnish Documentation. The Company will furnish to the
Remarketing Agent: (i) unless available to the Remarketing Agent on
EDGAR or the Company's website, each document filed after the date
hereof by the Company pursuant to the periodic reporting requirements
of the Exchange Act and (ii) in connection with the Remarketing of the
Preferred Securities or Subordinated Notes, as the case may be, such
other information as the Remarketing Agent may reasonably request from
time to time. Notwithstanding the foregoing sentence, the Company
agrees to provide the Remarketing Agent with as many copies of the
foregoing written materials and other Company-approved information as
the Remarketing Agent may reasonably request for use in connection with
the Remarketing of the Preferred Securities or Subordinated Notes, as
the case may be, and consents to the use thereof for such purpose.
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<PAGE> 10
(iv) Notification. If, at any time prior to the Remarketing
Settlement Date, any event or condition known to the Company relating
to or affecting the Company, the Preferred Securities or the
Subordinated Notes shall occur that could reasonably be expected to
cause any of the reports, documents, materials or information referred
to in Section 3(a)(iii) or any document incorporated therein by
reference to contain an untrue statement of a material fact or omit to
state a material fact, the Company shall promptly notify the
Remarketing Agent in writing of the then-known circumstances and
details of such event or condition.
(v) Comply with Securities Laws. The Company will comply with
the Securities Act and the rules and regulations of the Commission
thereunder, the Exchange Act and the Exchange Act Regulations so as to
permit the completion of the Remarketing of the Preferred Securities or
Subordinated Notes, as the case may be, as contemplated in this
Agreement.
(vi) No Purchase of Securities. The Company agrees that
neither it nor any of its subsidiaries or Affiliates shall purchase or
otherwise acquire, or enter into any agreement to purchase or otherwise
acquire, any of the Preferred Securities or Subordinated Notes prior to
the Remarketing thereof by the Remarketing Agent, other than pursuant
to this Agreement.
(vii) Notification of Rating Agency Action. The Company will
provide prompt notice by telephone, confirmed in writing (which may
include facsimile or other electronic transmission), to the Remarketing
Agent of any notification or announcement by a "nationally recognized
statistical rating organization" (as defined by the Commission for
purposes of Rule 436(g)(2) under the Securities Act) with regard to a
downgrade to below investment grade or withdrawal of the rating of any
security of the Company or the placement on what is currently called a
"watch list"or a "credit watch" with negative implications of any
security of the Company.
(viii) Restriction on Debt Issuance. During the period
commencing on the date on which the Company receives a Remarketing
Notice in accordance with Section 5(a)(i) and ending on the earlier of
(A) the date of the related Remarketing Settlement Date or (B) the date
of the related Failed Remarketing, the Company will not, without the
consent of the Remarketing Agent, offer, sell or contract to sell, or
otherwise dispose of, directly or indirectly, or announce the offering
of, any debt securities with a maturity of more than one year but fewer
than two years.
(ix) Best Efforts. The Company shall use its best efforts to
assist the Remarketing Agent in Remarketing the Preferred Securities or
the
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<PAGE> 11
Subordinated Notes, as the case may be, in the manner contemplated by
this Agreement.
(b) The Remarketing Agent hereby covenants with the Company as
follows:
(i) Maintain Authorizations. The Remarketing Agent will use
all of its reasonable efforts to maintain in full force and effect all
consents of any governmental or other authority that are required to be
obtained by it with respect to this Agreement and shall use all
reasonable efforts to obtain any that may become necessary in the
future.
(ii) Comply with Laws. The Remarketing Agent shall comply in
all material respects with all applicable laws and orders which it may
be subject if failure so to comply would materially impair its ability
to perform its obligations under this Agreement.
SECTION 4. Appointment and Obligations of Remarketing Agent and
Calculation Agent; Secondary Purchaser. (a) The Company and the Trust hereby
appoint BAS as Remarketing Agent and as Calculation Agent under the Trust
Agreement and the Indenture (i) to determine, in accordance with the terms
described in Section 5(b), the Reset Rate that, when applied to the Preferred
Securities (or, following the distribution of the Subordinated Notes to Holders
of the Preferred Securities upon dissolution of the Trust, the Subordinated
Notes), shall result in the resale of all outstanding Preferred Securities (or,
if applicable, all outstanding Subordinated Notes), at a sales price equal to
the Remarketing Price; provided that the Reset Rate shall in no event exceed the
rate permitted by applicable law, (ii) to conduct a private auction of all
outstanding Preferred Securities or Subordinated Notes, as the case may be, in
accordance with Section 5 of this Agreement, and (iii) to enter into a Secondary
Purchase Agreement with respect to the Preferred Securities or the Subordinated
Notes, as the case may be.
(b) Pursuant to the Secondary Purchase Agreement, the Secondary
Purchaser, either as the sole purchaser or as the representative of a syndicate
of purchasers designated by the Secondary Purchaser, shall agree, subject to the
terms and conditions set forth therein, that the Secondary Purchaser and any
such other purchasers shall purchase such Preferred Securities or Subordinated
Notes, as the case may be, from the holders thereof at a price equal to the
Remarketing Price.
SECTION 5. Determination of Reset Date; Remarketing Procedures.
(a) (i) Subject to Section 7, the Holders of a Majority in Liquidation
Amount of the Trust Securities (or, if applicable, the holders of a majority in
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<PAGE> 12
principal amount of the Subordinated Notes), acting together as a single class
(the "REQUESTING HOLDERS"), have the right to require Remarketing of the Trust
Securities (or, if applicable, the Subordinated Notes) at any time. The
Requesting Holders may exercise this right by delivering a written notice to the
Remarketing Agent at any time requesting a Remarketing of the Preferred
Securities (or, if applicable, the Subordinated Notes). Upon the receipt of such
notice, the Remarketing Agent shall immediately deliver a written notice to the
Company on behalf of the Requesting Holders (the "REMARKETING NOTICE"). If the
Requesting Holders exercise their right to require the Remarketing of the
Preferred Securities (or, if applicable, the Subordinated Notes), the Reset Date
shall be the sixth Business Day after the date on which the Remarketing Notice
is received by the Company (the "EXPECTED RESET DATE").
(ii) Notwithstanding Section 5(a)(i):
(A) the Company may, by notice to the Remarketing
Agent, direct that the Reset Date be delayed if the Company
believes it will be unable to meet the conditions to
Remarketing in the absence of such a delay; and
(B) the Remarketing Agent may, by notice to the
Company, direct that the Reset Date be delayed if the
Remarketing Agent believes that a Remarketing will not be
successful in the absence of such a delay;
provided that the Company and the Remarketing Agent, in either such
event, will use their reasonable best efforts to establish a delayed
Reset Date that is within five Business Days after the Expected Reset
Date, but in no event later than the 15th Business Day following the
date on which the related Remarketing Notice was received, or the 20th
Business Day in the case of a Renewed Remarketing to which the
provisions of Section 7 apply (as applicable, the "FINAL RESET DATE").
(iii) If the Company and the Remarketing Agent have not
agreed, on or prior to the sixth Business Day preceding the Final Reset
Date, to a Reset Date that is not later than the Final Reset Date, a
Failed Remarketing shall be deemed to have occurred.
(iv) Notwithstanding the provisions of this Section 5, upon
receipt of a Remarketing Notice the Company shall have the right, in
its sole discretion, to elect to pay the aggregate Liquidation Amount
of and accumulated and unpaid Distributions on the Preferred Securities
(or the outstanding principal of and accrued and unpaid interest on the
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<PAGE> 13
Subordinated Notes, as the case may be), rather than proceed with the
Remarketing. The Company shall make such election by sending written
notice, within five Business Days after the receipt of the Remarketing
Notice, to the Remarketing Agent and the Trustee. If the Company makes
such election, it shall pay the aggregate Liquidation Amount of and
accumulated and unpaid Distributions on the Preferred Securities (or
the outstanding principal of and accrued and unpaid interest on the
Subordinated Notes, as the case may be) to the Holders thereof on the
date eight Business Days after receipt of the Remarketing Notice.
(b) The Company shall, by notice to the Remarketing Agent no later
than five Business Days prior to the Reset Date, select and specify three
Reference Corporate Dealers. By 3:00 p.m., New York City time, on the Reset
Date, the Remarketing Agent shall request Bids from such Reference Corporate
Dealers. The Remarketing Agent or an Affiliate or Associated Person thereof (any
such person, an "AFFILIATED BIDDER") may, at its option, enter a Bid. The
Remarketing Agent shall disclose to the Company the Bids obtained and determine
the lowest Bid Rate (the "WINNING BID RATE") from among the Bids obtained on the
Reset Date. By approximately 4:30 p.m., New York City time, on the Reset Date,
the Remarketing Agent shall notify the Company, the Indenture Trustee and the
Property Trustee of the Winning Bid Rate. If on a Reset Date, Bids are not
submitted by at least two Reference Corporate Dealers, or if the lowest Bid
submitted would result in a Winning Bid Rate in excess of the rate permitted by
applicable law, the Remarketing shall be deemed to be a Failed Remarketing on
the corresponding Remarketing Settlement Date. The Winning Bid Rate determined
by the Remarketing Agent, absent manifest error, shall be binding and conclusive
upon the Holders of the Trust Securities, the holders of the Subordinated Notes,
the Company and the Trust.
(c) On the Reset Date, the Remarketing Agent shall designate as the
Secondary Purchaser (the "SECONDARY PURCHASER") the Reference Corporate Dealer
providing the Bid containing the Winning Bid Rate. If the Winning Bid Rate is
specified in the Bids submitted by two or more bidders, the Remarketing Agent
shall, in consultation with the Company, designate one of such bidders as
the Secondary Purchaser.
(d) On the Reset Date, the Secondary Purchaser shall enter into a
Secondary Purchase Agreement for the purchase by such Secondary Purchaser at the
Remarketing Price of the aggregate Liquidation Amount of Preferred Securities,
with (i) a Distribution Rate equal to the Winning Bid Rate (or, if Subordinated
Notes shall have been distributed to Holders of the Trust Securities, the
aggregate principal amount of Subordinated Notes with an interest rate equal to
the Winning Bid Rate) and (ii) a Mandatory Redemption Date (or, in the case of
Subordinated Notes, a maturity date) on the Remarketed Redemption Date.
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(e) If a Remarketing shall have occurred pursuant to this Section 5
but settlement of the purchase and sale of the Preferred Securities or
Subordinated Notes, as the case may be, does not occur on the corresponding
Remarketing Settlement Date, then, unless the provisions of Section 7 with
respect to a Renewed Remarketing shall apply, a Failed Remarketing shall be
deemed to have occurred on such Remarketing Settlement Date.
(f) At the time and in the manner specified in the Secondary Purchase
Agreement, the Secondary Purchaser shall pay on the Remarketing Settlement Date
to the Remarketing Agent on behalf of the holders of the Preferred Securities or
Subordinated Notes, as the case may be, an amount of cash equal to the
Remarketing Price.
(g) Unless otherwise agreed among the Remarketing Agent, the Paying
Agent (under the Trust Agreement or Indenture, as applicable) and any Former
Holder, the Remarketing Agent shall promptly pay the Remarketing Price to the
Paying Agent, acting solely as agent for the Former Holders, and the Paying
Agent shall pay such amount to the Former Holders on the Remarketing Settlement
Date in the manner specified in the Trust Agreement or the Indenture, as the
case may be. Any amounts held by the Paying Agent for payment to the Former
Holders shall not be property of the Trust or the Company, as the case may be.
(h) The obligation of the Remarketing Agent to make payment to the
Former Holders in connection with the Remarketing shall be limited to the extent
that the Secondary Purchaser has delivered the Remarketing Price therefor to the
Remarketing Agent.
(i) Any outstanding Preferred Securities (or, if applicable, the
Subordinated Notes) purchased on the Remarketing Settlement Date shall be deemed
to be transferred to the Secondary Purchaser and shall be replaced in the manner
provided in Section 5(j). After the Remarketing Settlement Date (except in the
event of (y) a Failed Remarketing or (z) a failure by the Trust to pay on the
Remarketing Settlement Date all accrued and unpaid Distributions (including any
Additional Distributions) to such Remarketing Settlement Date (or, in the case
of the Subordinated Notes, a failure by the Company to pay on the Remarketing
Settlement Date all accrued interest (including any Additional Interest) on the
Subordinated Notes to such Remarketing Settlement Date)), (A) the Trust (or the
Company, in the case of the Subordinated Notes) shall make no further payments
to, and the Trust (or the Company, in the case of the Subordinated Notes) shall
have no further obligations under the Trust Agreement (or the Indenture, in the
case of the Subordinated Notes) in respect of, the holders of such replaced
securities (the "FORMER HOLDERS"), (B) the Trust (or the Company, in the case of
13
<PAGE> 15
the Subordinated Notes) shall only be obligated to make payments to the holders
of Replacement Securities and (C) the Preferred Securities (or, if applicable,
the Subordinated Notes) of the Former Holders shall no longer represent an
obligation of, or interest in, the Trust (or the Company, in the case of the
Subordinated Notes) but shall only represent a right to receive the proceeds of
the Remarketing from the Paying Agent under the Trust Agreement or the
Indenture, as the case may be.
(j) (i) The Company shall cause replacement certificates evidencing the
remarketed Preferred Securities (the "REPLACEMENT PREFERRED SECURITIES") to be
executed by an Administrative Trustee on behalf of the Trust and authenticated
by the Property Trustee and (ii) the Subordinated Note Issuer shall cause
replacement certificates evidencing the Subordinated Notes (the "REPLACEMENT
SUBORDINATED NOTES", and together with the Replacement Preferred Securities, the
"REPLACEMENT SECURITIES") to be executed by an authorized signatory and
authenticated by the Indenture Trustee, in each case, in accordance with the
provisions of this Section 5. If the Preferred Securities are to be purchased on
the Remarketing Settlement Date, (A) the Replacement Preferred Securities shall
be delivered to the purchaser of the remarketed Preferred Securities in
accordance with the terms of the Secondary Purchase Agreement and (B) the
Replacement Subordinated Notes shall be delivered to the Property Trustee of the
Trust. If the Subordinated Notes are to be purchased on the Remarketing
Settlement Date, the Replacement Subordinated Notes shall be delivered to the
purchaser of the remarketed Subordinated Notes in accordance with the terms of
the Secondary Purchase Agreement.
SECTION 6. Reset of Distribution Rate, Mandatory Redemption Date,
Interest Rate and Maturity Date. From and including the Remarketing Settlement
Date on which Replacement Securities are issued, (a) the Distribution Rate on
the Trust Securities and the Interest Rate on the Subordinated Notes shall be
the Winning Bid Rate and (b) the Mandatory Redemption Date and the maturity date
of the Subordinated Notes shall be the Remarketed Redemption Date.
SECTION 7. Renewed Remarketing. If a Remarketing has occurred pursuant
to Section 5 that would be a Failed Remarketing pursuant to Section 5(e),
because the purchase and sale of the Preferred Securities (or, if applicable,
the Subordinated Notes) do not take place on the corresponding Remarketing
Settlement Date, and the reason for such failure shall, in the good faith
determination of the Remarketing Agent, result from facts or circumstances that
are not due to the action or inaction of the Company, then the provisions of
Section 5 shall apply to a second remarketing (a "RENEWED REMARKETING") of the
Preferred Securities (or, if applicable, the Subordinated Notes), except that
the Expected Reset Date shall be the sixth Business Day following such
corresponding Remarketing Settlement Date; provided that only one Renewed
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<PAGE> 16
Remarketing may occur pursuant to this Section 7, and no Renewed Remarketing
shall occur after the Final Reset Date.
SECTION 8. Failed Remarketing; Contingent Purchase Obligation. The
Remarketing Agent shall give notice of any Failed Remarketing on the date such
Failed Remarketing occurs, or is deemed to have occurred, by 4:00 p.m., New York
City time, to the Company, the Subordinated Note Issuer, the Property Trustee,
the Indenture Trustee and the Paying Agent under the Indenture. In the case of
(i) any Failed Remarketing or (ii) a Change of Control, the Holders of a
Majority in Liquidation Amount of the Trust Securities (or, if applicable, the
holders of a majority in principal amount of the Subordinated Notes) may, by
notice in writing to the Company, which notice, in the case of a Failed
Remarketing, shall be given not later than 15 days after the occurrence of such
Failed Remarketing, require the Company to purchase from the holders thereof, on
a Pro Rata basis in accordance with Section 9 of Annex I to the Trust Agreement,
all outstanding Trust Securities (or, if applicable, all outstanding
Subordinated Notes) for a purchase price equal to the aggregate Liquidation
Amount of such Trust Securities plus accrued but unpaid Distributions thereon
(or, if applicable, the aggregate principal amount of such Subordinated Notes
plus accrued but unpaid interest thereon). Payment of such purchase price shall
be made directly to each such holder on the tenth Business Day following the
date of the notice to the Company pursuant to the preceding sentence. Such
purchase shall be without recourse of any kind to any such holder. The parties
recognize that the occurrence of a Failed Remarketing indicates that it would
not be commercially reasonable under the circumstances to require Holders of
Trust Securities (or, if applicable, holders of the Subordinated Notes) to
attempt to resell such securities otherwise than pursuant to this Section 8, and
that therefore in the event of any default by the Company in its obligations
under this Section 8, a holder shall be entitled to recover the price of the
securities specified herein.
SECTION 9. Senior Obligations. The obligations of the Company hereunder
constitute senior unsecured obligations, and shall rank pari passu with all
other senior unsecured obligations of the Company. Such obligations are not
subject to, and shall not be affected by, the provisions of Article 10 of the
Base Indenture.
SECTION 10. Replacement and Resignation of Remarketing Agent. (a) The
Company shall not have the right to replace BAS as the Remarketing Agent,
except in the case of bad faith, gross negligence or willful misconduct by BAS.
(b) BAS may resign at any time for good reason (after consultation
with the Company) and, subject to the following sentence, shall be discharged
from its duties and obligations hereunder or as Calculation Agent under the
Trust Agreement and the Indenture by giving no less than 10 days' notice. Any
such
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resignation shall become effective upon the Company's appointment of a successor
to perform the services that would otherwise be performed hereunder by the
Remarketing Agent or the Calculation Agent under the Trust Agreement and the
Indenture, as the case may be, and the agreement of any such successor so to
serve. Upon receiving notice from the Remarketing Agent that it wishes to resign
hereunder or as Calculation Agent under the Trust Agreement and the Indenture
stating the reasons for such resignation, the Company shall appoint such a
successor and enter into a new remarketing agreement with it as soon as
reasonably practicable.
(c) This Agreement shall terminate as to any Remarketing Agent that is
replaced on the effective date of its replacement pursuant to Section 10(b).
Notwithstanding any such termination, the obligations of the Company set forth
in Section 14 shall survive and remain in full force and effect until all
amounts payable under said Section 14 shall have been paid in full.
SECTION 11. Dealing in the Securities. BAS, when acting as Remarketing
Agent hereunder or under the Secondary Purchase Agreement or when acting in its
individual or any other capacity, may, to the extent permitted by law, buy,
sell, hold or deal in any of the Preferred Securities or Subordinated Notes. The
Remarketing Agent may exercise any vote or join in any action with respect to
any Preferred Securities or Subordinated Notes owned by it with like effect as
if it did not act in any capacity hereunder. BAS, in its individual capacity,
either as principal or agent, may also engage in or have an interest in any
financial or other transaction with the Company as freely as if it did not act
in any capacity hereunder.
SECTION 12. Offering Memorandum. Promptly following its receipt of a
Remarketing Notice pursuant to Section 5(a)(i), the Company shall furnish an
offering memorandum (the "OFFERING MEMORANDUM") to the Remarketing Agent, in
form and substance reasonably satisfactory to the Remarketing Agent, to be used
in the remarketing by the Secondary Purchaser or purchasers under the Secondary
Purchase Agreement, and shall pay all expenses relating to the preparation and
furnishing of such Offering Memorandum.
SECTION 13. Conditions to the Remarketing Agent's Obligations. (a) The
obligations of the Remarketing Agent, the Secondary Purchaser and any other
purchasers to perform their respective obligations hereunder and under the
Secondary Purchase Agreement shall be subject to the terms and conditions of the
Secondary Purchase Agreement.
(b) If at any time during the term of this Agreement, any Event of
Default under the Indenture or any Event of Default under the Trust Agreement,
or event that with the passage of time or the giving of notice or both would
16
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become an Event of Default under the Indenture or an Event of Default under the
Trust Agreement, has occurred and is continuing under the Indenture or the Trust
Agreement, then the obligations and duties of the Remarketing Agent under this
Agreement shall be suspended until such default or event has been cured. The
Trust shall cause the Property Trustee to provide to the Remarketing Agent
notice of all such defaults and events of which the Property Trustee is aware
and the Company shall cause the Indenture Trustee to provide to the Remarketing
Agent notice of all such defaults and events of which the Indenture Trustee is
aware.
SECTION 14. Indemnification. The Company shall indemnify and hold
harmless the Remarketing Agent and its officers and employees from and against
all actions, claims, damages, liabilities and losses, and costs and expenses
related thereto (including reasonable legal fees and costs) relating to or
arising out of actions or omissions in any capacity hereunder and in any
capacity as Calculation Agent under the Trust Agreement and the Indenture,
except actions, claims, damages, liabilities, losses, costs and expenses to the
extent caused by (a) the bad faith, gross negligence or wilful misconduct of
such indemnified party or (b) the breach by the Remarketing Agent of its
representations, warranties and covenants hereunder. This Section 14 shall
survive the termination of the Agreement, the Trust Agreement, the Indenture and
the payment in full of all obligations under the Preferred Securities or the
Subordinated Notes, as the case may be, and this Agreement, whether by purchase,
repurchase, redemption or otherwise.
SECTION 15. Remarketing Agent's Performance: Duty of Care; Power of
Attorney. The duties and obligations of the Remarketing Agent hereunder shall be
determined solely by the express provisions of this Agreement and the Secondary
Purchase Agreement.
The Remarketing Agent hereby accepts the obligation set forth in the
Trust Agreement and the Indenture to act as attorney-in-fact for the holders of
the Preferred Securities or Subordinated Notes, as the case may be.
SECTION 16. Expenses. The Company shall pay the reasonable fees and
disbursements of the Remarketing Agent's counsel incurred in connection with any
Remarketing, including any Renewed Remarketing and any Failed Remarketing and
the Company shall pay the reasonable fees, expenses and disbursements of the
Remarketing Agent and its counsel in connection with the execution and delivery
of the Secondary Purchase Agreement.
SECTION 17. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without reference
to the choice of law rules thereof.
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SECTION 18. Term of Agreement. Unless otherwise terminated in
accordance with the provisions hereof and except as otherwise provided herein,
this Agreement shall remain in full force and effect from the date hereof until
30 days after the earlier of (i) the date all Preferred Securities (or, if
applicable, Subordinated Notes) shall have been redeemed or purchased pursuant
to Section 8 hereof and (ii) the Reset Date in connection with a Remarketing
that is not a Failed Remarketing.
SECTION 19. Successors and Assigns. The rights and obligations of the
Company hereunder may not be assigned or delegated to any other person without
the prior written consent of the Remarketing Agent. Subject to the provisions of
Section 10, the rights and obligations of the Remarketing Agent hereunder may
not be assigned or delegated to any other person without the prior written
consent of the Company. This Agreement shall inure to the benefit of and be
binding upon the Trust, the Company and the Remarketing Agent and their
respective successors and assigns. The terms "successors" and "assigns" shall
not include any purchaser of Preferred Securities or Subordinated Notes merely
as a result of such purchase. This Agreement shall inure to the benefit of the
Holders of the Preferred Securities (or, if applicable, holders of the
Subordinated Notes).
SECTION 20. Headings. Section headings have been inserted in this
Agreement as a matter of convenience of reference only, and it is agreed that
such section headings are not a part of this Agreement and shall not be used in
the interpretation of any provision of this Agreement.
SECTION 21. Severability. If any provision of this Agreement shall be
held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable
as applied in any particular case in any or all jurisdictions because it
conflicts with any provisions of any constitution, statute, rule or public
policy or for any other reason, such circumstances shall not have the effect of
rendering the provision in question invalid, inoperative or unenforceable in any
other case, circumstances or jurisdiction, or of rendering any other provision
or provisions of this Agreement invalid, inoperative or unenforceable to any
extent whatsoever.
SECTION 22. Counterparts. This Agreement may be executed in
counterparts, each of which shall be regarded as an original and all of which
shall constitute one and the same document.
SECTION 23. Amendments. This Agreement may be amended by any instrument
in writing signed by the parties hereto; provided that any amendment to Section
5 shall require the consent of all Holders of the Preferred Securities (or,
following the distribution of Subordinated Notes to Holders of the Preferred
Securities upon dissolution of the Trust, the Subordinated Notes).
18
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SECTION 24. Notices. Unless otherwise specified, any notices, requests,
consents or other communications given or made hereunder or pursuant hereto
shall be made in writing or transmitted by any standard form of
telecommunication, including telephone, telegraph or telecopy, and confirmed in
writing. All written notices and confirmations of notices by telecommunication
shall be deemed to have been validly given or made when delivered or mailed,
registered or certified mail, return receipt requested and postage prepaid. All
such notices, requests, consents or other communications shall be addressed as
follows:
if to the Company, to:
Hercules Incorporated
Hercules Plaza
1313 North Market Street
Wilmington, DE 19894-0001
Facsimile:
Attention: Vice President and Treasurer
(with a copy to General Counsel)
if to the Trust, to:
Hercules Trust V
c/o Hercules Incorporated
Hercules Plaza
1313 North Market Street
Wilmington, DE 19894-0001
Facsimile:
Attention: Vice President and Treasurer
(with a copy to General Counsel)
and if to the Remarketing Agent, to:
Banc of America Securities LLC
9 West 57th Street
New York, NY 10019
Facsimile: (212) 847-5124
Attention: William Caccamise
or to such other address as any of the above shall specify to the other in
writing.
SECTION 25. Extension Fee. (a) Sponsor agrees to pay to BAS an
extension fee (the "EXTENSION FEE") in the amount of 2.25% of the aggregate
Liquidation Amount of the Preferred Securities in consideration for the
extension of (i) the Mandatory Redemption Date of the Securities (as set forth
in Section
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1.01 of Amendment No. 4 to the Trust Agreement) and (ii) the Maturity Date of
the Subordinated Notes (as set forth in Section 1.01 of the Sixth Supplemental
Indenture). The Extension Fee shall be payable upon execution of this Agreement.
(b) In the event of a Remarketing, BAS shall repay to the Company a
pro rata portion of the Extension Fee. The pro rata portion of the Extension Fee
referred to in the immediately preceding sentence shall be calculated by
multiplying (i) the total amount of the Extension Fee by (ii) the number of days
from and including the Remarketing Settlement Date to and including February 9,
2002 over the number of days from and including February 9, 2000 to and
including February 9, 2002.
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IN WITNESS WHEREOF, each of the Company, the Trust and the Remarketing
Agent has caused this Remarketing Agreement to be executed in its name and on
its behalf by one of its duly authorized officers as of the date first above
written.
HERCULES INCORPORATED
By: ___________________________________
Name:
Title:
HERCULES TRUST V
By: ___________________________________
Name:
Title:
Confirmed and Accepted
as of the date hereof:
BANC OF AMERICA
SECURITIES LLC, not individually,
but solely as Remarketing Agent
By: _____________________________________
Name:
Title:
<PAGE> 1
Exhibit 10-K
HERCULES INCORPORATED
LONG TERM INCENTIVE COMPENSATION PLAN
(AS AMENDED AND RESTATED)
[HERCULES LOGO]
Hercules Plaza
Wilmington, DE 19894-0001
April 29, 1999
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I PURPOSE ......................................................................... 1
ARTICLE II DEFINITIONS AND CONSTRUCTION .................................................... 1
Section 2.1 Definitions ....................................................... 1
(1) Accelerated Date ................................................. 1
(2) Act............................................................... 1
(3) APD Election ..................................................... 1
(4) Attributable Shares .............................................. 1
(5) Award............................................................. 1
(6) Award Commitment ................................................. 1
(7) Award Items....................................................... 2
(8) Base Salary....................................................... 2
(9) Beneficiary....................................................... 2
(10) Board............................................................ 2
(11) Bonus............................................................ 2
(12) Cash Value Award or CVA.......................................... 2
(13) CEO.............................................................. 2
(14) Change in Control................................................ 2
(15) Code............................................................. 2
(16) Committee ....................................................... 2
(17) Common Stock..................................................... 2
(18) Company ......................................................... 2
(19) Date of Grant ................................................... 2
(20) Designated Retirement Date ...................................... 2
(21) Disability ...................................................... 2
(22) Fair Market Value ............................................... 3
(23) Grantee ......................................................... 3
(24) Grantor ......................................................... 3
(25) Hercules Incorporated Deferred Compensation Plan ................ 3
(26) Hercules Incorporated Non-Qualified Savings Plan ................ 3
(27) Hercules Pension Plan ........................................... 3
(28) Hercules Pension Restoration Plan ............................... 3
(29) Incentive Stock Option or ISO ................................... 3
(30) Management Incentive Compensation Plan .......................... 3
(31) Maximum Award ................................................... 3
(32) Minimum Award ................................................... 3
(33) Nonqualified Option ............................................. 4
(34) Nonreporting Person ............................................. 4
(35) Normal Retirement Date .......................................... 4
(36) Normal Vesting Date ............................................. 4
(37) Option or Stock Option .......................................... 4
(38) Optionee ........................................................ 4
(39) Option Period ................................................... 4
(40) Option Price .................................................... 4
(41) Other Market-Based Awards ....................................... 4
(42) Other Performance-Based Awards .................................. 4
(43) Participating Subsidiary ........................................ 4
(44) PASO Period ..................................................... 4
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<TABLE>
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(45) Payout Schedule ................................................. 4
(46) Performance Accelerated Stock Option or "PASO" .................. 4
(47) Performance Goal ................................................ 4
(48) Performance Period .............................................. 4
(49) Performance Share ............................................... 5
(50) Performance Share Award ......................................... 5
(51) Performance Share Fair Market Value ............................. 5
(52) Phantom Unit .................................................... 5
(53) Phantom Unit Award .............................................. 5
(54) Phantom Unit Fair Market Value .................................. 5
(55) Reduction in Force .............................................. 5
(56) Related Entity .................................................. 5
(57) Reporting Person ................................................ 5
(58) Restricted Stock ................................................ 5
(59) Restricted Stock Award .......................................... 5
(60) Restricted Stock Unit............................................ 5
(61) Restricted Stock Unit Award...................................... 5
(62) Restricted Period ............................................... 5
(63) Restriction Range ............................................... 5
(64) Retirement ...................................................... 6
(65) Rule 16b-3 ...................................................... 6
(66) SAR ............................................................. 6
(67) SAR Fair Market Value ........................................... 6
(68) Stock Appreciation Right......................................... 6
(69) Stock Appreciation Right Award................................... 6
(70) Stock Option Award............................................... 6
(71) Subsidiary ...................................................... 6
(72) Substitution Awards ............................................. 6
(73) Suspension Period ............................................... 6
(74) Target Award .................................................... 6
Section 2.2 Construction ............................................................... 6
ARTICLE III STOCK AVAILABLE FOR AWARDS .................................................... 7
Section 3.1 Common Stock ......................................................... 7
Section 3.2 Number of Shares Deliverable ......................................... 7
Section 3.3 Reusable Shares ...................................................... 7
Section 3.4 Shares Not Charged Against Available Shares .......................... 7
ARTICLE IV AWARDS AND AWARD AGREEMENTS ................................................... 7
Section 4.1 General............................................................... 7
Section 4.2 Eligibility .......................................................... 8
Section 4.3 Terms and Conditions; Award Commitments .............................. 8
4.3.1 Terms And Conditions.................................................. 8
4.3.2 Award Commitments..................................................... 8
ARTICLE V OPTIONS AND STOCK APPRECIATION RIGHTS........................................... 8
Section 5.1 Award of Options...................................................... 8
5.1.1 Grants................................................................ 8
5.1.2 Types of Options ..................................................... 9
5.1.3 Substantial Stockholder .............................................. 9
5.1.4 Maximum Award ........................................................ 9
Section 5.2 Option Price ......................................................... 9
Section 5.3 Option Periods ....................................................... 9
Section 5.4 Exercise of Options .................................................. 9
5.4.1 Exercisability . ..................................................... 9
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5.4.2 Certain Limitations. ................................................. 9
5.4.3 Method of Exercise.................................................... 9
Section 5.5 Time and Method ...................................................... 10
5.5.1 Form of Payment....................................................... 10
5.5.2 Time of Payment ...................................................... 10
5.5.3 Methods for Tendering Shares ......................................... 10
5.5.4 ISO Limitation ....................................................... 10
Section 5.6 Delivery of Shares ................................................... 10
Section 5.7 Stockholder Rights ................................................... 10
Section 5.8 Incentive Stock Options .............................................. 10
5.8.1 Individual Limitation ................................................ 10
5.8.2 Code Qualification.................................................... 11
5.8.3 Notice of Disposition ................................................ 11
Section 5.9 Stock Appreciation Rights Awards...................................... 11
5.9.1 Grants................................................................ 11
5.9.2 SAR Exercise.......................................................... 11
5.9.3 Value of SAR Payment ................................................. 11
5.9.4 Time and Method of Payment ........................................... 11
5.9.5 Effect of SAR and Option Exercises.................................... 12
5.9.6 Nature of SARs ....................................................... 12
Section 5.10 Performance Accelerated Stock Options Awards ......................... 12
5.10.1 Grants ............................................................... 12
5.10.2 Accelerated Date ..................................................... 12
5.10.3 PASO Period .......................................................... 12
5.10.4 Exercisability ....................................................... 13
5.10.5 Corporate or Business Goals .......................................... 13
5.10.6 PASOs Treated Like Options ........................................... 13
ARTICLE VI PERFORMANCE SHARE AWARDS ....................................................... 13
Section 6.1 Grants ............................................................... 13
Section 6.2 Performance Period ................................................... 13
Section 6.3 Performance Goals .................................................... 13
Section 6.4 Payout Schedule ...................................................... 14
Section 6.5 Issuance of Stock and Stock Certificates ............................. 14
6.5.1 Issuance.............................................................. 14
6.5.2 Custody and Legends .................................................. 14
Section 6.6 Restrictions and Forfeitures.......................................... 14
Section 6.7 Stockholder Rights.................................................... 15
Section 6.8 Delivery of Shares and Cash Payments.................................. 15
6.8.1 Determination of Performance Results and
Award Settlement...................................................... 15
6.8.2 Delivery of Shares and Payment of Cash ............................... 15
6.8.3 Revisions for Significant Events ..................................... 16
6.8.4 Conditions Precedent.................................................. 16
6.8.5 Performance Share Fair Market Value .................................. 16
ARTICLE VII RESTRICTED STOCK AWARDS ........................................................ 17
Section 7.1 Grants ............................................................... 17
Section 7.2 Restricted Period .................................................... 17
Section 7.3 Restrictions and Forfeiture .......................................... 17
Section 7.4 Issuance of Stock and Stock Certificate .............................. 17
7.4.1 Issuance ............................................................. 17
7.4.2 Custody and Legends................................................... 18
Section 7.5 Stockholder Rights ................................................... 18
Section 7.6 Delivery of Shares ................................................... 18
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ARTICLE VIII PHANTOM UNIT AWARDS............................................................. 18
Section 8.1 Grants ............................................................... 18
Section 8.2 Vesting of Awards .................................................... 19
Section 8.3 Value of Phantom Units Payments ...................................... 19
Section 8.4 Time and Method of Payment ........................................... 19
Section 8.5 Forfeiture of Phantom Units .......................................... 19
Section 8.6 Nature of Phantom Units .............................................. 20
ARTICLE IX CASH VALUE AWARDS .............................................................. 20
Section 9.1 Grants ............................................................... 20
Section 9.2 Performance Period ................................................... 20
Section 9.3 Performance Goals .................................................... 20
Section 9.4 Payout Schedule ...................................................... 20
Section 9.5 Form Of Payout........................................................ 20
Section 9.6 Calculation Of Payout ................................................ 21
ARTICLE X OTHER AWARDS ................................................................... 21
Section 10.1 Other Market-Based Awards ............................................ 21
Section 10.2 Other Performance-Based Awards ....................................... 21
Section 10.3 Terms of Other Awards ................................................ 21
Section 10.4 Stock Option Dividend Equivalents..................................... 22
10.4.1 Grants ............................................................... 22
10.4.2 Interest ............................................................. 22
10.4.3 Forfeiture............................................................ 22
ARTICLE XI SUBSTITUTION AWARDS............................................................. 22
Section 11.1 Substitution of Performance Shares ................................. 22
Section 11.2 Substitution of Restricted Stock ................................... 22
Section 11.3 Substitution Procedures ............................................ 22
Section 11.4 Substitutions in Contemplation of Retirement ....................... 22
ARTICLE XII TERMINATION OF EMPLOYMENT ..................................................... 23
Section 12.1 Retirement ......................................................... 23
12.1.1 Stock Options and SARs ............................................. 23
12.1.2 Performance Share, Restricted Stock, Phantom
Unit, and Cash Value Awards ........................................ 23
12.1.3 Performance Accelerated Stock Options .............................. 23
12.1.4 Restricted Stock Unit............................................... 23
Section 12.2 Reduction in Force ................................................. 24
12.2.1 Stock Options and SARs ............................................. 24
12.2.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards ................................. 24
12.2.3 Performance Accelerated Stock Options............................... 24
Section 12.3 Transfers to Certain Related Entities............................... 24
12.3.1 Stock Options and SARs ............................................. 24
12.3.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards ................................. 24
12.3.3 Performance Accelerated Stock Options............................... 24
Section 12.4 Disability or Death................................................. 25
12.4.1 Stock Options and SARs ............................................. 25
12.4.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards ................................. 25
12.4.3 Performance Accelerated Stock Options............................... 25
Section 12.5 Resignation ........................................................ 25
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12.5.1 Stock Options, SARs and Performance Accelerated Stock Options ...... 25
12.5.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards ................................. 25
Section 12.6 Decrease in Company Ownership ...................................... 26
12.6.1 Stock Options and SARs ............................................. 26
12.6.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards ................................. 26
12.6.3 Performance Accelerated Stock Options .............................. 26
Section 12.7 Termination of Employment for Other Reasons ........................ 26
12.7.1 Stock Options, SARs and Performance
Accelerated Stock Options .......................................... 26
12.7.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards.................................. 26
Section 12.8 Termination Date.................................................... 27
Section 12.9 Reporting Person Limitation ........................................ 27
ARTICLE XIII EXCHANGE AWARDS; ABOVE TARGET MICP AWARDS....................................... 27
Section 13.1 Salary/Bonus Reductions............................................. 27
13.1.1 Restricted Stock ................................................... 27
13.1.2 Options............................................................. 27
Section 13.2 Deferred Accounts .................................................. 28
13.2.1 Deferred Compensation Plan Accounts ................................ 28
13.2.2 Non-Qualified Savings Plan Accounts ................................ 28
Section 13.3 Termination of Employment .......................................... 28
13.3.1 Death, Disability and Reduction in Force ........................... 28
13.3.2 Retirement.......................................................... 29
13.3.3 Resignation or Termination for Cause ............................... 29
Section 13.4 Avoidance of Pension Diminution .................................... 29
13.4.1 Governing Provisions ............................................... 29
13.4.2 Exchange Awards .................................................... 30
13.4.3 Designated Retirement Date ......................................... 30
Section 13.5 Irrevocability ..................................................... 30
Section 13.6 Equivalency ........................................................ 30
Section 13.7 MICP Awards ........................................................ 31
Section 13.8 Definition ......................................................... 31
ARTICLE XIV CERTAIN TERMS APPLICABLE TO ALL AWARDS ......................................... 31
Section 14.1 Withholding Taxes .................................................. 31
Section 14.2 Adjustments to Reflect Capital Changes.............................. 32
14.2.1 Recapitalization ................................................... 32
14.2.2 Sale or Reorganization ............................................. 32
14.2.3 Options to Purchase Stock of Acquired Companies ................... 32
Section 14.3 Failure to Comply With Terms and Conditions ........................ 32
Section 14.4 Forfeiture Upon Occurrence of Certain Events ....................... 32
Section 14.5 Regulatory Approvals and Listing ................................... 33
Section 14.6 Restrictions Upon Resale of Stock .................................. 33
Section 14.7 Reporting Person Limitation ........................................ 33
ARTICLE XV DISPUTES .................................................................... 33
ARTICLE XVI ADMINISTRATION OF THE PLAN ..................................................... 34
Section 16.1 Committee .......................................................... 34
Section 16.2 Committee Actions .................................................. 34
Section 16.3 No Liability of Committee Members .................................. 34
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ARTICLE XVII EFFECTIVE DATE, TERM OF THE PLAN AND STOCKHOLDER APPROVAL .......................... 34
ARTICLE XVIII CHANGE IN CORPORATE CONTROL ...................................................... 35
Section 18.1 Options ............................................................ 35
Section 18.2 SARs ............................................................... 35
Section 18.3 All Other Awards ................................................... 35
Section 18.4 Definitions ........................................................ 35
ARTICLE XIX AMENDMENT AND TERMINATION ..................................................... 36
Section 19.1 Amendment .......................................................... 36
Section 19.2 Suspension or Termination .......................................... 36
Section 19.3 No Repricing of Options............................................. 36
ARTICLE XX MISCELLANEOUS .................................................................. 37
Section 20.1 Deferral Election .................................................. 37
Section 20.2 Designation of Beneficiary ......................................... 37
Section 20.3 No Right to an Award or to Continued Employment .................... 37
Section 20.4 Discretion of the Committee and the CEO ............................ 37
Section 20.5 Indemnification and Exculpation .................................... 38
20.5.1 Indemnification .................................................... 38
20.5.2 Exculpation ........................................................ 38
Section 20.6 Unfunded Plan....................................................... 38
Section 20.7 Inalienability of Rights and Interests ............................. 38
Section 20.8 Awards Not Includable for Benefit Purposes ......................... 39
Section 20.9 No Issuance of Fractional Shares ................................... 39
Section 20.10 Modification for Overseas Grantees ................................. 39
Section 20.11 Leaves of Absence .................................................. 39
Section 20.12 Communications ..................................................... 39
20.12.1 Communications by the Committee .................................... 39
20.12.2 Communications by the Participants and Others ...................... 39
Section 20.13 Parties in Interest ................................................ 39
Section 20.14 Severability ....................................................... 40
Section 20.15 Compliance with Laws ............................................... 40
Section 20.16 No Strict Construction ............................................. 40
Section 20.17 Modification ....................................................... 40
Section 20.18 Governing Law ...................................................... 40
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HERCULES INCORPORATED
LONG TERM INCENTIVE COMPENSATION PLAN
ARTICLE I
PURPOSE
The Hercules Incorporated Long Term Incentive Compensation Plan, the
terms of which are herein set forth (as the same is now in effect or as
hereafter amended from time to time, the "Plan"), is intended to advance the
interests of Hercules Incorporated, a Delaware corporation (the "Company"), and
its stockholders by providing a means by which the Company and its participating
subsidiaries and affiliates shall be able to motivate selected key employees
(including officers and directors who are employees) to direct their efforts to
those activities that will contribute materially to the Company's success. The
Plan is also intended to serve the best interests of the stockholders by linking
remunerative benefits paid to employees who have substantial responsibility for
the successful operation, administration and management of the Company and/or
its participating subsidiaries and affiliates with the enhancement of
stockholder value while such key employees increase their proprietary interest
in the Company. Finally, the Plan is intended to enable the Company to attract
and retain in its employ highly qualified persons for the successful conduct of
its business.
The Plan became effective as of April 1, 1991, and was amended and
restated as of June 30, 1993, April 27, 1995, April 24, 1997, and is hereby
further amended and restated as of April 29, 1999. Notwithstanding anything to
the contrary, the said amended and restated Plan shall not terminate or
adversely affect any Awards granted prior hereto.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
SECTION 2.1 DEFINITIONS
The following words and phrases when used in the Plan with an initial
capital letter, unless their context clearly indicates to the contrary, shall
have the respective meanings set forth below in this Section 2.1:
(1) Accelerated Date. As defined in Subsection
5.10.2.
(2) Act. The Securities Exchange Act of 1934, as now
in effect or as hereafter amended from time to time. References to any
section or subsection of the Act are to such section or subsection as
the same may from time to time be amended or renumbered and/or any
comparable or succeeding provisions of any legislation that amends,
supplements or replaces such section or subsection.
(3) APD Election. As defined in Subsection 13.4.2
(4) Attributable Shares. As defined in Subsection
9.6.
(5) Award. A grant of Award Items in accordance with
the provisions of the Plan. A grant of a particular Award Item may
sometimes be referred to as follows: "Stock Option Award" for a grant
of Stock Options; "Stock Appreciation Right Award" for Stock
Appreciation Rights; "PASO Award" for Performance Accelerated Stock
Options; "CVA Award" for Cash Value Awards; "Performance Shares Award"
for Performance Shares; "Restricted Stock Award" for Restricted Stock;
and "Phantom Unit Award" for Phantom Units.
(6) Award Commitment. The written commitment
delivered by the Company to the Grantee evidencing an Award and setting
forth such terms and conditions of the Award as may be deemed
appropriate by the Committee. The Award Commitment shall be in a form
approved by the Committee, and
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shall be deemed amended from time to time to include such additional
terms and conditions as the Committee may specify after the execution
in the exercise of its powers under the Plan.
(7) Award Items. Individually and collectively, as
the case may be, the items awarded to any Grantee in accordance with
the provisions of the Plan in the form of Options, Stock Appreciation
Rights, Performance Accelerated Stock Options, Cash Value Awards,
Performance Shares, Restricted Stock, Phantom Units or other award, or
any combination of the foregoing.
(8) Base Salary. The regular salary paid to an
employee. Base salary shall not include bonuses or other forms of
compensation which are not considered regular earnings by the
Committee.
(9) Beneficiary. Any individual, estate or trust who
or which by designation of the Grantee pursuant to Section 20.2 or
operation of law succeeds to the rights and obligations of the Grantee
under the Plan and Award Commitment upon the Grantee's death.
(10) Board. The Board of Directors of the Company.
(11) Bonus. An amount payable pursuant to the
Management Incentive Compensation Plan or any other short term
incentive compensation plan approved by the Committee.
(12) Cash Value Award or CVA. A grant in accordance
with the provisions of the Plan in the form of a designated cash value
payable in cash, Common Stock or Restricted Stock, or a combination
thereof, all as determined by the Grantor at the Payout Date.
(13) CEO. The Chief Executive Officer of the Company.
(14) Change in Control. The occurrence of an event
defined in Section 18.4, which event is of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A
promulgated under the Act as in effect on the date hereof or, if Item
6(e) is no longer in effect, any regulations issued by the Securities
and Exchange Commission pursuant to the Act which serves similar
purposes.
(15) Code. The Internal Revenue Code of 1986, as now
in effect or as hereafter amended from time to time, and as construed
and interpreted by valid regulations issued by the United States
Internal Revenue Service thereunder. References to any section or
subsection of the Code are to such section or subsection as the same
may from time to time be amended or renumbered and/or any comparable or
succeeding provisions of any legislation that amends, supplements or
replaces such section or subsection.
(16) Committee. The Compensation Committee of the
Board or such other committee as may be designated by the Board to
administer the Plan.
(17) Common Stock. Voting common stock authorized for
issuance by the Company and issued and outstanding.
(18) Company. Hercules Incorporated and its
successors and assigns.
(19) Date of Grant. The date designated by the
Grantor as the date as of which the Grantor grants an Award, which
shall not be earlier than the date on which the Grantor approves the
granting of such Award.
(20) Designated Retirement Date. As defined in
Section 13.4.3.
(21) Disability. A physical or mental impairment
sufficient to make the individual eligible for benefits under the
Long-Term Disability Plan of Hercules Incorporated or under a
disability plan of one of the Participating Subsidiaries (whether or
not a participant in such disability plan), so long as for
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Incentive Stock Options such impairment also constitutes a disability
within the meaning of Section 22(e)(3) of the Code.
(22) Fair Market Value. Unless otherwise indicated in
the provisions of the Plan, as of any date the closing price for one
share of Common Stock as reported on the Composite Tape for New York
Stock Exchange Listed Companies and published in the Eastern Edition of
The Wall Street Journal, or, if there is no trading on the date in
question, the closing price of the Common Stock, as so reported and
published, on the next preceding date on which there was trading in
Common Stock.
(23) Grantee. An employee of the Company or any
Participating Subsidiary to whom an Award is granted. At the time of
award, such employee (including any director or officer who is also an
employee) must be in the regular full-time employment of the Company or
any Participating Subsidiary, without limitation as to length of
service.
(24) Grantor. The Committee or the CEO, as the case
may be, who grants an Award. The Committee shall (i) grant Awards to
Reporting Persons and (ii) establish the maximum aggregate amount of
particular Award Items to be granted to Nonreporting Persons as a group
and (iii) establish the guidelines and oversight under which, pursuant
to authorities granted by the Committee, the CEO may grant Awards to
Nonreporting Persons. Notwithstanding anything to the contrary, the CEO
is not intended to be nor shall be construed as a member of the
Committee. In making awards to Nonreporting Persons, the CEO is acting
as a delegee of the Committee and is at all times accountable to the
Committee and authorized to act only in accordance with the provisions
of the Plan and the guidelines and direction provided by the Committee
from time to time.
(25) Hercules Incorporated Deferred Compensation
Plan. The Hercules Incorporated Deferred Compensation Plan as the same
is now in effect or as hereafter amended from time to time.
(26) Hercules Incorporated Non-Qualified Savings
Plan. The Hercules Incorporated Non-Qualified Savings Plan (a portion
of the Hercules Incorporated Deferred Compensation Plan) as the same is
now in effect or as hereafter amended from time to time.
(27) Hercules Pension Plan. The Hercules Pension Plan
as the same is now in effect or as hereafter amended from time to time.
(28) Hercules Pension Restoration Plan. The Hercules
Employee Pension Restoration Plan as the same is now in effect or as
hereafter amended from time to time.
(29) Incentive Stock Option or ISO. An Option granted
pursuant to Section 5.1 which is intended to meet, and structured with
a view to satisfying, the requirements of Section 422 of the Code and
is designated by the Committee as an Incentive Stock Option. The Award
of an Incentive Stock Option shall contain such provisions as are
necessary to comply with such Section 422.
(30) Management Incentive Compensation Plan. The
Hercules Incorporated Annual Management Incentive Compensation Plan as
the same is now in effect or as hereafter amended from time to time.
(31) Maximum Award. The number or amount of
Performance Accelerated Stock Options, Cash Value Awards, or
Performance Shares, as the case may be, which vest when the maximum
performance in the relevant Performance Range is achieved.
(32) Minimum Award. The number or amount of
Performance Accelerated Stock Options, Cash Value Awards, or
Performance Shares, as the case may be, which vest when the minimum
performance in the relevant Performance Range is achieved.
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(33) Nonqualified Option. An Option granted pursuant
to Section 5.1 which does not qualify as, and is not designated by the
Committee as, an Incentive Stock Option and is designated as a
Nonqualified Option.
(34) Nonreporting Person. A Grantee who is not
subject to Section 16 of the Act.
(35) Normal Retirement Date. Age 65.
(36) Normal Vesting Date. As defined in Subsection
5.10.1.
(37) Option or Stock Option. A right granted pursuant
to Article V that for a specified period of time entitles the holder
thereof to purchase full shares of Common Stock at a stated price. At
the discretion of the Committee, an Option may be an Incentive Stock
Option or a Nonqualified Stock Option.
(38) Optionee. A Grantee to whom an Option or Stock
Appreciation Right or Performance Accelerated Stock Option, as the case
may be, is granted pursuant to Article V.
(39) Option Period. As defined in Section 5.3.
(40) Option Price. The per share price at which
shares of Common Stock may be purchased upon exercise of a particular
Option or Performance Accelerated Stock Option.
(41) Other Market-Based Awards. Awards granted in
accordance with Section 9.1.
(42) Other Performance-Based Awards. Awards granted
in accordance with Section 9.2.
(43) Participating Subsidiary. Any Subsidiary
(existing from time to time) designated by the Board as a Participating
Subsidiary; provided, however, for Incentive Stock Options only,
"Participating Subsidiary" means any such Subsidiary which at the time
such Option is granted qualifies as a "Subsidiary" of the Company under
Section 424(b) of the Code.
(44) PASO Period. As defined in Subsection 5.10.3.
(45) Payout Schedule. The distribution scheme for
applicable Award Items for a given Plan Year upon performance of
varying goals, all as established by either the Committee with respect
to the Company, or by the CEO (or his designee or designees) with
respect to a given subsidiary, business unit, corporate staff group or
individual.
(46) Performance Accelerated Stock Option or "PASO".
Stock Option with a normal vesting date established by the Committee;
provided, however, that under certain circumstances such vesting date
may be accelerated by the Committee to an earlier date if the Committee
determines that the applicable Performance Goal has been met.
(47) Performance Goal. The level of performance
established by the Grantor, which must be achieved in order to earn or
vest the applicable Minimum Award, Target Award, Maximum Award or
intermediate level of Award Items.
(48) Performance Period. The period of time selected
by the Committee during which the achievement of Performance Goals is
measured for purposes of determining the extent to which an applicable
Award Item has been earned or will vest.
(49) Performance Share. A contingent right to
receive, when certain performance criteria have been attained, without
payment to the Company, the amounts of Common Stock and cash
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determined under Article VI. Such rights are subject to forfeiture or
reduction if the applicable Performance Goals are not met within the
applicable Performance Period.
(50) Performance Share Award. A Performance Share
Award under Article VI, settlement of which is contingent upon
attainment during a Performance Period of Performance Goals.
(51) Performance Share Fair Market Value. As defined
in Subsection 6.8.5.
(52) Phantom Unit. A right to receive, without
payment to the Company, an amount of cash equal to the value of a share
of Common Stock as of a future date, plus dividend equivalents and
interest payments provided for in Article VIII. A "unit" of phantom
units does not represent or entitle the recipient to any equity
securities of the Company, but instead involves the creation of an
unfunded account for the recipient, the value of which is measured by
reference to the value of Common Stock.
(53) Phantom Unit Award. An Award of Phantom Units
under Article VIII, subject to such forfeiture provisions as are set
forth in the Award Commitment.
(54) Phantom Unit Fair Market Value. As defined in
Section 8.3.
(55) Reduction in Force. Termination of employment by
the Company or a Participating Subsidiary in such a manner that the
employee so terminated is eligible to receive benefits under the
Company or a Participating Subsidiary dismissal salary plan.
(56) Related Entity. A corporation, partnership,
joint venture or other entity not more than 50% but at least 20% of
whose outstanding voting stock or voting power for the election of
directors is beneficially owned directly or indirectly by the Company.
(57) Reporting Person. A Grantee who is subject to
Section 16 of the Act.
(58) Restricted Stock. Shares of Common Stock issued,
without payment to the Company, pursuant to a Restricted Stock Award
granted under Article VII. For a specific period of time such shares
are subject to a substantial risk of forfeiture and to such
restrictions against sale, transfer or other disposition, as determined
by the Committee at the time of grant.
(59) Restricted Stock Award. An Award of Restricted
Stock under Article VII.
(60) Restricted Stock Unit. A right to receive,
without payment to the Company, a number of shares of Common Stock as
of a future date, plus dividend equivalents and interest payments
provided for in Article VIII. A unit of a Restricted Stock Unit does
not represent or entitle the recipient to any equity securities of the
Company until such future date. In the interim, the unit represents an
unfunded account for the recipient, the value which is measured by
reference to the value of Common Stock.
61) Restricted Stock Unit Award. An award of
Restricted Stock Units under Article VIII, subject to such forfeiture
provisions as are set forth in the Award Commitment.
(62) Restricted Period. As defined in Section 7.2.
(63) Restriction Range. As defined in Section 7.2.
(64) Retirement. Termination of employment at Normal
Retirement Date or with consent of the Company with immediate
eligibility for retirement benefits under a retirement or pension plan
maintained by the Company, a Participating Subsidiary or Related
Entity.
(65) Rule 16b-3. Rule 16b-3 of the General Rules and
Regulations under the Act, or any law, rule, regulation or other
provision that may hereafter replace such Rule.
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(66) SAR. A Stock Appreciation Right, as defined
below.
(67) SAR Fair Market Value. As defined in Subsection
5.9.3.
(68) Stock Appreciation Right. A right granted
pursuant to Article V pursuant to which the holder of a related Option,
upon exercise of the Stock Appreciation Right and in lieu of exercising
the related Option, is entitled to surrender the related Option, or any
applicable portion thereof, to the extent unexercised, and to receive
an amount equal to the appreciation in market value of a fixed number
of shares of Common Stock from the Date of Grant. Stock Appreciation
Rights may be payable in shares of Common Stock or cash, or a
combination of both. Under the Plan, Stock Appreciation Rights are
granted in tandem with Options.
(69) Stock Appreciation Right Award. An Award of
Stock Appreciation Rights under Article V.
(70) Stock Option Award. An Award of Options under
Article V.
(71) Subsidiary. Any corporation, partnership, joint
venture or other entity in which the Company owns, directly or
indirectly through one or more intermediaries, at least 50% of the
outstanding voting stock or voting power for the election of directors
or equivalent governing body. In the case of Incentive Stock Options,
Subsidiary shall mean any corporation that qualifies as a "subsidiary
corporation" of the Company under Section 424(f) of the Code.
(72) Substitution Awards. As defined in Section 11.
(73) Suspension Period. As defined in Article XIII.
(74) Target Award. The number or amount of
Performance Accelerated Stock Options, Cash Value Awards or Performance
Shares, as the case may be, which vest when the target performance in
the relevant Performance Range is achieved.
SECTION 2.2 CONSTRUCTION
Whenever any words are used herein in the masculine gender, they shall
be construed as though they were also used in the feminine gender in all cases
where they would so apply, and wherever any words are used herein in the
singular form they shall be construed as though they were also used in the
plural form in all cases where they would so apply. Headings of sections and
subsections of this Plan are inserted for convenience of reference, are not a
part of this Plan, and are not to be considered in the construction hereof. The
words "hereof," "herein," "hereunder" and other similar compounds of the word
"here" shall mean and refer to the entire Plan, and not to any particular
provision or section. The words "includes", "including" and other similar
compounds of the word "include" shall mean and refer to including without
limitation. All references herein to specific Articles, Sections or Subsections
shall mean Articles, Sections or Subsections of this document unless otherwise
qualified.
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ARTICLE III
STOCK AVAILABLE FOR AWARDS
SECTION 3.1 COMMON STOCK
Only Common Stock may be delivered under this Plan, such shares to be
made available from authorized but unissued shares or from shares reacquired by
the Company, including shares purchased in the open market.
SECTION 3.2 NUMBER OF SHARES DELIVERABLE
Subject to adjustments as provided in Section 14.2: (i) during the
period of October 1, 1996, through April 30, 2002, the maximum aggregate number
of shares for all Award Items shall be 15,000,000; and (ii) of the maximum
15,000,000 shares available, no more than 8,200,000 shares may be granted for
Award Items which are other than Options.
SECTION 3.3 REUSABLE SHARES
In the event that shares of Common Stock underlying an Award are
returned to the Company for any reason (including forfeited or unexercised
items) other than the surrender of Options upon the exercise of a Stock
Appreciation Rights, the shares so affected shall be available for use under
this Plan to the same Grantee or other Grantee by way of any type or form of
Option or Award authorized under the Plan; provided, however, that shares
received by the Company upon the exercise of an ISO and shares subject to an ISO
surrendered upon exercise of a SAR shall not be available for the subsequent
award of ISOs under this Plan, and that shares received by the Company upon the
return (whether due to forfeiture or otherwise) of Restricted Stock or
Performance Shares shall not be available for a subsequent Award under this
Plan.
SECTION 3.4 SHARES NOT CHARGED AGAINST AVAILABLE SHARES
Shares of Common Stock issued in payment of Stock Appreciation Rights
shall not be charged against the number of shares of Common Stock available for
subsequent Awards. Shares of Common Stock substituted in accordance with Article
XI for shares previously awarded under this Plan or the Hercules Incorporated
Restricted Stock Plan of 1986 shall not be counted against the authorized
aggregate number of shares which may be issued under the Plan.
ARTICLE IV
AWARDS AND AWARD COMMITMENTS
SECTION 4.1 GENERAL
4.1.1 Subject to the provisions of this Plan, the Committee may (i)
determine and designate at any time and from time to time those Reporting
Persons to whom Awards are to be granted; (ii) determine the time or times when
Awards shall be granted; (iii) determine the form or forms of Awards to be
granted to any Reporting Person or to Nonreporting Persons, as a group; (iv)
determine the number of Award Items subject to each Award to be granted to any
Reporting Person; (v) determine the maximum aggregate number of shares of Award
Items subject to Awards to be granted to Nonreporting Persons, as a group; (vi)
determine the terms and conditions of each Award; (vii) determine the number of
shares of Restricted Stock a Reporting Person may acquire by exchange pursuant
to Section 13.1 and the time or times of such acquisition; and (viii) determine
the number of Options a Reporting or Nonreporting Person may acquire by exchange
pursuant to Section 13.1 and the time or times of acquisition.
4.1.2 The CEO shall, subject to the provisions of the Plan, (i)
determine and designate at any time and from time to time those Nonreporting
Persons to whom Awards are to be granted; (ii) determine the form or forms of
Award to be granted any Nonreporting Person and (iii) determine the number of
Award Items subject to each
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Award to be granted to any Nonreporting Person. Awards may be granted singly, in
combination or in tandem and may be made in combination or in tandem with or in
replacement of, or as alternatives to awards or grants under any other employee
plan maintained by the Company or its present or future Participating
Subsidiaries. Unless this Plan is extended, no Awards shall be granted or
exchanges effected under the Plan after April 30, 2002, but any then-current
restrictions applicable to any Awards theretofore granted or exchanges
theretofore effected shall extend beyond that date in accordance with their
provisions and any shares of Common Stock used in payment of Cash Value Awards
and/or Performance Shares originally granted before April 30, 2002, may be
delivered after April 30, 2002, in accordance with the provisions of the
applicable Award. Notwithstanding the later delivery of such shares of Common
Stock, the number of such shares shall be credited against the maximum aggregate
number in effect under Section 3.2 at the date of such original grant.
SECTION 4.2 ELIGIBILITY
The persons who shall be eligible to receive Awards granted pursuant to
this Plan shall be such employees (including directors and officers who are also
employees) of the Company or any of the Participating Subsidiaries as the
relevant Grantor shall select from time to time from among those who contribute
or may be expected to contribute to the successful performance of the Company or
any Participating Subsidiary. Employees eligible for Phantom Unit Awards shall
include, in addition to employees of the Company or any of the Participating
Subsidiaries, any employees of any other Subsidiary or Related Entity.
SECTION 4.3 TERMS AND CONDITIONS; AWARD COMMITMENTS
4.3.1 Terms And Conditions. Each Award granted pursuant to this Plan
shall be subject to all of the terms, conditions and restrictions provided in
this Plan and such other terms, conditions and restrictions, if any, as may be
specified by the Committee with respect to the Award in question at the time of
the making of the Award or as may be specified thereafter by the Committee in
the exercise of its powers under the Plan. Without limiting the foregoing, it is
understood that the Committee may, at any time and from time to time after the
granting of an Award hereunder, specify such additional terms, conditions and
restrictions with respect to such Award as may be deemed necessary or
appropriate to ensure compliance with any and all applicable laws, including,
but not limited to, terms and conditions for compliance with Federal and state
securities laws and methods of withholding or providing for the payment of
required taxes. The terms, conditions and restrictions with respect to any
Award, Grantee or Award Commitment need not be identical with the terms,
conditions and restrictions with respect to any other Award, Grantee or Award
Commitment.
4.3.2 Award Commitments. Each Award granted pursuant to the Plan shall
be subject to all the terms, conditions and restrictions provided in the Plan
and such other terms, conditions and restrictions, if any, as may be specified
by the Committee with respect to the Award in question at the time of the making
of the Award or as may be specified thereafter by the Committee in the exercise
of its powers under the Plan. Each Award granted pursuant to the Plan shall be
evidenced by an Award Commitment and shall comply with, and be subject to, the
provisions of the Plan. The Award Commitment shall not be a precondition to the
granting of Awards; however, no person shall have any rights under any Award
granted under the Plan unless and until the Company shall have executed and
delivered an Award Commitment to the Grantee to whom such Award shall have been
granted. An executed original of the Award Commitment shall be provided to both
the Company and the Grantee.
ARTICLE V
OPTIONS AND STOCK APPRECIATION RIGHTS
SECTION 5.1 AWARD OF OPTIONS
5.1.1 Grants. From time to time and upon the recommendation of the CEO,
the Committee may grant Stock Option Awards in such number as it may determine
to such Reporting Persons as the Committee may select. From time to time, the
CEO may grant Stock Option Awards in such number as he may determine to such
Nonreporting Persons as he may select; provided, however, each and all such
grants shall be subject to any maximum
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aggregate amount of Options established by the Committee for grants under the
Plan for Nonreporting Persons as a group. The Committee shall determine the
number of shares of Common Stock to which each Option relates; provided,
however, such number of shares of Common Stock shall automatically be reduced on
a share for share basis to the extent that shares are issued pursuant to the
exercise of the Option or shares subject to the Option are the basis for the
exercise of the related Stock Appreciation Right.
5.1.2 Types of Options. Options granted pursuant to the Plan may be
either in the form of Incentive Stock Options or in the form of Nonqualified
Options. Incentive Stock Options and Nonqualified Options shall be granted
separately hereunder. The Committee shall determine whether and to what extent
Options granted under the Plan shall be Incentive Stock Options or Nonqualified
Options and the Option shall be so designated.
5.1.3 Substantial Stockholder. No Option shall be granted hereunder to
any person who, at the time such Option is to be granted, owns stock of the
Company or of any of its Subsidiaries possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of any such
Subsidiary. For purposes of the preceding sentence, the attribution rules of
stock ownership set forth in Section 424(d) of the Code shall apply.
5.1.4 Maximum Award To An Individual. During the period from April 29,
1999, through April 30, 2002, no person shall be granted or receive more than
1,500,000 Options and/or Performance Accelerated Stock Options in the aggregate.
SECTION 5.2 OPTION PRICE
The Option Price of Common Stock covered by each Option shall be
determined by the Committee but shall not be less than 100% of the Fair Market
Value of a share of Common Stock on the Date of Grant.
SECTION 5.3 OPTION PERIODS
The Committee shall determine the term of each Option. Subject to
earlier termination as provided in Articles XI, XII and XIII, the term shall not
exceed ten (10) years from the Date of Grant.
SECTION 5.4 EXERCISE OF OPTIONS
5.4.1 Exercisability. Subject to Subsection 5.4.2 and Articles XII and
XIII, each Option shall be exercisable at any time or times during the Option
Period and in such amount or amounts as the Committee may prescribe and specify
in the applicable Award Commitment (subject further in the case of Incentive
Stock Options, to such restrictions as may be imposed from time to time by the
Code).
5.4.2 Certain Limitations. The Committee may provide that an Option may
not be exercised in whole or in part for any period or periods of time, from
zero to nine and one-half (9.5) years as specified in the Award Commitment.
Except as provided in Article XII, or as otherwise determined by the Committee,
an Option may be exercised only during the continuance of the Grantee's
employment with the Company or any of its Subsidiaries. Options granted to a
Reporting Person shall not be exercisable until at least six (6) months have
elapsed from the Date of Grant of the Option. No Option may be exercised after
the expiration of the applicable Option Period. No Option may be exercised for a
fractional share.
5.4.3 Method of Exercise. A Grantee may exercise an Option, in whole or
from time to time in part, by giving written notice of exercise to the Company.
The notice of exercise shall be on a form approved by the Committee and shall
state the number of shares with respect to which the Option is being exercised.
Such notice must be received by the office of the Company designated in the
Award Commitment on or before the expiration date of the Option.
SECTION 5.5 TIME AND METHOD OF PAYMENT
5.5.1 Form of Payment. The Optionee shall pay the Option Price in cash
or, with the Committee's permission and according to such rules as they may
prescribe, by delivering shares of Common Stock already owned
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by the Optionee for at least six months prior to the date of exercise and having
a Fair Market Value on the date of exercise equal to the Option Price, or a
combination of cash and shares. The Committee may also permit payment in
accordance with a cashless exercise program under which, if so instructed by the
Optionee, shares of Common Stock may be issued directly to the Optionee's broker
or dealer upon receipt of the purchase price in cash from the broker or dealer.
5.5.2 Time of Payment. The Optionee shall pay the Option Price not
later than ten (10) days after the date of a statement from the Company
following exercise setting forth the Option Price, Fair Market Value of Common
Stock on the exercise date, the number of shares of Common Stock that may be
delivered in payment of the Option Price (if applicable) and the amount of
withholding tax due, if any. If the Optionee fails to pay the Option Price
within the ten (10) day period, the Committee shall have the right to take
whatever action it deems appropriate, including voiding the Option exercise.
5.5.3 Methods for Tendering Shares. The Committee shall determine
acceptable methods for tendering shares of Common Stock as payment upon exercise
of an Option and may impose such limitations and restrictions on the use of
shares of Common stock to exercise an Option as it deems appropriate.
5.5.4 ISO Limitation. Common Stock acquired by the Grantee which is
identified as having been obtained through an Incentive Stock Option under the
Plan and still subject to Incentive Stock Option holding requirements as defined
in the Code, may not be tendered in payment of the Option Price.
SECTION 5.6 DELIVERY OF SHARES
No shares of Common Stock shall be delivered pursuant to the exercise,
in whole or in part, of any Option, unless and until (i) payment in full of the
Option Price therefor is received by the Company and (ii) compliance with all
applicable requirements and conditions of this Plan, the Award Commitment and
such rules and regulations as may be established by the Committee that are
preconditions to delivery, including, but not limited to, the requirements and
conditions of Section 14.5. Promptly after exercise of the Option, payment in
full of the Option Price and compliance with the conditions described in the
preceding sentence, the Company shall effect the issuance to the Optionee of
such number of shares of Common Stock as are subject to the Option exercise.
SECTION 5.7 STOCKHOLDER RIGHTS
An Optionee shall have none of the rights or privileges of a
stockholder with respect to any shares of Common Stock covered by an Option
unless and until the Optionee has given written notice of exercise of the
Option, has paid in full the Option Price for such shares of Common Stock and
has otherwise complied with this Plan, the Award Commitment and such rules and
regulations as may be established by the Committee, and the shares are issued to
him. No adjustment shall be made for dividends in cash or property or other
distributions or rights with respect to any such shares of Common Stock for
which the record date is prior to the date on which the Optionee or a transferee
of the Option shall have become the holder of record of any such shares covered
by the Option. Notwithstanding anything to the contrary, an Option may include
dividend equivalents as described in Section 10.4.
SECTION 5.8 INCENTIVE STOCK OPTIONS
5.8.1 Individual Limitation. No Grantee may be granted an ISO under
this Plan (or any other plans of the Company or any Participating Subsidiary)
which would result in Common Stock with an aggregate Fair Market Value (measured
as of the Date of Grant) of more than $100,000 first becoming exercisable in any
one calendar year, or which would entitle such Grantee to purchase a number of
shares greater than the maximum number permitted by Section 422(d)(1) of the
Code as in effect on the Date of Grant.
5.8.2 Code Qualification. Whenever possible, each provision in the Plan
and in every Option granted under this Plan which is designated by the Committee
as an ISO shall be interpreted in such a manner as to entitle the Option to the
tax treatment afforded by Section 422 of the Code. If any provision of the Plan
or any Option designated by the Committee as an ISO shall be held not to comply
with requirements necessary to entitle such Option to such tax treatment, then
(i) such provision shall be deemed to have contained from the outset such
language as shall be
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necessary to entitle such Option to the tax treatment afforded under Section 422
of the Code, and (ii) all other provisions of this Plan and the Award Commitment
shall remain in full force and effect. If any Award Commitment covering an
Option designated by the Committee to be an ISO under the Plan shall not
explicitly include any terms required to entitle such ISO to the tax treatment
afforded by Section 422 of the Code, all such terms shall be deemed implicit in
the designation of such Option and such Option shall be deemed to have been
granted subject to all such terms.
5.8.3 Notice of Disposition. An Optionee shall give prompt notice to
the Company of any disposition of shares of Common Stock acquired upon exercise
of an ISO if such disposition occurs within either two (2) years after grant or
one year after receipt of such shares by such Optionee. Such Optionee shall also
comply with any applicable withholding requirements.
SECTION 5.9 STOCK APPRECIATION RIGHTS AWARDS
5.9.1 Grants. The Committee may grant SARs at the same time as
Optionees are awarded Options under the Plan. Each SAR shall be in tandem with
and relate to a specific Option under the Plan and shall specify that the number
of Option Shares subject to the SAR shall be equal to the number of shares of
Common Stock that the Optionee is entitled to receive pursuant to the related
Option.
5.9.2 SAR Exercise. A SAR may be exercised, in whole or in part,
within the period specified for the exercise of the Option in
the related Option grant only upon surrender of the related
Option (or portion thereof) by the Optionee. Each SAR shall be
exercisable at such time or times, on the conditions and to
the extent, but only to the extent, that the related Option is
exercisable, provided that no such SAR (except in the case of
death or physical or mental incapacity) shall be exercisable
prior to the expiration of six (6) months following the Date
of Grant and, provided further, that any SAR granted hereunder
may provide, at the election of the Committee, that the SAR
may be exercised only at a time when the Optionee to whom the
SAR has been granted is subject to the provisions of Section
16(b) of the Act. Each SAR and all rights and obligations
thereunder shall terminate and may no longer be exercised upon
the termination or exercise of the related Option. An Optionee
may exercise a SAR by giving written notice of exercise to the
Company stating the number of shares of Common Stock subject
to exercisable Options with respect to which the SARs are
being exercised. The date upon which such written notice is
received by the Company shall be the exercise date for the
SARs.
An Option and SAR covering the same share of Common Stock may not be
exercised simultaneously.
5.9.3 Value of SAR Payment. If an Optionee exercises a SAR, he shall
receive an amount equal to the product of (i) the amount by which the SAR Fair
Market Value on the exercise date of one share of Common Stock exceeds the
Option Price of the related Option, times (ii) the number of shares covered by
the Option, or portion thereof, which is surrendered. For purposes of this
Article V, "SAR Fair Market Value" of a SAR or share of Common Stock on any date
shall be the average of the daily closing prices of a share of Common Stock for
five (5) consecutive business days immediately preceding the day in question as
reported on the Composite Tape for New York Stock Exchange Listed Companies and
published in the Eastern Edition of The Wall Street Journal, subject to the
provisions of Section 5.9.4.
5.9.4 Time and Method of Payment
5.9.4.1 Any payment which may become due from the Company by reason of
an Optionee's exercise of a SAR may be paid to the Optionee all in cash, all in
shares of Common Stock or partly in shares and partly in cash, as determined by
the Committee. The Committee shall determine the timing of any payment made.
5.9.4.2 If paid in cash, the amount thereof shall be the amount of
appreciation determined under Subsection 5.9.3. The payments to be made, in
whole or in part, in cash upon the exercise of SARs by any Reporting Person
shall be made in accordance with the provisions relating to the exercise of SARs
of Rule 16b-3 of the General Rules and
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Regulations under the Act, as in effect at the time of such exercise, or any
law, rule, regulation or other provision that may hereafter replace such Rule.
5.9.4.3 In the event that all or a portion of the payment is made in
shares of Common Stock, the number of shares of Common Stock received shall be
determined by dividing the amount of the appreciation determined under
Subsection 5.9.3 by the SAR Fair Market Value of a share of Common Stock on the
exercise date of the SAR. Cash will be paid in lieu of any fractional share of
Common Stock or, if the Committee should so determine, the number of shares of
Common Stock will be rounded downward to the next whole share of Common Stock.
All shares shall be valued at their SAR Fair Market Value as of the date of such
exercise; provided, however, that with respect to exercises of SARs by an
employee who is subject to the provisions of Section 16(b) of the Act during any
period commencing on the third business day following the date of release for
publication of the quarterly or annual summary statements of the Company's sales
and earnings and ending on the twelfth business day following such date (a
"window period"), the Committee may prescribe, by rule of general application,
such other measure of fair market value per share as the Committee may, in its
discretion, determine, but not in excess of the highest sale price of the Common
Stock reported on the Composite Tape for New York Stock Exchange Listed
Companies and published in the Eastern Edition of The Wall Street Journal during
such window period. Notwithstanding the foregoing, the fair market value (or SAR
Fair Market Value, if applicable) of SARs that relate to an ISO, shall not be in
excess of the maximum amount that would be permissible under Section 422 of the
Code without disqualifying such option as an ISO under such Section 422.
5.9.5 Effect of SAR and Option Exercises. Upon exercise of a SAR, the
number of shares of Common Stock subject to exercise under the related Option
shall automatically be reduced by the number of shares of Common Stock
represented by the Option or portion thereof surrendered, as provided in
Subsection 5.1.1. Shares of Common Stock subject to Options or portions thereof
surrendered upon the exercise of SARs shall not be available for subsequent
awards under the Plan. The exercise of any number of Options shall result in an
equivalent reduction in the number of shares of Common Stock covered by the
related SAR and such shares may not again be subject to a SAR under this Plan.
5.9.6 Nature of SARs. SARs shall be used solely as a device for the
measurement and determination of the amount to be paid to Grantees as provided
in the Plan. SARs shall not constitute or be treated as property or as a trust
fund of any kind. All amounts at any time attributable to the SARs shall be and
remain the sole property of the Company and all Grantees' rights hereunder are
limited to the rights to receive cash and shares of Common Stock as provided in
the Plan.
SECTION 5.10 PERFORMANCE ACCELERATED STOCK OPTIONS AWARDS
5.10.1 Grants. From time to time and upon the recommendation of the
CEO, the Committee may grant PASOs in such number as it may determine to such
Reporting Persons as the Committee may select. From time to time, the CEO may
grant PASOs in such number as he may determine to such Nonreporting Persons as
he may select; provided, however, each and all such grants shall be subject to
Subsection 5.1.4 and any maximum aggregate amount of PASOs established by the
Committee for grants under the Plan for Nonreporting Persons as a group. The
Committee shall determine the number of PASOs to be awarded; provided, however,
such number of PASOs shall automatically be reduced on a share for share basis
to the extent that shares are issued pursuant to the exercise of the PASO.
Subject to Subsection 5.10.2, each PASO shall specify a normal vesting date
("Normal Vesting Date") (which shall be less than the PASO Period).
5.10.2 Accelerated Date. The date or event designated by the Grantor
(which shall be earlier than the Normal Vesting Date) at which the vesting of
some or all PASOs shall occur if the Grantor determines that the applicable
Performance Goals have been met.
5.10.3 PASO Period. The Committee shall determine the term of each
PASO. Subject to earlier termination as provided in Article XII, the term shall
not exceed ten (10) years.
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5.10.4 Exercisability. Subject to Subsection 5.10.2 and Article XII, or
as otherwise determined by the Committee, each PASO shall be exercisable at any
time or times during the PASO Period and in such amount or amounts as the
Committee may prescribe and specify in the applicable Award Commitment.
5.10.5 Corporate or Business Goals. From time to time, the Grantor
shall determine Performance Goals to be used for, among other things, purposes
of determining the Accelerated Date. If the Grantor shall determine minimum
target and/or maximum performance goals and (i) if the minimum performance goal
is not reached, then the Normal Vesting Date of the affected PASOs shall not be
accelerated, and the Grantor may either determine new goals on the PASOs or
allow the PASOs to vest at the Normal Vesting Date; (ii) if the minimum
performance goal is reached but the target performance goal is not reached, then
the Grantor may accelerate the Normal Vesting Date to an Accelerated Date for
part of the affected PASOs (as specified in the applicable Award Commitment),
and for the remainder of the PASOs, the Grantor may determine new goals or allow
the PASOs to vest at the Normal Vesting Date; (iii) if the performance goal is
reached and the maximum performance goal is not reached, then the Grantor may
accelerate the Normal Vesting Date to an Accelerated Date for part of the
affected PASOs, and for the remainder of the PASOs, the Grantor may determine
new goals or allow the PASOs to vest at the Normal Vesting Date; and (iv) if the
maximum performance goal is reached, then the Normal Vesting Date for all
affected PASOs shall be accelerated to the Accelerated Date.
5.10.6 PASOs Treated Like Options. Except as otherwise provided in the
Plan, PASOs shall be treated identical to Options; provided, however, that if
there is a conflict between a provision specifically covering PASOs and one
generally covering Options, then the specific provision shall control as to
PASOs.
ARTICLE VI
PERFORMANCE SHARE AWARDS
SECTION 6.1 GRANTS
From time to time and upon the recommendation of the CEO, the Committee
may grant Performance Share Awards in such number as it may determine to such
Reporting Persons as the Committee may select. From time to time, the CEO may
grant in such number as he may determine Performance Share Awards to such
Nonreporting Persons as he may select; provided, however, each and all such
grants shall be subject to any maximum aggregate number of Performance Shares
established by the Committee for grants under the Plan for Nonreporting Persons
as a group.
SECTION 6.2 PERFORMANCE PERIOD
At the time of a Performance Share Award grant, the Committee shall
establish a Performance Period of not less than one year nor more than five (5)
years, commencing the Date of Grant of the Award.
SECTION 6.3 PERFORMANCE GOALS
At the time of each grant, the Committee shall establish for all
Performance Share Awards the Performance Goals for the Company and any
Participating Subsidiary, while the CEO (or his designee or designees) shall
establish for each individual Performance Share Award the business unit,
corporate staff group and individual Performance Goals (other than his own which
will be the same as the Performance Goals for the Company), if any. All of the
designated Performance Goals must be met as a precondition to any distribution
or payment being made with respect to the Performance Share Award following the
end of the Performance Period. Except as provided in Article XII, these
Performance Goals (although their measurement, including adjustments, if any, as
permitted under Subsection 6.8.3, will not occur until after the expiration of
the applicable Performance Period) must be met during the continuance of the
Grantee's employment with the Company or any Participating Subsidiary, prior to
the expiration of the applicable Performance Period and prior to the lapse of
restrictions and delivery of any shares of Common Stock and/or the making of any
payment with respect to the Performance Share Award. Performance Goals may vary
among Grantees and among Awards to a Grantee. Performance Goals shall be based
upon such performance criteria
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or combination of factors as the Grantor may deem appropriate, including, but
not limited to, specified levels of earnings per share, return on investment,
return on stockholders' equity and such other goals related to the Company's
performance as are deemed appropriate by the Committee.
SECTION 6.4 PAYOUT SCHEDULE
In tandem with the establishment of the Performance Goals, the Grantor
shall establish a Payout Schedule for that Performance Period for each
Performance Share Award. Each Payout Schedule shall establish for each
Performance Period minimum, target, maximum and intermediate performance and
distribution levels for determining the shares of Common Stock deliverable
and/or cash payable, if any, upon settlement of the Performance Share Award at
the conclusion of the Performance Period.
SECTION 6.5 ISSUANCE OF STOCK AND STOCK CERTIFICATES
6.5.1 Issuance. As soon as possible after the Date of Grant of a
Performance Share Award, the Company shall cause to be issued to the Grantee
such number of shares of Common Stock as prescribed by the applicable Payout
Schedule for attainment of target level of performance, that is, the Target
Award. Concurrently, the Company shall cause to be issued a stock certificate or
certificates, registered in the name of the Grantee and dated the Date of Grant,
evidencing such shares. Each such issuance (of shares and of a stock certificate
or certificates) shall be subject throughout the Performance Period to the
terms, conditions and restrictions (including forfeiture and restrictions
against transfer provisions of Section 6.6) contained in this Plan and/or the
Award Commitment entered into between the registered owner of such shares and
the Company, except as otherwise provided in this Plan. Although not a
precondition to the granting of a Performance Share Award, each such issuance
shall be subject to forfeiture to the Company as of the date of issuance if an
Award Commitment and a stock power endorsed by the Grantee in blank with respect
to the shares of Common Stock covered by the Performance Share Award under this
Article VI are not duly executed by the Grantee and timely returned to the
Company.
6.5.2 Custody and Legends. Each certificate for shares of Common Stock
issued in respect of the Performance Share Award awarded under Subsection 6.5.1
shall be held in custody by the Company for the Grantee's account until the
expiration or termination of the applicable Performance Period (except as
provided in Article XII) and the satisfaction of any and all other conditions of
the Award Commitment applicable to Performance Shares covered by the Performance
Share Award. Such certificate shall be imprinted with a legend to indicate that
the transferability thereof and the shares of stock represented thereby are
subject to the terms, conditions and restrictions (including forfeiture and
restrictions against transfer) contained in this Plan and/or an Award Commitment
entered into between the registered owner of such shares and the Company, a copy
of which Plan and Award Commitment is on file in the office of the Company's
Corporate Secretary. Such legend shall not be removed from any stock certificate
evidencing Performance Shares until the lapse or release of the restrictions as
described in Section 6.8. Each certificate also shall be subject to appropriate
stop-transfer orders.
SECTION 6.6 RESTRICTIONS AND FORFEITURES
The shares of Common Stock issued to a Grantee pursuant to Section 6.5
shall be subject to the following restrictions until the expiration or
termination of the Performance Period established pursuant to Section 6.2: (i) a
Grantee shall not be entitled to delivery of a certificate evidencing the shares
of Common Stock covered by the Performance Share Award until the expiration or
termination of the Performance Period; (ii) none of such shares of Common Stock
may be sold, transferred, assigned, pledged or otherwise encumbered or disposed
of during the Performance Period and until the satisfaction of any and all other
conditions; and (iii) all such Common Stock shall be forfeited and returned to
the Company and all rights of the Grantee with respect to such Common Stock
(including, but not limited to, those specified in Section 6.7) shall terminate
without further obligation on the part of the Company unless (x) the Grantee has
remained a regular full time employee of the Company or any Participating
Subsidiary until the expiration or termination of the Performance Period (except
as provided in Article XII) and (y) the satisfaction of any and all other
conditions of the Award Commitment applicable to such Common Stock covered by
the Performance Share Award is completed. Upon the forfeiture of any shares of
Common Stock, ownership of such forfeited shares shall be transferred to the
Company without further acts by the Grantee.
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SECTION 6.7 STOCKHOLDER RIGHTS
Following registration in the Grantee's name, and subject to execution
of the documents provided for in Section 6.5, during the Performance Period the
Grantee shall have the entire beneficial interest in, and all rights and
privileges of a stockholder as to, such shares of Common Stock awarded to him
with respect to the target level performance, including, but not limited to, the
right to vote and receive dividends, subject to the restrictions and forfeiture
risks set forth in Section 6.6. Any shares of Common Stock distributed as a
dividend or otherwise with respect to any shares issued under a Performance
Share Award as to which the restrictions have not yet lapsed shall be subject to
the same restrictions as such shares.
SECTION 6.8 DELIVERY OF SHARES AND CASH PAYMENTS
6.8.1 Determination of Performance Results and Award Settlement. As
soon as practicable after the Performance Period expires or otherwise terminates
with respect to each Performance Share Award, the Committee shall determine
whether and the extent to which any corporate Performance Goals were achieved
during the Performance Period; and the Grantor shall determine whether and the
extent to which applicable business unit, corporate staff and individual
Performance Goals, if any, were achieved during the Performance Period.
Following such determinations, a calculation shall be made of the number of
shares of Common Stock whose restrictions shall lapse and shall be deliverable
and the cash payable, if any, upon settlement of the Performance Share Award.
The computation shall be made by application of the Payout Schedule to the
degree of actual performance achieved against Performance Goals (determined as
provided in the preceding sentence).
6.8.2 Delivery of Shares and Payment of Cash
6.8.2.1 In the event the minimum level of performance established by
the Payout Schedule is not achieved, the entire Performance Share Award is
forfeited, including, without limitation, the shares of Common Stock held in
custody pursuant to Section 6.5.
6.8.2.2 Should the minimum level of performance established by the
Payout Schedule be achieved, the Grantee shall have earned (subject to
adjustments as provided by Subsection 6.8.3) the applicable Minimum Award and in
settlement thereof the Section 6.6 restrictions on that number of shares of
Common Stock held in custody pursuant to Section 6.5 equal to the share number
specified by the Payout Schedule for performance at the minimum level shall
lapse and as promptly as administratively feasible thereafter, the Company shall
deliver to the Grantee a stock certificate or certificates for the number of
shares of Common Stock earned. Upon such delivery, shares remaining in custody
(which are the difference between the applicable Minimum Award and the
applicable Target Award) shall be forfeited and ownership transferred to the
Company without further acts by the Grantee.
6.8.2.3 In the event the target level of the Payout Schedule is
achieved, the Grantee shall have earned (subject to adjustments as provided by
Subsection 6.8.3) the applicable Target Award and in settlement thereof the
Section 6.6 restrictions on all of the shares held in custody pursuant to
Section 6.5 shall lapse and as soon as administratively feasible thereafter the
Company shall deliver to the Grantee a stock certificate or certificates for the
number of shares of Common Stock earned.
6.8.2.4 For performance at a level between the minimum performance
level of the Payout Schedule and the target level of the Payout Schedule the
Section 6.6 restrictions on that number of shares of Common Stock held in
custody pursuant to Section 6.5 equal to the share number specified by the
Payout Schedule for performance at the applicable intermediate level shall lapse
and as promptly as administratively feasible thereafter, the Company shall
deliver to the Grantee a stock certificate or certificates for the number of
shares of Common Stock earned. Upon such delivery, shares remaining in custody
(which are the difference between the number of shares prescribed for the level
of performance achieved and the Target Award) shall be forfeited and ownership
transferred to the Company without further acts by the Grantee.
6.8.2.5 Should the maximum level of performance established by the
Payout Schedule be attained or exceeded, the Grantee shall have earned (subject
to adjustments as provided by Subsection 6.8.3) the applicable Maximum Award and
in settlement thereof (i) the restrictions on that number of shares of Common
Stock held in
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custody pursuant to Section 6.5 equal to the share number specified by the
Payout Schedule for performance at the target level shall lapse and as promptly
as administratively feasible thereafter the Company shall deliver to the Grantee
a stock certificate or certificates for the number of shares of Common Stock
earned at the target level, and (ii) the share differential between the number
of shares specified by the Payout Schedule for performance at the target level
and the number of shares specified in the Payout Schedule for performance at the
maximum level of performance shall be paid in cash, shares of Common Stock or a
combination thereof, as determined by the Committee. Such share differential
shall have a value which is the product of the number of shares constituting the
share differential times the Performance Share Fair Market Value on the vesting
date.
6.8.2.6 For performance between the target level and the maximum level
of performance specified in the Payout Schedule (i) the Section 6.6 restrictions
on that number of shares of Common Stock held in custody pursuant to Section 6.5
equal to the share number specified by the Payout Schedule for performance at
the target level shall lapse and as promptly as administratively feasible
thereafter, the Company shall deliver to the Grantee a stock certificate or
certificates for the number of shares of Common Stock earned at the target
level, and (ii) the share differential between the share number specified by the
Payout Schedule for performance at the target level and the share number
specified by the Payout Schedule for performance at the applicable intermediate
level shall be paid in cash, shares of Common Stock or a combination thereof, as
determined by the Committee. Such share differential shall have a value which is
the product of the number of shares constituting the share differential times
the Performance Share Fair Market Value on the vesting date.
6.8.2.7 Cash payments normally will be made as soon as practicable
following the end of the Performance Period. All shares delivered to a Grantee
pursuant to this Subsection 6.8.2 shall be without the legend described in
Subsection 6.5.2 and shall be free of all restrictions and forfeitures, except
as otherwise provided by Article XII or imposed by law. No payment will be
required from the Grantee upon the delivery of any shares of Common Stock,
except that the amount necessary to satisfy applicable Federal, state or local
tax requirements shall be paid by the Grantee in accordance with the
requirements of Section 14.1.
6.8.3 Revisions for Significant Events. When circumstances occur
(including, but not limited to, unusual or nonrecurring events, changes in tax
laws or accounting principles or practices) that cause any Performance Goal,
Payout Schedule and/or level of performance or distribution specified in a
Payout Schedule to be inappropriate in the judgment of the party initially
responsible for establishing the Performance Goal, Payout Schedule and/or
performance or distribution level, such party may make such changes as said
party deems equitable in recognition of any unforeseen events or changes in
circumstances or changed business or economic conditions.
6.8.4 Conditions Precedent. Incentives shall be paid to the Grantee
only upon compliance by the Grantee with all obligations of such Grantee under
the Plan and/or the Award Commitment with respect to such Performance Share
Awards, including the requirement that, except as provided in Article XII, the
Performance Goals (although their measurement, including adjustments, if any,
required by the Committee or the CEO, as provided herein, will not occur until
after the expiration of the applicable Performance Period) must be met during
the continuance of the Grantee's employment with the Company or any of the
Participating Subsidiaries, prior to the expiration of the applicable
Performance Period and prior to the lapse of restrictions and delivery of any
shares of Common Stock and/or the making of any payment with respect to the
Performance Share Award.
6.8.5 Performance Share Fair Market Value. As used in this Article VI,
"Performance Share Fair Market Value" of a Performance Share Unit or a share of
Common Stock on any date shall be the average of the daily closing prices for a
share of Common Stock for the five (5) consecutive trading days immediately
preceding the day in question as reported on the Composite Tape for New York
Stock Exchange Listed Companies and published in the Eastern Edition of The Wall
Street Journal.
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ARTICLE VII
RESTRICTED STOCK AWARDS
SECTION 7.1 GRANTS
From time to time and upon the recommendation of the CEO, the Committee
may grant Restricted Stock Awards in such number as it may determine to such
Reporting Persons as the Committee may select. From time to time, the CEO may
grant in such number as he may determine Restricted Stock Awards to such
Nonreporting Persons as he may select; provided, however, each and all such
grants shall be subject to any maximum aggregate number of shares of Restricted
Stock established by the Committee for grants under the Plan for Nonreporting
Persons as a group.
SECTION 7.2 RESTRICTED PERIOD
At the time of a Restricted Stock Award grant, the Committee shall
establish (for all Restricted Stock shares which are then being awarded to a
Participant or, if it is the intent that the total of such shares shall be
divided into separate parts, for each part of such total) a Restricted Period of
not less than one year or more than five (5) years (the "Restriction Range"),
commencing with the Date of Grant of the Award. Different Restricted Periods may
be fixed within the Restriction Range for different parts of the shares of
Restricted Stock which are being awarded to a Grantee.
SECTION 7.3 RESTRICTIONS AND FORFEITURE
The shares of Restricted Stock covered by the Restricted Stock Award
granted to a Grantee pursuant to Section 7.1 shall be subject to the following
restrictions until the expiration or termination of the Restricted Period
established pursuant to Section 7.2: (i) a Grantee shall not be entitled to
delivery of a certificate evidencing the shares of Restricted Stock covered by
the Restricted Stock Award until the expiration or termination of the Restricted
Period and the satisfaction of any and all other conditions specified in the
Award Commitment applicable to such Restricted Stock shares; (ii) none of the
shares of Restricted Stock may be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of during the Restriction Period and until the
satisfaction of any and all other conditions specified in the Award Commitment
applicable to such Restricted Stock; and (iii) all of the shares of Restricted
Stock shall be forfeited and returned to the Company and all rights of the
Grantee with respect to such Restricted Stock shares (including, but not limited
to, those specified in Section 7.5) shall terminate without further obligation
on the part of the Company unless (x) the Grantee has remained a regular full
time employee of the Company or any Participating Subsidiary until the
expiration or termination of the Restricted Period or Periods and (y) the
satisfaction of any and all other conditions of the Award Commitment applicable
to such Restricted Stock shares. Upon the forfeiture of any shares of Restricted
Stock, such forfeited shares shall be transferred to the Company without further
acts by the Grantee.
SECTION 7.4 ISSUANCE OF STOCK AND STOCK CERTIFICATE
7.4.1 Issuance. As soon as practicable after the Date of Grant of a
Restricted Stock Award, the Company shall cause to be issued to the Grantee such
number of shares of Common Stock as constitutes the Restricted Stock shares
awarded under the Restricted Stock Award. Concurrently, the Company shall cause
to be issued a stock certificate or certificates, registered in the name of the
Grantee and dated as of the Date of Grant, evidencing such shares. Each such
issuance (of shares and of a stock certificate or certificates) shall be subject
throughout the Performance Period to the terms, conditions and restrictions
(including forfeiture and restrictions against transfer provisions of Section
7.3) contained in this Plan and/or the Award Commitment entered into between the
registered owner of such shares and the Company, except as otherwise provided in
this Plan. Although not a precondition to the granting of a Performance Share
Award, each such issuance shall be subject to forfeiture to the Company as of
the Date of Grant if an Award Commitment and a stock power endorsed by the
Grantee in blank with respect to the shares of Restricted Stock covered by the
Award under this Article VII are not duly exercised by the Grantee and timely
returned to the Company.
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7.4.2 Custody and Legends. Each certificate for shares of Common Stock
issued in respect of the Restricted Stock Award granted under Section 7.1 shall
be held in custody by the Company for the Grantee's account until the expiration
or termination of the applicable Restricted Period (except as provided in
Article XII) and the satisfaction of any and all other conditions of the Award
Commitment applicable to such shares of Restricted Stock covered by the
Restricted Stock Award. Such certificate shall be imprinted with a legend to
indicate that the transferability thereof and the shares of Common Stock
represented thereby are subject to the terms, conditions and restrictions
(including forfeiture and restrictions against transfer) contained in this Plan
and/or an Award Commitment entered into between the registered owner of such
shares and the Company, a copy of which Plan and Award Commitment is on file in
the office of the Company's Corporate Secretary. Such legend shall not be
removed from any stock certificate evidencing such Restricted Stock shares until
the lapse or release of the restrictions as described in Section 7.3. Each
certificate also shall be subject to appropriate stop-transfer orders.
SECTION 7.5 STOCKHOLDER RIGHTS
Following registration in the Grantee's name and subject to execution
of the documents provided for in Section 7.4, during the Restricted Period the
Grantee shall have the entire beneficial interest in, and all rights and
privileges of a stockholder as to, such shares of Common Stock covered by the
Restricted Stock Award, including, but not limited to, the right to vote such
shares and the right to receive dividends, subject to the restrictions and
forfeitures set forth in Section 7.3. Any shares of Common Stock distributed as
a dividend or otherwise with respect to any shares of Restricted Stock as to
which the restrictions have not yet lapsed shall be subject to the same
restrictions as such Restricted Stock shares.
SECTION 7.6 DELIVERY OF SHARES
Upon the expiration (without a forfeiture) or earlier termination of
the Restriction Period and the satisfaction of or release from any other
conditions by the Grantee under the Plan and/or the Award Commitment with
respect to such shares of Restricted Stock, or at such earlier time as provided
under the provisions of Article XII and/or Article XIII, all of such shares
shall be released from all restrictions and forfeiture provisions under Section
7.3, any similar restrictions and forfeiture provisions under the Award
Commitment applicable to such shares and all other restrictions and forfeiture
provisions of this Plan or such Award Commitment. As promptly as
administratively feasible thereafter the Company shall deliver or cause to be
delivered to such Grantee a stock certificate or certificates for the
appropriate number of shares of Common Stock, free of such restrictions and
forfeitures, except as otherwise provided by Article XIV or imposed by law. No
payment will be required from the Grantee upon the delivery of any shares of
Restricted Stock, except that amount necessary to satisfy applicable Federal,
state or local tax requirements shall be paid by the Grantee in accordance with
the requirements of Section 14.1.
ARTICLE VIII
PHANTOM UNIT AWARDS
SECTION 8.1 GRANTS
From time to time and upon the recommendation of the CEO, the Committee
may grant Phantom Unit Awards in such number as it may determine to such
Reporting Persons as the Committee may select. From time to time, the CEO may
grant Phantom Unit Awards in such number as he may determine to such
Nonreporting Persons as he may select; provided, however, each and all such
grants shall be subject to any maximum aggregate number of Phantom Units
established by the Committee for grants under the Plan for Nonreporting Persons
as a group.
Notwithstanding the above paragraph, the Committee may at its
discretion grant Phantom Units payable in one share of Hercules Common Stock for
each unit at the time of vesting pursuant to Section 8.2. In these cases, such
Phantom Units are referred to as Restricted Stock Units and during the period
that such Restricted Stock Units are awarded, shall be subject to all the
provisions of Section 8.2 except, however, such payment shall be made in shares
of Hercules Common Stock as contrasted to cash as provided above.
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SECTION 8.2 VESTING OF AWARDS
The amounts credited with respect to each Phantom Unit shall become
vested on the date or dates determined and set forth in the applicable Award
Commitment at the time of grant unless vested sooner as described in Article XII
of the Plan. The vesting period shall be determined by the Committee, but in no
case shall such period be less than one year or more than five (5) years.
Vesting shall be subject to the terms, conditions and provisions hereinafter
with respect to forfeiture and termination of Awards or early vesting or
forfeiture of Awards in accordance with the provisions of Article XII.
SECTION 8.3 VALUE OF PHANTOM UNITS PAYMENTS
The amount payable with respect to each vested Phantom Unit Award shall
be the sum of (i) the dividends and interest credited to such account and (ii)
an amount determined by multiplying the number of Phantom Units posted to such
account by the Phantom Unit Fair Market Value on the date of vesting. For the
purpose of determining such amount the Company shall establish and maintain a
separate memorandum account for each Grantee granted a Phantom Unit Award
pursuant to Section 8.1. As of the Date of Grant of each grant of a Phantom Unit
Award the Company shall credit to the account of each Grantee who has been
granted a Phantom Unit Award such number of Phantom Units as is specified in the
Award. From the Date of Grant until the date that payments under the Plan
commence the account of each Grantee shall be credited quarterly with an amount
determined by multiplying the amount of Phantom Units credited to each account
by the per share dividend paid quarterly by the Company on its Common Stock. In
addition, each account (representing dividends and credited interest) shall be
credited quarterly with an amount determined by multiplying the account balance
at the close of each quarter by an amount representing one-fourth of the average
per annum rate of interest established by Morgan Guaranty Trust Company (or by
such other major New York commercial bank as the Committee shall designate) in
New York from time to time during such quarter as its prime lending rate. As
used in this Article VIII, "Phantom Unit Fair Market Value" of a Phantom Unit or
a share of Common Stock on any date shall be the average of the daily closing
prices for a share of Common Stock for the five (5) consecutive trading days
immediately preceding the day in question as reported on the Composite Tape for
New York Stock Exchange Listed Companies and published in the Eastern Edition of
The Wall Street Journal.
SECTION 8.4 TIME AND METHOD OF PAYMENT
Any payment which may become due from the Company upon the vesting of a
Phantom Unit shall be paid to the Grantee in cash. The date or dates upon which
amounts determined pursuant to Section 8.3 shall be paid to the Grantee shall be
determined by the Committee prior to the Date of Grant and set forth in the
applicable Award Commitment or in accord with such rules and regulations as may
be adopted by the Committee.
SECTION 8.5 FORFEITURE OF PHANTOM UNITS
Except as otherwise provided in Article XII, all of the Phantom Units
credited to a Grantee's account (including all dividend equivalents and interest
credited thereto) shall be forfeited and all rights of the Grantee with respect
to such Phantom Units (including any dividend equivalents and interest related
thereto) shall terminate without further obligation on the part of the Company
unless and until (i) the Grantee has remained a regular full time employee of
the Company or any Participating Subsidiary until vesting as described in
Section 8.2 and (ii) the satisfaction of any other conditions specified in the
Plan and/or Award Commitment applicable to such Phantom Units, except as may
otherwise be determined by the Committee.
SECTION 8.6 NATURE OF PHANTOM UNITS
Phantom Units shall be used solely as a device for the measurement and
determination of the amount to be paid to Grantees as provided in the Plan.
Phantom Units shall not constitute or be treated as property or as a trust fund
of any kind. All amounts at any time attributable to the Phantom Units shall be
and remain the sole property of the Company and all Grantees' rights hereunder
are limited to the rights to receive cash and shares of Common Stock as provided
in the Plan.
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ARTICLE IX
CASH VALUE AWARDS
SECTION 9.1 GRANTS
From time to time and upon the recommendation of the CEO, the Committee
may grant Cash Value Awards in such number as it may determine to such Reporting
Persons as the Committee may select. From time to time, the CEO may grant Cash
Value Awards in such number as he may determine to such Nonreporting Persons as
he may select; provided, however, each and all such grants shall be subject to
any maximum dollar value established by the Committee for grants under the Plan
for Nonreporting Persons as a group.
SECTION 9.2 PERFORMANCE PERIOD
At the time of a Cash Value Award grant, the Committee shall establish
a Performance Period of not less than one year nor more than five (5) years,
commencing on the Date of Grant of the Award.
SECTION 9.3 PERFORMANCE GOALS
At the time of each grant, the Committee shall establish for all Cash
Value Awards the Performance Goals for the Company and any Participating
Subsidiary, while the CEO (or his designee or designees) shall establish for
each individual Cash Value Award the business unit, corporate staff group and
individual Performance Goals (other than his own which will be the same as the
Performance Goals for the Company), if any. All of the designated Performance
Goals must be met as a precondition to any distribution or payment being made
with respect to the Cash Value Award following the end of the Performance
Period. Except as provided in Article XII, these Performance Goals (although
their measurement, including adjustments, if any, will not occur until after the
expiration of the applicable Performance Period) must be met during the
continuance of the Grantee's employment with the Company or any Participating
Subsidiary, prior to the expiration of the applicable Performance Period and
prior to the making of any payment with respect to the Cash Value Award.
Performance Goals may vary among Grantees and among Awards to a Grantee.
Performance Goals shall be based upon such performance criteria or combination
of factors as the Grantor may deem appropriate, including, but not limited to,
specified levels of earnings per share, return on investment, return on
stockholders' equity and such other goals related to the Company's performance
as are deemed appropriate by the Committee.
SECTION 9.4 PAYOUT SCHEDULE
In tandem with the establishment of the Performance Goals, the Grantor
shall establish a Payout Schedule for that Performance Period for each Cash
Value Award. Each Payout Schedule shall establish for each Performance Period
minimum, target, maximum and intermediate performance and distribution levels
for determining the payout of the Common Stock, if any, of the Cash Value Award
at the conclusion of the Performance Period.
SECTION 9.5 FORM OF PAYOUT
Payment of a Cash Value Award shall be made in cash, Common Stock,
Restricted Stock or any combination thereof as determined by the Grantor at the
time of the Payout. Restricted Stock shall be governed by Articles VII and XII;
provided, however, that Restricted Stock granted at less than Fair Market Value
shall also be governed by Section 9.6 and the Attributable Shares (defined
below) shall be governed by Section 13.3.
SECTION 9.6 CALCULATION OF PAYOUT
As soon as practicable after the Performance Period expires with
respect to the Cash Value Award, the Grantor shall determine whether and the
extent to which any Performance Goals were achieved during the Performance
Period. The Grantor may also determine the amount and form of the Payout. If the
Payout is to be paid in Restricted Stock, then the number of shares calculated
by the Grantor may be determined by using either 100% or 85% (as determined by
the Committee) of the Fair Market Value on the date of issue. If the Grantor
uses 85% of the Fair Market Value, then those shares attributable to the
discount (i.e., 100% minus 85%) (the "Attributable Shares")
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shall be subject to the forfeiture provisions under Section 13.3; and otherwise,
the Restricted Stock shall be subject to forfeiture under Article XII.
ARTICLE X
OTHER AWARDS
SECTION 10.1 OTHER MARKET-BASED AWARDS
The Grantor may grant other Market-Based Awards, provided that the
purchase price or base price for the equity securities of the Company shall in
no event be less than 100% of the Fair Market Value of such security on the Date
of Grant. Such Other Market-Based Awards shall be in a form determined by the
Committee, and the Committee shall have complete authority to determine the
terms, conditions and restrictions of the awards, not inconsistent with the
terms of the Plan. The Committee, upon recommendation of the CEO, shall
determine the time or times at which such Other Market-Based Awards shall be
made. Any such Other Market-Based Award shall be confirmed by an Award
Commitment executed by the Company and the Grantee, which Agreement shall
contain such provisions as the Committee determines to be necessary or
appropriate to carry out the intent of the Plan with respect to such Award.
SECTION 10.2 OTHER PERFORMANCE-BASED AWARDS
The Grantor may grant Other Performance-Based Awards. Such Other
Performance-Based Awards shall be in a form determined by the Committee, and the
Committee shall have complete authority to determine the terms, conditions and
restrictions of the awards, not inconsistent with the terms of the Plan. The
Committee, upon recommendation of the CEO, shall determine the time or times at
which such Other Performance-Based Awards shall be made. Any such Other
Performance-Based Award shall be confirmed by an Award Commitment executed by
the Company and the Grantee, which Agreement shall contain such provisions as
the Committee determines to be necessary or appropriate to carry out the intent
of the Plan with respect to such Award.
SECTION 10.3 TERMS OF OTHER AWARDS
In addition to the terms and conditions specified in the Award
Commitment, awards made pursuant to this Article X shall be subject to the
following:
(a) Any shares of Common Stock subject to Awards made under
this Article X may not be sold, assigned, transferred, pledged or
otherwise encumbered prior to the date on which the shares are issued,
or, if later, the date on which any applicable restriction or
performance period lapses; and
(b) If specified by the Committee in the Award Commitment, the
recipient of an Award under this Article X shall be entitled to
receive, currently or on a deferred basis, interest or dividends or
dividend equivalents with respect to the Common Stock covered by the
Award; and
(c) The Award Commitment with respect to any Award shall
contain provisions dealing with the disposition of such Award in the
event of a termination of employment prior to the exercise, realization
or payment of such Award, whether such termination occurs because of
retirement, disability, death or other reason, with such provisions to
take account of the specific nature and purpose of the Award.
SECTION 10.4 STOCK OPTION DIVIDEND EQUIVALENTS.
10.4.1 Grants. The Grantor may provide that a Grantee to whom an Option
has been granted which is exercisable in whole or in part at a future time for
shares of Common Stock (referred to in this subsection as "Share" or "Shares")
shall be entitled to receive an amount per Share equal in value to the cash
dividends, if any, paid per Share on issued and outstanding Shares, as of the
dividend record dates occurring during the period between the Date of Grant and
the time each such Share is delivered pursuant to exercise of such Stock Option
or the related Stock
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Appreciation Right. Such amounts (herein called "Dividend Equivalents") shall be
paid in cash at the time of the delivery of such Shares.
10.4.2 Interest. The Grantor may authorize payment of interest on
Dividend Equivalents. The interest will be payable in cash at the same time the
related Dividend Equivalents are paid.
10.4.3 Forfeiture. To the extent the Stock Options to which Dividend
Equivalents and interest are related shall be forfeited all accrued Dividend
Equivalents and interest thereon shall also be forfeited.
ARTICLE XI
SUBSTITUTION AWARDS
SECTION 11.1 SUBSTITUTION OF PERFORMANCE SHARES
Upon the request of the Grantee, the Committee may grant Restricted
Stock Awards in substitution for such numbers of shares of Common Stock of equal
value held in custody pursuant to Section 6.5 whose restrictions shall lapse
upon expiration or other termination of a Performance Period. The number of
Performance Shares available for substitution shall be determined by the method
described in Section 11.3. Such Substitution Awards shall be subject to such
Restricted Periods and other terms, conditions and restrictions as the Committee
may from time to time determine. No substitution shall be permitted after
termination of employment, regardless of the reason for termination. Once
substitution has been approved by the Committee, no payment will be made with
respect to an original Award.
SECTION 11.2 SUBSTITUTION OF RESTRICTED STOCK
Upon request of the Grantee, the Committee may grant Restricted Stock
Awards in substitution for shares of Restricted Stock previously awarded either
under this Plan or under the Hercules Incorporated Restricted Stock Plan of
1986. Such Awards shall be subject to such Restricted Periods and other terms,
conditions and restrictions as the Committee may from time to time determine. No
substitution shall be permitted after termination of employment, regardless of
the reason for termination.
SECTION 11.3 SUBSTITUTION PROCEDURES
Any request of a Grantee pursuant to Section 11.1 or 11.2 shall be
filed in writing with the Committee in accordance with such rules and
regulations, including any deadline for the making of such request, as the
Committee may provide. No substitution shall be permitted past any termination
of employment described in Article XII or past the occurrence of any of the
events specified in clauses (i), (ii) and (iii) of Section 14.4.
SECTION 11.4 SUBSTITUTIONS IN CONTEMPLATION OF RETIREMENT
Prior to the expiration of the Performance Period or Restricted Period
applicable to any Performance Shares or Restricted Stock Awards granted to a
Grantee prior to January 1, 1995, such Grantee may, with the consent of the
Committee, surrender all or a portion of his Award in substitution for Phantom
Unit Awards subject to the terms and conditions of Article VIII, and provided
that: (i) such surrender shall be treated as a forfeiture under the Plan; (ii)
such substitution shall be made for retirement planning purposes; (iii) such
substitution shall be made prior to December 31 of the year preceding the
Grantee's Normal Retirement Date but not more than one year prior to the
Grantee's Normal Retirement Date; or, in cases where Retirement with consent
occurs prior to the Grantee's Normal Retirement Date, not less than sixty (60)
nor more than three hundred and sixty (360) days before an announced Retirement
approved by the Company; and (iv) any Phantom Units shall be substituted as of
the expiration date of the applicable Performance Period in an amount consistent
with the number of shares calculated for each Award being substituted.
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ARTICLE XII
TERMINATION OF EMPLOYMENT
12.1 RETIREMENT
12.1.1 Stock Options and SARs. If prior to the expiration of the Option
Period a Grantee who has been given an Option or SAR under the Plan shall cease
to be employed by the Company, any Participating Subsidiary or Related Entity
because of his Retirement, (i) in the case of Nonqualified Options (except
PASOs) and their related SARs, each Option and SAR shall become immediately
exercisable and shall remain exercisable for a period of five (5) years from the
date of cessation of employment (with respect to options granted prior to May 1,
1994, the period shall be three (3) years from the date of cessation of
employment), but not beyond the end of the Option Period, and (ii) in the case
of ISOs and their related SARs, each Option and SAR shall, at such time as it
becomes exercisable under the Award Commitment covering such Option, remain
exercisable for a period of three (3) months from the cessation of employment,
but not beyond the end of the Option Period.
12.1.2 Performance Share, Restricted Stock, Phantom Unit, and Cash
Value Awards. If prior to the expiration of the Performance or Restricted Period
a Grantee who has been given a Performance Share, Restricted Stock, Phantom Unit
or Cash Value Award under the Plan shall cease to be employed by the Company,
any Participating Subsidiary or Related Entity because of his Retirement, (i)
that Grantee shall be entitled to Performance Shares or Cash Value at the end of
the Performance Period based upon the extent to which the Performance Goals were
satisfied at the end of such period (provided, however, the Committee may
provide for an earlier payment in settlement of such Performance Shares in such
amount and under such terms and conditions as the Committee deems appropriate or
desirable); and (ii) all remaining restrictions with respect to such Grantee's
Restricted Stock and Phantom Unit Awards shall lapse as of the date of
termination.
12.1.3 Performance Accelerated Stock Options. If prior to the
expiration of the PASO Period a Grantee who has been given a PASO Award under
the Plan shall cease to be employed by the Company, any Participating Subsidiary
or Related Entity because of his Retirement, that Grantee shall be entitled to
PASOs as follows: If the PASOs are exercisable on the date of Retirement, then
the PASOs will remain exercisable until the earlier of five (5) years or the end
of the PASO period; if the PASOs are not yet exercisable, then they shall become
exercisable at the earlier of (i) such time as the PASOs become exercisable
through acceleration due to performance, or (ii) four and one-half (4.5) years
after Retirement regardless of performance, or (iii) the end of nine and
one-half (9.5) years from the award date. Once the PASOs become exercisable,
they shall remain exercisable until the earlier of five (5) years after
Retirement or the end of the PASO period, provided, however, the Grantor may
provide for acceleration of the vesting date and/or an earlier settlement of
such PASOs under such terms and conditions as the Grantor deems appropriate or
desirable.
12.1.4 Restricted Stock Unit. If prior to the expiration of the
restriction period for a Restricted Stock Unit, a grantee who has been granted a
Restricted Stock Unit under the Plan, shall cease to be employed by the Company,
any participating subsidiary or related entity because of his retirement, that
grantee at his election no less than 60 days prior to his designated retirement
date, be entitled to defer the payout of such Restricted Stock Units to a future
designated date and on such date all remaining restrictions with respect to such
grantee"s Restricted Stock shall lapse as of such designated date and shares
shall be distributed to such grantee plus accrued dividend equivalents, plus
interest thereon, or if no such election is filed, all remaining restrictions
with respect to such grantee"s Restricted Stock shall lapse on the date of
termination and such shares shall be distributed along with accrued dividend
equivalents, plus interest thereon.
SECTION 12.2 REDUCTION IN FORCE
12.2.1 Stock Options and SARs. If prior to the expiration of the Option
Period a Grantee who has been given a Option or SAR under the Plan shall cease
to be employed by the Company or any Participating Subsidiary because of a
Reduction in Force, (i) in the case of Nonqualified Options (except PASOs) and
their related SARs, each Option and SAR shall become immediately exercisable and
shall remain exercisable for a period of one year from the date of cessation of
employment, but not beyond the end of the Option Period, and (ii) in the case of
an ISO, each
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Option and SAR shall, at such time as it becomes exercisable under the Award
Commitment covering such Option, remain exercisable for a period of three (3)
months from the cessation of employment, but not beyond the end of the Option
Period.
12.2.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards. If prior to the expiration of the
Performance or Restricted Period a Grantee who has been given a Performance
Share, Restricted Stock, Restricted Stock Unit, Phantom Unit or Cash Value Award
under the Plan shall cease to be employed by the Company or any Participating
Subsidiary because of a Reduction in Force, (i) that Grantee shall be entitled
to a Minimum Award of Performance Shares or Cash Value at the end of the
Performance Period prorated for the portion of the Performance Period during
which the Grantee was employed by the Company, any Participating Subsidiary
(provided, however, the Committee may provide for an earlier payment in
settlement of such Performance Shares or Cash Value in such amount and under
such terms and conditions as the Committee deems appropriate or desirable); and
(ii) all remaining restrictions with respect to such Grantee's Restricted Stock,
Restricted Stock Unit and Phantom Unit Awards shall lapse, in an amount prorated
for the amount of time such Awards have remained under restriction, as of the
date of termination.
12.2.3 Performance Accelerated Stock Options. If prior to the
expiration of the PASO Period a Grantee who has been given a PASO Award under
the Plan shall cease to be employed by the Company or any Participating
Subsidiary because of a Reduction in Force, the Grantor shall determine the
timing, terms and conditions of the exercise of the Award as the Grantor deems
appropriate or desirable except that no PASO may be exercised beyond the end of
the PASO Period.
SECTION 12.3 TRANSFERS TO CERTAIN RELATED ENTITIES
12.3.1 Stock Options and SARs. If prior to the expiration of the Option
Period a Grantee who has been given a Option or SAR under the Plan shall cease
to be employed by the Company or any Participating Subsidiary because of a
transfer to a Related Entity, (i) in the case of Nonqualified Options (except
PASOs) and their related SARs, each Option and SAR shall become immediately
exercisable and shall remain exercisable for a period of three (3) years from
the date of cessation of employment, but not beyond the end of the Option
Period, and (ii) in the case of an ISO, each Option and SAR shall, at such time
as it becomes exercisable under the Award Commitment covering such Option,
remain exercisable for a period of three (3) months from the cessation of
employment, but not beyond the end of the Option Period.
12.3.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards. If prior to the expiration of the
Performance or Restricted Period a Grantee who has been given a Performance
Share, Restricted Stock, Restricted Stock Unit, Phantom Unit or Cash Value Award
under the Plan shall cease to be employed by the Company or any Participating
Subsidiary because of a transfer to a Related Entity, then all restrictions with
respect to such Performance Shares, Restricted Stock, Restricted Stock Unit or
Phantom Units shall remain in effect until the end of the Performance or
Restricted Period; provided, however, the Grantor may provide as the case may be
for an earlier payment in settlement of such Performance Shares, Restricted
Stock, Restricted Stock Units or Phantom Units and for payment of Cash Value
Awards, all in such amount and under such terms and conditions as the Grantor
deems appropriate or desirable.
12.3.3 Performance Accelerated Stock Options. If prior to the
expiration of the PASO Period a Grantee who has been given a PASO Award under
the Plan shall cease to be employed by the Company or any Participating
Subsidiary because of a transfer to a Related Entity, the Grantor shall
determine the timing, terms and conditions of the exercise of the Award as the
Grantor deems appropriate or desirable except that no PASO may be exercised
beyond the end of the PASO Period.
SECTION 12.4 DISABILITY OR DEATH
12.4.1 Stock Options and SARs. If prior to the end of the Option Period
a Grantee who has been granted a Option shall cease to be employed by the
Company, any Participating Subsidiary or Related Entity by reason of Death or
Disability, (i) in the case of Nonqualified Options (excluding PASOs) and their
related SARs, each Option and SAR shall become immediately exercisable and shall
remain exercisable for a period of one year from the date
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of cessation of employment, but not beyond the end of the Option Period, and
(ii) in the case of an ISO, each Option and SAR shall, at such time as it
becomes exercisable under the Award Commitment covering such Option, remain
exercisable for a period of one year from the cessation of employment, but not
beyond the end of the Option Period. Notwithstanding the foregoing, the
Committee may, in its sole discretion, on a case-by-case basis, determine for
new Options, or extend for outstanding Options, the period during which the
Options may be exercised after the Grantee dies or suffers a Disability,
provided that such post-termination exercise period may not extend beyond the
expiration of the stated Option Period.
12.4.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards. If prior to the expiration of the
Performance or Restricted Period a Grantee who has been given a Performance
Share, Restricted Stock, Restricted Stock Unit, Phantom Unit and Cash Value
Award under the Plan shall cease to be employed by the Company, any
Participating Subsidiary or Related Entity by reason of Death or Disability, (i)
that Grantee shall be entitled to Performance Shares or Cash Value (paid in
cash) at the Target Award level on the date of termination; and (ii) all
remaining restrictions with respect to such Grantee's Restricted Stock,
Restricted Stock Unit, and Phantom Unit Awards shall lapse as of the date of
termination.
12.4.3 Performance Accelerated Stock Options. If prior to the
expiration of the PASO Period, a Grantee who has been given a PASO Award under
the Plan shall cease to be employed by the Company, any Participating Subsidiary
or Related Entity because of Disability or Death, then such Grantee (or the
Beneficiary of such Grantee) shall be entitled to PASOs as follows: if the PASOs
are exercisable on the date of such Disability or Death, then the PASOs will
remain exercisable until the earlier of one (1) year or the end of the PASO
Period; if the PASOs are not yet exercisable, then they shall become exercisable
at the earlier of (i) such time as the PASOs become exercisable through
acceleration due to performance, or (ii) six (6) months after such Disability or
Death, or (iii) nine and one-half (9.5) years from the award date. Once the
PASOs become exercisable, they shall remain exercisable until the earlier of one
(1) year after or the end of the PASO Period. Notwithstanding the foregoing, the
Committee may, in its sole discretion, on a case-by-case basis, determine for
new PASOs, or extend for outstanding PASOs, the period during which the PASOs
may be exercised after the Grantee dies or suffers a Disability, provided that
such post-termination exercise period may not extend beyond the expiration of
the stated PASO Period.
SECTION 12.5 RESIGNATION
12.5.1 Stock Options, SARs and Performance Accelerated Stock Options.
If the Grantee shall voluntarily resign before eligibility for Retirement
(except for Retirement with approval of the Company), the Options (including
PASOs) and SARs granted in tandem shall be canceled coincident with the
effective date of the termination of employment.
12.5.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards. If prior to the expiration of the
Performance or Restricted Period a Grantee who has been given a Performance
Share, Restricted Stock, Restricted Stock Unit, Phantom Unit or Cash Value Award
under the Plan shall voluntarily resign (except for Retirement with approval of
the Company), then all Performance Share, Restricted Stock, Restricted Stock
Unit, Phantom Unit and Cash Value Awards theretofore awarded to such Grantee as
to which there still remains an unexpired portion of the Performance or
Restricted Period or the vesting period shall, upon such termination of
employment, be forfeited by such Grantee to the Company, without the payment of
any consideration by the Company. Thereafter, neither the Grantee nor any heirs,
assigns or personal representatives of such Grantee shall have any further
rights or interest in such Performance Share, Restricted Stock, Restricted Stock
Unit, Phantom Unit or Cash Value Awards, and the Grantee's name shall thereupon
be deleted from the list of the Company's stockholders with respect to such
Performance Shares, Restricted Stock, Restricted Stock Units, Phantom Units or
Cash Value Award. Notwithstanding any other provisions of this Subsection
12.5.2, the value of any vested and deferred Phantom Units shall be paid to the
Grantee as soon as practicable.
SECTION 12.6 DECREASE IN COMPANY OWNERSHIP
12.6.1 Stock Options and SARs. If prior to the expiration of the Option
Period a Grantee who has been given an Option or SAR under the Plan shall cease
to be employed by any Participating Subsidiary because of a
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decrease in the Company's ownership interest in a Participating Subsidiary to
below 50% but at or above 20%, (i) in the case of Nonqualified Options (except
PASOs) and their related SARs, each Option and SAR shall become immediately
exercisable and shall remain exercisable for a period of three (3) years from
the date of cessation of employment, but not beyond the end of the Option
Period, and (ii) in the case of an ISO, each Option and SAR shall, at such time
as it becomes exercisable under the Award Commitment covering such Option,
remain exercisable for a period of three (3) months from the cessation of
employment, but not beyond the end of the Option Period.
12.6.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards. If prior to the expiration of the
Performance or Restricted Period a Grantee who has been given a Performance
Share, Restricted Stock, Restricted Stock Unit, Phantom Unit or Cash Value Award
under the Plan shall cease to be employed by any Participating Subsidiary
because of a decrease in the Company's ownership interest in a Participating
Subsidiary to below 50% but at or above 20%, then all restrictions with respect
to such Performance Shares, Restricted Stock, Restricted Stock Units or Phantom
Units shall remain in effect until the end of the Performance Period or
Restricted Period; provided, however, the Committee may provide, as the case may
be, for an earlier payment in settlement of such Performance Shares, Restricted
Stock, Restricted Stock Units or Phantom Units and for payment of Cash Value
Awards, all in such amount and under such terms and conditions as the Committee
deems appropriate or desirable or make any other adjustment deemed appropriate
due to the decrease in Company ownership.
12.6.3 Performance Accelerated Stock Options. If prior to the
expiration of the PASO Period a Grantee who has been given a PASO Award under
the Plan shall cease to be employed by the Company or any Participating
Subsidiary because of a decrease in company ownership, the Grantor shall
determine the timing, terms and conditions of the exercise of the Award as the
Grantor deems appropriate or desirable except that no PASO may be exercised
beyond the end of the PASO Period.
SECTION 12.7 TERMINATION OF EMPLOYMENT FOR OTHER REASONS
12.7.1 Stock Options, SARs and Performance Accelerated Stock Options.
If the Grantee's employment terminates for any reason other than specified in
Sections 12.1, 12.2, 12.3, 12.4, 12.5 or 12.6, each Option, SAR and PASO shall
terminate; provided, however, the Grantor may provide for acceleration of the
vesting date and/or an earlier settlement of such PASOs in such amount and under
such terms and conditions as the Grantor deems appropriate or desirable.
12.7.2 Performance Share, Restricted Stock, Restricted Stock Unit,
Phantom Unit and Cash Value Awards. If prior to the expiration of the
Performance or Restricted Period a Grantee who has been given a Performance
Share, Restricted Stock, Restricted Stock Unit, Phantom Unit or Cash Value Award
under the Plan shall cease to be employed by the Company, any Participating
Subsidiary or Related Entity because of any reason other than specified in
Sections 12.1, 12.2, 12.3, 12.4, 12.5 or 12.6, then all Performance Share,
Restricted Stock, Restricted Stock Unit, Phantom Unit and Cash Value Awards
theretofore awarded to such Grantee as to which there still remains an unexpired
portion of the Performance or Restricted Period shall, upon such termination of
employment, be forfeited by such Grantee to the Company, without the payment of
any consideration by the Company; provided, however, the Grantor may provide for
settlement of a Cash Value Award in such amount, at such time and under such
terms and conditions as the Grantor deems appropriate or desirable. Thereafter,
neither the Grantee nor any heirs, assigns or personal representatives of such
Grantee shall have any further rights or interest in such Performance Share,
Restricted Stock, Restricted Stock Unit, Phantom Unit or Cash Value Awards, and
the Grantee's name shall thereupon be deleted from the list of the Company's
stockholders with respect to such Performance Shares or Restricted Stock.
Notwithstanding any other provisions of this Subsection 12.7.2, the value of any
vested and deferred Phantom Units shall be paid to the Grantee as soon as
practicable.
SECTION 12.8 TERMINATION DATE
Termination of employment of a Grantee for any of the reasons
enumerated in this Article XII shall, for purposes of the Plan, be deemed to
have occurred as of the date which is recorded in the ordinary course in the
Company books and records in accordance with the then-prevailing procedures and
practices of the Company.
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SECTION 12.9 REPORTING PERSON LIMITATION
Notwithstanding any other provision of this Article XII, a Grantee who
ceases to be a Reporting Person through retirement or any other termination of
employment shall not be entitled to exercise a SAR.
ARTICLE XIII
EXCHANGE AWARDS; ABOVE TARGET MICP AWARDS
SECTION 13.1 SALARY/BONUS REDUCTIONS
13.1.1 Restricted Stock. A Grantee (including those described in
Section 13.8) may elect to reduce and defer his or her current or future Base
Salary and/or earned Bonus and, thereafter, exchange such deferred amounts for
Restricted Stock. Such elections shall direct deferrals and exchanges on a
one-time (annual) basis or, in the alternative in the case of Base Salary, on an
ongoing basis covering a period not exceeding five (5) years. Should a Grantee
elect a one-time (annual) exchange, the deferred amounts shall be credited to
his or her deferred compensation account under this Plan and, thereafter, on the
third (3rd) business day following the public announcement of the Company's
annual earnings, the deferred amounts shall be exchanged for that number of
shares of Restricted Stock that equals the number of whole shares determined by
dividing the deferred amount forgone by 85% of the Fair Market Value of one
share of Common Stock on the date of the exchange. Should a Grantee elect an
exchange of Base Salary on an ongoing basis for a period of one year or less,
the number of shares of Restricted Stock he or she shall acquire through such
exchanges, which shall be effected on the third (3rd) business day following the
public announcement of the Company's annual earnings, shall be determined by
dividing the total projected deferred amounts forgone for the designated period
by 85% of the Fair Market Value of one share of Common Stock on the date of the
exchange. When the elected period extends beyond one year, the number of shares
of Restricted Stock acquired through such exchanges, which shall be effected on
the third (3rd) business day following the public announcement of the Company's
annual earnings, shall equal that number of whole shares of Restricted Stock
determined by dividing the discounted present value of the total projected
deferred amounts forgone for the designated period (using the appropriate
Treasury Bill rates for the applicable period) by 85% of the Fair Market Value
of one share of Common Stock on the date of the exchange. Restricted Stock
acquired pursuant to exchanges under this Subsection 13.1.1 shall have a
Restricted Period of not less than three (3) years (such Restricted Period to be
extended up to five (5) years to coincide with a deferral election that extends
beyond three (3) years), as determined by the Committee, and shall be subject to
all of the terms, conditions and provisions of Article VII, except as may
otherwise be determined by the Committee prior to their acquisition.
13.1.2 Options. A Grantee may elect to reduce and defer his or her
current or future Base Salary and/or earned Bonus and, thereafter, exchange such
deferred amounts for Nonqualified Options. Such elections shall direct deferrals
and exchanges on a one-time (annual) basis or, in the alternative in the case of
Base Salary, on an ongoing basis covering a period not exceeding five (5) years.
Should a Grantee elect a one-time (annual) exchange, the deferred amounts shall
be credited to his or her deferred compensation account under this Plan and,
thereafter, on the third (3rd) business day following the public announcement of
the Company's annual earnings, the deferred amounts shall be exchanged for that
number of Options as is determined by the Committee, in its discretion, to be
the equivalent in value of that number of whole shares of Restricted Stock
determined by dividing the deferred amount forgone by 85% of the Fair Market
Value of one share of the Common Stock on the date of the exchange. Should a
Grantee elect an exchange of Base Salary on an ongoing basis for a period of one
year or less, the number of Options he or she shall acquire through such
exchanges is that number of Options as is determined by the Committee, in its
discretion, to be the equivalent in value of that number of whole shares of
Restricted Stock determined by dividing the total projected deferred amount
forgone for the designated period by 85% of the Fair Market Value of one share
of Common Stock on the date of the exchange. When the elected period extends
beyond one year, the Options acquired through such exchanges, which shall be
effected on the third (3rd) business day following the public announcement of
the Company's annual earnings, shall be that number of Options determined by the
Committee, in its discretion, to be the equivalent in value of that number of
whole shares of Restricted Stock determined by dividing the discounted present
value of the total projected deferred amounts forgone for the designated period
(using the appropriate Treasury Bill rates for the applicable period) by 85% of
the Fair Market Value of one share of the Common Stock on the date of the
exchange. Options acquired pursuant to this Subsection 13.1.2 shall be
exercisable
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according to the following three (3)-year schedule (unless the Grantee's
employment with the Company or a Participating Subsidiary is terminated, in
which case the provisions of Section 13.3 or Article XII, as apposite, shall
govern):
40% of the Options will be exercisable beginning one year after the
exchange, a second 40% of the Options will be exercisable beginning two
(2) years after the exchange, and the final 20% of the Options will be
exercisable beginning three (3) years after the exchange;
and shall be subject to all of the terms, conditions and provisions of Article V
(as modified as to exercisability by this Subsection 13.1.2), except as may
otherwise be determined by the Committee prior to their acquisition.
SECTION 13.2 DEFERRED ACCOUNTS
13.2.1 Deferred Compensation Plan Accounts. Subject to the Company's
approval, amounts accrued under the Hercules Incorporated Deferred Compensation
Plan (other than under the Hercules Incorporated Non-qualified Savings Plan
portion thereof) may, upon the Grantee's request for a one-time (annual)
exchange, be surrendered in exchange for Restricted Stock and/or Nonqualified
Options. The number of shares of Restricted Stock and Options acquired in this
manner shall be determined in the same manner as is specified in Subsections
13.1.1 and 13.1.2, respectively, and all Restricted Stock and Options so
acquired shall be subject to all of the terms, conditions and provisions of
Subsections 13.1.1 and 13.1.2, respectively. Exchanges under this Subsection
13.2.1 shall be effected the third (3rd) business day after the first public
announcement of the Company's annual earnings.
13.2.2 Non-Qualified Savings Plan Accounts. Subject to the Company's
approval, amounts accrued under the Hercules Incorporated
Non-Qualified Savings Plan portion of the Hercules Deferred
Compensation Plan may, upon the Grantee's request for a
one-time (annual) exchange, be surrendered in exchange for
Restricted Stock and/or Nonqualified Options. The number of
shares of Restricted Stock and Options acquired in this manner
shall be determined in the same manner as is specified in
Subsections 13.1.1 and 13.1.2, respectively, except that the
computation in each case shall be based on 100% of the Fair
Market Value of one share of Common Stock rather than the 85%
of the Fair Market Value specified in Subsections 13.1.1 and
13.1.2. All Restricted Stock and Options so acquired shall be
subject to all of the terms, conditions and provisions of
Subsections 13.1.1 and 13.1.2, respectively. Exchanges under
this Subsection 13.2.2 shall be effected the third (3rd)
business day after the first public announcement of the
Company's annual earnings.
SECTION 13.3 TERMINATION OF EMPLOYMENT
13.3.1 Death, Disability and Reduction in Force. Notwithstanding any
provisions of Sections 12.2 and 12.4 to the contrary:
(a) If prior to the expiration of an applicable Restricted
Period a Grantee who has received Restricted Stock pursuant to
Subsections 13.1.1, 13.2.1 and/or 13.2.2 shall cease to be employed by
the Company by reason of Death, Disability, Reduction in Force or
Retirement directly attributable to a Reduction in Force, all
restrictions and forfeiture provisions under this Plan with respect to
the Restricted Stock exchanged pursuant to this Article XIII shall
lapse as of the date of termination of employment and delivery of such
shares shall be governed by the provisions of Section 7.6.
(b) If prior to the expiration of an applicable Option Period
a Grantee who has received Options pursuant to Subsections 13.1.2,
13.2.1 and/or 13.2.2 shall cease to be employed by the Company by
reason of Death, Disability, Reduction in Force or Retirement directly
attributable to a Reduction in Force, the Option Period shall be
adjusted to the lesser of the remaining Option Period or one year from
the date of employment termination. Notwithstanding the foregoing, the
Committee may, in its sole discretion, on a case-by-case basis,
determine for new Options, or extend for outstanding Options, the
period during which the Options may be exercised after the Grantee dies
or suffers a Disability, provided that such post-termination exercise
period may not extend beyond the expiration of the stated Option
Period.
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13.3.2 Retirement. Notwithstanding any provisions of Section 12.1 to
the contrary:
(a) In the event of Retirement (not directly attributable to a
Reduction in Force) by a Grantee who has received Restricted Stock
pursuant to Subsections 13.1.1, 13.2.1 and/or 13.2.2 prior to the
expiration of an applicable Restricted Period, that number of shares of
Restricted Stock equal to the amount attributable to the 15% discount
made available under this Article XIII, and prorated for the length of
time remaining in the Restricted Period, shall be forfeited and
returned to the Company.
(b) If prior to the expiration of an applicable Option Period
a Grantee who has received Options pursuant to Subsections 13.1.2,
13.2.1 and/or 13.2.2 shall cease to be employed by the Company by
reason of his or her Retirement (not directly related to a Reduction in
Force), the Option Period shall be adjusted to the lesser of the
remaining Option Period or five (5) years from the date of termination.
In the event of Retirement (not directly attributable to a Reduction in
Force) by a Grantee who has received Options pursuant to Subsections
13.1.2, 13.2.1 and/or 13.2.2, a number of Options equal to the amount
attributable to the 15% discount and prorated for the length of time
remaining in the period during which Options may not be exercised shall
be forfeited.
13.3.3 Resignation or Termination for Cause. Notwithstanding any
provisions of Sections 12.5 and 12.7 to the contrary:
(a) In the event a Grantee who has received Restricted Shares
pursuant to Subsections 13.1.1, 13.2.1 and/or 13.2.2 voluntarily
resigns (except for retirement with approval of the Company) or
terminates employment for reasons other than any of those specified in
Sections 12.1, 12.2, 12.3, 12.4 and 12.6 prior to the expiration of an
applicable Restricted Period, all shares of Restricted Stock shall be
forfeited and returned to the Company and such Grantee shall receive a
payment equal to the lower of the Fair Market Value of the Restricted
Shares forfeited or the original amount exchanged.
(b) In the event a Grantee who has received Options pursuant
to Subsections 13.1.2, 13.2.1 and/or 13.2.2 voluntarily resigns (except
for retirement with approval of the Company) or terminates employment
for reasons other than any of those specified in Sections 12.1, 12.2,
12.3, 12.4 and 12.6 prior to the expiration of the applicable Option
Period, all Options shall be forfeited and returned to the Company and
such Grantee shall receive a payment equal to the lower of a value (as
determined by the Committee) of the Options forfeited or the original
amount exchanged.
SECTION 13.4 AVOIDANCE OF PENSION DIMINUTION
13.4.1 Governing Provisions. Grantees electing Base Salary and/or Bonus
reductions under Section 13.1 may suffer a permanent diminution of their
qualified pension entitlement under the Hercules Pension Plan. To offset this
diminution in part, exchange awards in respect of pensions otherwise payable as
nonqualified pensions (as measured from the date of the APD Election defined
next below) may be requested within five (5) years of anticipated retirement.
Subject to the Committee's approval of such a request, all such exchanges shall
be effected in accordance with the provisions of this Section 13.4.
13.4.2 Exchange Awards. A Grantee who is within five (5) years (but not
less than one year) of his or her anticipated retirement date may elect ("APD
Election") to exchange the present value (as of the date of the APD Election) of
his or her projected benefits payable as of the Designated Retirement Date (as
defined below) under the Hercules Pension Restoration Plan (utilizing the method
and assumptions used to convert a pension to a partial cash payment under the
Hercules Pension Plan) for Restricted Stock issuable under Subsection 13.1.1
and/or Options granted under Subsection 13.1.2. Restricted Stock and/or Options
received in such an exchange shall be in substitution of any pension
entitlements under the Hercules Pension Restoration Plan, the rights to such
entitlements being forfeited and canceled in consideration of such exchange.
13.4.3 Designated Retirement Date. As a part of his or her APD
Election, a Grantee shall designate a retirement date ("Designated Retirement
Date"). In the event of any termination of employment prior to the Designated
Retirement Date, the following will apply:
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(a) If the Grantee elected Restricted Stock, that number of
Restricted Stock shares shall be forfeited as has a value (on the date
of his or her APD Election) equivalent to the present value determined
for purposes of Subsection 13.4.2 minus the present value (as of the
APD Election date) of the amount due under the Hercules Pension
Restoration Plan as of the date of actual retirement, utilizing the
method and assumptions used to convert a pension to a partial cash
payment under the Hercules Pension Plan. Further, in the event that the
Grantee's actual retirement date occurs within three (3) years of the
APD Election, the Grantee shall forfeit that number of Restricted Stock
shares (adjusted by the preceding sentence) attributable to the 15%
discount made available under Subsection 13.1.1 and prorated for the
length of time remaining in the three (3)- year period commencing with
the date of the APD Election.
(b) If the Grantee elected Nonqualified Options, that number
of Options shall be forfeited as the Committee in its discretion shall
determine has a value (on the date of his or her APD Election)
equivalent to the present value determined for purposes of Subsection
13.4.2 minus the present value (as of the date of his or her APD
Election) of the amount due under the Hercules Pension Restoration Plan
as of the date of actual retirement, utilizing the method and
assumptions used to convert a pension to a partial cash payment under
the Hercules Pension Plan. Further, in the event that the Grantee's
actual retirement date occurs within three (3) years of the APD
Election, the Grantee shall forfeit that number of Options as the
Committee in its discretion shall determine has a value equal to that
number of Restricted Stock shares (adjusted by the preceding sentence)
attributable to the 15% discount made available under Subsection 13.1.2
and prorated for the length of time remaining in the period commencing
with the date of the APD Election.
(c) Notwithstanding (a) and (b) next above, in the event of
the Grantee's death, Disability or termination of employment with the
consent of the Company, the Committee may, in its discretion, waive any
forfeitures otherwise applicable under this Subsection 13.4.3.
SECTION 13.5 IRREVOCABILITY
Any election under Sections 13.1, 13.2 or 13.4 shall be irrevocable.
SECTION 13.6 EQUIVALENCY
Notwithstanding any provision in this Article XIII to the contrary, all
elections under this Article XIII that involve an exchange of future
compensation or pension benefit entitlement shall in each instance be equalized
(that is, recalculated using actual numbers) at the expiration of the period
elected or termination of employment and forfeiture shall be applied, if
appropriate.
SECTION 13.7 MICP AWARDS
Any payout under the Management Incentive Compensation Plan for
performance above the target level Performance Goals for any Performance Period
shall be in that number of whole shares of Restricted Stock obtained by dividing
the dollar value of the payout by 85% of the Fair Market Value of one share of
Common Stock on the date of such award. Restricted Stock acquired pursuant to
this Section 13.7 shall be subject to all of the terms, conditions and
provisions of Article VII and Article XIII, except as may otherwise be
determined by the Committee prior to the Date of Award.
SECTION 13.8 DEFINITION
For purposes of this Article XIII, the term "Grantee" includes all
employees of the Company or any Participating Subsidiary who are designated by
the CEO to be eligible for purposes of this Article XIII.
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ARTICLE XIV
CERTAIN TERMS APPLICABLE TO ALL AWARDS
SECTION 14.1 WITHHOLDING TAXES
The Company shall withhold (or secure payment from the Grantee in lieu
of withholding) the amount of any withholding or other tax required by law to be
withheld or paid by the Company with respect to any amount payable and/or shares
issuable under such Grantee's Award, or with respect to any income recognized
upon a disqualifying disposition of shares received pursuant to the exercise of
an ISO, and the Company may defer payment or issuance of the cash or stock upon
exercise or vesting of an Award unless indemnified to its satisfaction against
any liability for any such tax. The amount of such withholding or tax payment
shall be determined by the Committee and shall be payable by the Grantee at the
time of delivery or when payment is made [except as otherwise payable under
Section 14.1(c)] in accordance with the following rules:
(a) With respect to Awards payable in cash, the Company will
withhold an amount sufficient to satisfy applicable Federal, state and
local tax withholding requirements and remit the net award to the
Grantee;
(b) With respect to Awards payable in stock, the Company will
notify the Grantee of the amount due from such Grantee to satisfy the
tax withholding requirements with respect to the stock. The Grantee
shall pay the amount due to satisfy the tax withholding requirements in
cash; provided, however, that the Grantee may elect to meet the tax
withholding requirement by requesting the Company, in writing, to
withhold from such Award and sell through a brokerage firm the
appropriate number of shares of Common Stock, rounded up to the next
whole number, which would result in proceeds equal to the tax
withholding requirement. Any election by a Grantee to have shares
withheld under this Section 14.1 shall be subject to such terms and
conditions as the Committee may specify, which may include that the
election shall be irrevocable and in the case of a Reporting Person,
the election to have shares withheld under this Section 14.1 must be
made either (i) not less than six (6) months prior to the date that the
tax is to be withheld by the Company, or (ii) during the period
beginning on the third business day following the date of the release
for publication of the Company's quarterly or annual summary statements
of earnings and ending on the twelfth business day following such date.
If the cash required (whether paid directly or indirectly through the
sale of stock election described above) is not received by the Company
within sixty (60) days of notification by the Company of the tax
withholding due, the Committee shall have the right to take whatever
action it deems appropriate, including voiding the Award. The Company
shall not deliver or pay the Award (net of the tax withholding) until
the tax withholding obligation is satisfied. At the time that all other
restrictions lapse (other than being subject to Section 16 of the Act)
a Reporting Person shall make the election described in Subsection (c)
below.
(c) If permitted under applicable Federal income tax laws, a
Grantee may elect to include in gross income for Federal income tax
purposes in the year in which a stock Award is made, an amount equal to
the Fair Market Value of the Award on the Date of Grant. If the Grantee
makes such an election, the Grantee shall promptly notify the Company
in writing and shall provide the Company with a copy of the executed
election form as filed with the Internal Revenue Service by no later
than thirty (30) days from the Date of the Grant. Promptly following
such notification, the Grantee shall pay directly to the Company, or
make arrangements satisfactory to the Committee, the cash amount
determined by the Company to be sufficient to satisfy applicable
Federal, state or local withholding tax requirements. If the Grantee
shall fail to make such payments, the Company and its Subsidiaries
shall, to the extent permissible by law, have the right to deduct from
any payment of any kind otherwise due to the Grantee any Federal, state
or local taxes of any kind required by law to be withheld with respect
to such Restricted Stock.
SECTION 14.2 ADJUSTMENTS TO REFLECT CAPITAL CHANGES
14.2.1 Recapitalization. In the event of any stock dividend, stock
split, combination or exchange of shares, merger, consolidation or other change
in capitalization with a similar substantive effect upon the Plan or the Awards
granted under the Plan, such adjustments shall be made in the number and kind of
shares subject to outstanding
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Awards, the Option Price for such shares and the number and kind of shares
available for Awards subsequently granted under the Plan as may be determined
appropriate by the Committee.
14.2.2 Sale or Reorganization. After any reorganization, merger or
consolidation in which the Company is the surviving corporation, each Grantee
shall, at no additional cost, be entitled upon any exercise of an Option or
receipt of other Award to receive (subject to any required action by
stockholders), in lieu of the number of shares of Common Stock receivable or
exercisable pursuant to such Award, the number and class of shares of stock or
other securities to which such Grantee would have been entitled pursuant to the
terms of the reorganization, merger or consolidation if, at the time of such
reorganization, merger or consolidation, such Grantee had been the holder of
record of a number of shares of stock equal to the number of shares receivable
or exercisable pursuant to such Award. Comparable rights shall accrue to each
Grantee in the event of successive reorganizations, mergers or consolidations of
the character described above.
14.2.3 Options to Purchase Stock of Acquired Companies. After any
reorganization, merger or consolidation in which the Company or a Subsidiary
shall be a surviving corporation, the Committee may grant substituted options
under the provisions of the Plan, pursuant to Section 424 of the Code, replacing
old options granted under a plan of another party to the reorganization, merger
or consolidation whose stock subject to the old options that may no longer be
issued following such merger or consolidation. The foregoing adjustments and
manner of application of the foregoing provisions shall be determined by the
Committee in its sole discretion. Any such adjustments may provide for the
elimination of any fractional shares which might otherwise become subject to any
Options.
SECTION 14.3 FAILURE TO COMPLY WITH TERMS AND CONDITIONS
Notwithstanding any other provision of the Plan, no payment or delivery
with respect to any Award shall be made, and all rights of the Grantee who
receives such Award (or his designated Beneficiary or legal representative) to
such payment or delivery under the Plan shall be forfeited, at the discretion of
the Committee, if, prior to the time of such payment or delivery, the Grantee
breaches a restriction or any of the terms, restrictions and/or conditions of
the Plan and/or the Award Commitment.
SECTION 14.4 FORFEITURE UPON OCCURRENCE OF CERTAIN EVENTS
Notwithstanding any other provision of the Plan, no payment of any
Award shall be made and all rights of the Grantee who received such Award (or
his designated Beneficiary or legal representative) to the payment thereof under
the Plan shall be forfeited if, prior to the time of such payment, the Grantee
(i) without the Company's consent, shall be employed by a competitor of, or
shall be engaged in any activity in competition with, the Company or a
Subsidiary; (ii) divulges without the consent of the Company any secret or
confidential information belonging to the Company or a Subsidiary; or (iii) has
been dishonest or fraudulent in any matter affecting the Company or a Subsidiary
or has committed any act which, in the sole judgment of the Committee, has been
substantially detrimental to the interests of the Company or a Subsidiary. The
Company shall give a Grantee written notice of the occurrence of any such event
prior to making any such forfeiture. The determination of the Committee as to
the occurrence of any of the events specified in clauses (i), (ii), and (iii) of
this Section 14.4 shall be conclusive and binding upon all persons for all
purposes. Any Award shall be subject to forfeiture for the reasons provided in
this Section 14.4 in such manner as shall be provided by the Committee.
SECTION 14.5 REGULATORY APPROVALS AND LISTING
The Company shall not be required to issue any certificate or
certificates for shares of Common Stock under the Plan prior to (i) obtaining
any approval from any governmental agency which the Company shall, in its
discretion, determine to be necessary or advisable, (ii) the admission of such
shares to listing on any national securities exchange on which the Company's
Common Stock may be listed, and (iii) the completion of any registration or
other qualification of such shares of Common Stock under any state or Federal
law or ruling or regulations of any governmental body which the Company shall,
in its discretion, determine to be necessary or advisable.
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SECTION 14.6 RESTRICTIONS UPON RESALE OF STOCK
If the shares of Common Stock that have been issued to a Grantee
pursuant to the terms of the Plan are not registered under the Securities Act of
1933, as amended ("Securities Act"), pursuant to an effective registration
statement, such Grantee, if the Committee shall deem it advisable, may be
required to represent and agree in writing (i) that any such shares acquired by
such Grantee pursuant to the Plan will not be sold except pursuant to an
effective registration statement under the Securities Act, or pursuant to an
exemption from registration under said Act and, (ii) that such Grantee is
acquiring such shares for his own account and not with a view to the
distribution thereof.
SECTION 14.7 REPORTING PERSON LIMITATION
Notwithstanding any other provision of the Plan, to the extent required
to qualify for the exemption provided by Rule 16b-3 under the Act, and any
successor provision, (1) any Common Stock or other equity security offered under
the Plan to a Reporting Person may not be sold for at least six (6) months after
the earlier of acquisition of the security or the date of grant of the
derivative security, if any, pursuant to which the Common Stock or other equity
security was acquired; and (2) any Option, SAR or other similar right related to
an equity security, issued under the Plan to a Reporting Person shall not be
transferable other than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order and shall be exercisable during
the Grantee's lifetime only by the Grantee or the Grantee's guardian or legal
representative.
ARTICLE XV
DISPUTES
If the employment of a Grantee with the Company or any Participating
Subsidiary shall terminate prior to the expiration of the Performance or
Restriction Period applicable to any Performance Share, Restricted Stock,
Restricted Stock Unit or Phantom Unit Award awarded to such Grantee and there
exists a dispute between such Grantee and the Company or the Committee as to the
satisfaction of the conditions to the release of such shares or units under the
Plan or the terms and conditions of the Performance Share, Restricted Stock,
Restricted Stock Unit, or Phantom Unit Award, the Performance Share, Restricted
Stock, Restricted Stock Unit or Phantom Unit Awards as to which such dispute
shall exist shall remain subject to the restrictions of the Plan until the
resolution of such dispute, regardless of any intervening expiration of the
Performance or Restriction Period originally applicable to such shares, except
that any dividends which may be declared and which may be payable to the
participant as of a date during the period from termination of such Grantee's
employment to the resolution of such dispute (the "Suspension Period") shall
(i) to the extent to which such dividends would have been
payable to such Grantee on such Performance Share, Restricted Stock,
Restricted Stock Unit or Phantom Unit Award, be held by the Company as
part of its general funds and shall be paid to or for the account of
such Grantee only upon, and in the event of, a resolution of such
dispute in a manner favorable to such Grantee and then only with
respect to such Performance Share, Restricted Stock, Restricted Stock
Unit or Phantom Unit Award as to which such resolution shall be so
favorable, and
(ii) in the event the dispute is resolved in a manner
unfavorable to the Grantee, be canceled as dividends payable upon
Performance Share, Restricted Stock, Restricted Stock Unit or Phantom
Unit Award as to which such resolution shall be so unfavorable.
In addition, to the extent that resolution of any such dispute shall be
unfavorable to the Grantee, the Performance Shares, Restricted Stock, Restricted
Stock Unit or Phantom Unit Award as to which such dispute shall have existed
shall be forfeited in accordance with the provisions of Article XII or Section
14.4.
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ARTICLE XVI
ADMINISTRATION OF THE PLAN
SECTION 16.1 COMMITTEE
The Plan shall be administered by or under the direction of the
Committee. No person shall be eligible or continue to serve as a member of the
Committee unless such person is a director of the Company and is a
"disinterested person" within the meaning of Rule 16b-3, and no person shall be,
or shall have been, eligible to receive an Award under the Plan to acquire
stock, stock options, stock appreciation rights, performance shares or
restricted stock of the Company or any Participating Subsidiary at any time
within the one (1) year immediately preceding the member's appointment to the
Committee.
SECTION 16.2 COMMITTEE ACTIONS
Except for matters required by the terms of this Plan to be decided by
the CEO or his designee or designees, the Committee shall have full power and
authority to interpret and construe the Plan, to prescribe, amend and rescind
rules, regulations, policies and practices, to impose such conditions and
restrictions on Awards as it deems appropriate and to make all other
determinations necessary or desirable in connection with the administration of,
or the performance of its responsibilities under, this Plan. Subject to the
limitations of provisions of Section 20.4, each decision, determination,
interpretation or other action of the Committee made or taken pursuant to grants
of authority under the Plan shall be final and shall be conclusive and binding
on all persons for all purposes. The Committee's decisions, determinations and
interpretations (including without limitations, the terms and provisions of such
awards and the agreements evidencing same) need not be uniform and may be made
selectively among Grantees who receive, or are eligible to receive, awards under
the Plan, whether or not such Grantees are similarly situated. The Committee
may, to the extent that any such action will not prevent the Plan from complying
with Rule 16b-3, delegate any of its powers and authority under the Plan as it
deems appropriate to designated officers or employees of the Company.
SECTION 16.3 NO LIABILITY OF COMMITTEE MEMBERS
As and to the extent provided by Section 20.5, no past, present or
future member of the Committee shall be personally liable by reason of any
contract or other instrument executed by him or on his behalf in his capacity as
a member of the Committee, nor for any mistake of judgment made in good faith,
and the Company shall indemnify and hold harmless each member of the Committee.
ARTICLE XVII
EFFECTIVE DATE, TERM OF THE PLAN AND STOCKHOLDER APPROVAL
The Plan became effective as of April 1, 1991, and was amended and
restated as of June 30, 1993, April 27, 1995, April 24, 1997, and is hereby
further amended and restated as of April 29, 1999. The termination date of the
Plan shall be April 30, 2002. No Award shall be granted under the Plan after
such termination date. The Plan will continue in effect for existing Awards as
long as any such Awards are outstanding.
ARTICLE XVIII
CHANGE IN CORPORATE CONTROL
SECTION 18.1 OPTIONS AND PASOS
In the event of a Change in Control, (i) all Options and PASOs
outstanding on the date of such Change in Control shall become immediately and
fully exercisable, and (ii) a Grantee who is an elected officer or director of
the Company will be permitted to surrender for cancellation within sixty (60)
days after such Change in Control any
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Option or PASO or portion thereof to the extent not yet exercised (or with
respect to an Option or PASO or portion thereof granted less than six (6) months
prior to the date of the Change in Control, within sixty (60) days after the
expiration of a six (6)-month period following the Date of Grant) and to receive
a cash payment in an amount equal to the excess, if any, of (x) in the case of a
Nonqualified Stock Option or PASO, the adjusted Fair Market Value of the Common
Stock subject to the Option or PASO or a portion thereof surrendered or (y) in
the case of an ISO, the Fair Market Value of the Common Stock subject to the
Option or PASO or portion thereof surrendered over the Option Price. The
provisions of this Section 18.1 shall be applicable to Nonqualified Stock
Options, PASOs or ISOs. The provisions of this Section 18.1 shall not be
applicable to any Options granted to a Grantee if any Change in Control results
from such Grantee's beneficial ownership (within the meaning of Rule 13d(3)
under the Act) of Common Stock or Company voting securities.
SECTION 18.2 SARS
In the event of a Change in Control, all SARs shall become immediately
and fully exercisable but not before any related ISO is exercisable. Upon any
exercise of a SAR (other than a SAR granted in tandem with a related ISO) or any
portion thereof during the sixty (60)-day period following the Change in
Control, (or with respect to a SAR granted to an officer or director of the
Company less than six (6) months prior to the date of the Change in Control,
within sixty (60) days after the expiration of a six (6) month period following
the Date of Grant) the amount payable shall be determined by reference to the
SAR Fair Market Value of the Common Stock and shall be paid in cash. SARs
granted in connection with ISOs will be payable as determined by reference to
the Fair Market Value of the Common Stock on the date of such exercise and shall
be paid in cash. The provisions of this Section 18.2 shall not be applicable to
any SARs granted to a Grantee if any Change in Control results from such
Grantee's beneficial ownership (within the meaning of Rule 13d(3) under the Act)
of Common Stock or Company voting securities.
SECTION 18.3 ALL OTHER AWARDS
In the event of a Change of Control, all Performance Share Awards,
Restricted Stock Awards, Phantom Unit Awards, Cash Value Awards, Other
Market-Based Awards (if any) and Other Performance-Based Awards (if any) shall
immediately vest and become fully payable within thirty (30) days after a Change
in Control to all Grantees who have been granted an Award. In the case of
Performance Share Awards and Cash Value Awards, all Awards shall vest at the
Maximum Award.
SECTION 18.4 DEFINITIONS
A Change in Control of the Company shall occur when there is an
unsolicited Change in Control of the Company that is not initiated by the
Company, and is of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Act, as in
effect on the effective date of the Plan; provided, however, that no Change in
Control shall be deemed to have occurred unless and until a "person" (as such
term is used in Sections 13(d) and 14(d)(2) of the Act) together with all
"affiliates" and "associates" of such person (as such terms respectively, are
defined in Rule 12b-2 of the General Rules and Regulations under the Act) is or
becomes a beneficial owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities.
ARTICLE XIX
AMENDMENT AND TERMINATION
SECTION 19.1 AMENDMENT
The Board reserves the right at any time or times to modify, alter or
amend, in whole or in part, any or all of the provisions of the Plan to any
extent and in any manner that it may deem advisable, and no consent or approval
by the stockholders of the Company or by any other person, committee or entity
of any kind shall be required to make any modification, alteration or amendment;
provided, however, that the Board shall not, without the requisite
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affirmative approval of the stockholders of the Company, make any modification,
alteration or amendment which (i) except as provided in Section 3, increases the
maximum number of shares of Common Stock available for Awards under this Plan,
(ii) decreases the Option Price to less than 100% of the Fair Market Value on
the Date of Grant of an Option, (iii) extends the period during which Awards may
be granted under the Plan beyond April 30, 2002, (iv) changes the employee (or
class of employees) eligible to receive Awards under the Plan, (v) materially
increase the benefits accruing to a Grantee under the Plan, or (vi) requires
stockholders' approval under Rule 16b-3 or the Code, unless such compliance is
no longer desired, or under any other applicable law. No modification,
alteration or amendment of the Plan may, without the consent of the Grantee
(Beneficiaries in case of his death) to whom any Award shall theretofore have
been granted under the Plan adversely affect any right of such Grantee under
such Award, except in accordance with the provisions of the Plan and/or any
Award Commitment applicable to any such Award. Subject to the provisions of this
Section 19.1, any modification, alteration or amendment of any provisions of the
Plan may be made retroactively.
SECTION 19.2 SUSPENSION OR TERMINATION
The Board reserves the right at any time to suspend or terminate, in
whole or in part, any or all of the provisions of the Plan for any reason and
without the consent of or approval by the stockholders of the Company, any
Grantee or Beneficiary or any other person, committee or entity of any kind;
provided, however, that no such suspension or termination shall affect any right
or obligation with respect to any Award theretofore made except as herein
otherwise provided.
SECTION 19.3 NO REPRICING OF OPTIONS
Notwithstanding any other provision in the Plan, the Board shall not
amend any outstanding Options to reduce the Option Price of such Option, nor
substitute new Options for previously granted Options having a higher Option
Price.
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ARTICLE XX
MISCELLANEOUS
SECTION 20.1 DEFERRAL ELECTION
At the discretion of the Committee payment of Phantom Units or any
other cash award, or any portion thereof, may be deferred by a Grantee until
such time as the Committee may establish. All such deferrals shall be
accomplished by the delivery of a written, irrevocable election by the Grantee
at such times prior to the time payment would otherwise be made as the Committee
shall determine. All deferrals shall be made in accordance with such rules and
regulations established by the Committee to ensure that such deferrals comply
with all applicable requirements of the Code and its regulations. Deferred
payments shall be paid in a lump sum or installments, as determined by the
Committee. The Committee also may credit interest at such rates to be determined
by the Committee.
SECTION 20.2 DESIGNATION OF BENEFICIARY
Each Grantee shall file with the Company a written designation of one
or more persons as the Beneficiary who shall be entitled to receive the Award,
if any, payable under the Plan upon his death. A Grantee may from time to time
revoke or change his Beneficiary designation without the consent of any prior
Beneficiary by filing a new designation with the Company. The last such
designation received by the Company shall be controlling; provided, however,
that no designation, or change or revocation thereof, shall be effective unless
received by the Company prior to the Grantee's death, and in no event shall it
be effective as of a date prior to such receipt. If no such Beneficiary
designation is in effect at the time of a Grantee's death, or if no designated
Beneficiary survives the Grantee or if such designation conflicts with law, the
Grantee's estate shall be entitled to receive the Award, if any, payable under
the Plan upon his death. If the Committee is in doubt as to the right of any
person to receive such Award, the Company may retain such Award, without
liability for any interest thereon, until the Committee determines the rights
thereto, or the Company may pay such Award into any court of appropriate
jurisdiction and such payment shall be a complete discharge of the liability of
the Company therefor.
SECTION 20.3 NO RIGHT TO AN AWARD OR TO CONTINUED EMPLOYMENT
No Grantee or other person shall have any claim or right to be granted
an Award under the Plan. Neither the action of the Company in establishing this
Plan, nor any provisions hereof, nor any action taken by the Company, any
Participating Subsidiary, the Committee or the CEO (or his designee or
designees) pursuant to such provisions shall be construed as creating in any
employee or class of employees any right with respect to continuation of
employment by the Company or any of the Participating Subsidiaries, and they
shall not be deemed to interfere in any way with the Company's or any
Participating Subsidiary's right to employ, discipline, discharge, terminate,
lay off or retire any Grantee with or without cause, to discipline any Employee,
or to otherwise affect the Company's right to make employment decisions with
respect to any Grantee.
SECTION 20.4 DISCRETION OF THE COMMITTEE AND THE CEO
Whenever the terms of the Plan provide for or permit a decision to be
made or an action to be taken by a Grantor, such decision may be made or such
action taken in the sole and absolute discretion of such Grantor and shall be
final, conclusive and binding on all persons for all purposes; provided,
however, that the Board may review any decision or action of the Grantor and if
the Board determines that any Award or other decision or act of the Grantor is
inequitable or contrary to the provisions of this Plan, it may reverse or modify
such Award, decision or act. As provided in Section 16.2 in the case of the
Grantor's determinations under the Plan, including, without limitation the
determination of the person to receive awards and the amount of such awards,
need not be uniform and may be made by him selectively among persons who
receive, or are eligible to receive, awards under this Plan, whether or not such
persons are similarly retired.
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SECTION 20.5 INDEMNIFICATION AND EXCULPATION
20.5.1 Indemnification. Each person who is or shall have been a member
of the Committee and each director, officer or employee of the Company or any
Participating Subsidiary to whom any duty or power related to the administration
or interpretation of this Plan may be delegated, shall be indemnified and held
harmless by the Company against and from any and all loss, cost, liability or
expense that may be imposed upon or reasonably incurred by him in connection
with or resulting from any claim, action, suit or proceeding to which he may be
or become a party or in which he may be or became involved by reason of any
action taken or failure to act under this Plan and against and from any and all
amounts paid by him in settlement thereof (with the Company's written approval)
or paid by him in satisfaction of a judgment in any such action, suit or
proceeding, except a judgment in favor of the Company based upon a finding of
his bad faith; subject, however, to the condition that upon the institution of
any claim, action, suit or proceeding against him, he shall in writing give the
Company an opportunity, at its own expense, to handle and defend the same before
he undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other right to which such person
may be entitled under the Company's Restated Certificate of Incorporation, as a
matter of law or otherwise, or any power that the Company may have to indemnify
him or hold him harmless.
20.5.2 Exculpation. Each member of the Committee, and each director,
officer and employee of the Company or of any Participating Subsidiary shall be
fully justified in relying or acting upon in good faith any information
furnished in connection with the administration of this Plan by any appropriate
person or persons other than himself. In no event shall any person who is or
shall have been a member of the Committee, or a director, officer or employee of
the Company or any Participating Subsidiary be liable for any determination made
or other action taken or any omission to act in reliance upon such report or
information, for any action (including the furnishing of information) taken or
any failure to act, if in good faith.
SECTION 20.6 UNFUNDED PLAN
This Plan is intended to constitute an unfunded, long-term incentive
compensation plan for certain selected employees. No special or separate fund
shall be established and no segregation of assets shall be made to assure
payment of such amounts, except as expressly set forth in the Plan with respect
to Restricted Stock or Performance Shares held in custody accounts. The Company
may, but shall not be obligated to, acquire shares of its Common Stock from time
to time in anticipation of its obligations under the Plan, but no Grantee shall
have any right in or against any shares of stock so acquired. All such stock
shall constitute general assets of the Company and may be disposed of by the
Company at such time and for such purposes as it may deem appropriate. No
obligation or liability of the Company to any Grantee with respect to any right
to receive a distribution or payment under the Plan shall be deemed to be
secured by any pledge or other encumbrance on any property of the Company.
SECTION 20.7 INALIENABILITY OF RIGHTS AND INTERESTS
The rights and interests of a Grantee under this Plan are personal to
the Grantee and to any person or persons who may become entitled to distribution
or payments under the Plan by reason of death of the Grantee, and the rights and
interests of the Grantee or any such person (including, without limitation, any
Award distributable or payable under the Plan) shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any such attempted action shall be void and no such
benefit or interest shall be any manner liable for or subject to debts,
contracts, liabilities, engagements or torts of any Grantees. If any Grantee
shall attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber
or charge any of his rights or interests under the Plan, (including without
limitation, any Award payable under the Plan) then the Committee may hold or
apply such benefit or any part thereof to or for the benefit of such Grantee or
his Beneficiary, his spouse, children, blood relatives or other dependents, or
any of them, in such manner and in such proportions as the Committee may
consider proper.
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SECTION 20.8 AWARDS NOT INCLUDABLE FOR BENEFIT PURPOSES
Payments received by a Grantee pursuant to the provisions of the Plan
shall not be included in the determination of benefits under any pension, group
insurance or other benefit plan applicable to the Grantee which are maintained
by the Company or any of its Subsidiaries, except as may be determined by the
Board.
SECTION 20.9 NO ISSUANCE OF FRACTIONAL SHARES
The Company shall not be required to deliver any fractional share of
Common Stock but, as determined by the Committee, may pay in lieu thereof,
except as otherwise provided in this Plan, the Fair Market Value (determined as
of the date of payment the restrictions terminate) of such fractional share to
the Grantee or the Grantee's beneficiary, as the case may be.
SECTION 20.10 MODIFICATION FOR OVERSEAS GRANTEES
Notwithstanding any provision to the contrary, the Committee may
incorporate such provisions, or make such modifications or amendments in Award
Commitments of Grantees who reside or are employed outside of the United States
of America, or who are citizens of a country other than the United States of
America, as the Committee deems necessary or appropriate to accomplish the
purposes of the Plan with respect to such Grantee in light of differences in
applicable law, tax policies or customs, and to ascertain compliance with all
applicable laws.
SECTION 20.11 LEAVES OF ABSENCE
The Committee shall be entitled to make such rules, regulations and
determinations as it deems appropriate under the Plan in respect of any leave of
absence taken by the recipient of any Award. Without limiting the generality of
the foregoing, the Committee shall be entitled to determine (a) whether or not
any such leave of absence shall constitute a termination of employment within
the meaning of the Plan and, (b) the impact, if any, of any such leave of
absence on awards under the Plan theretofore made to any recipient who takes
such leave of absence.
SECTION 20.12 COMMUNICATIONS
20.12.1 Communications by the Committee. All notices, statements,
reports and other communications made, delivered or transmitted to a Grantee,
Beneficiary or other person under this Plan shall be deemed to have been duly
given, made or transmitted when delivered to, or when mailed by first-class
mail, postage prepaid and addressed to, such Grantee, Beneficiary or other
person at his address last appearing on the records of the Committee.
20.12.2 Communications by the Participants and Others. All elections,
designations, requests, notices, instructions and other communications made,
delivered or transmitted by the Company, a Participating Subsidiary, Grantee,
Beneficiary or other person to the Committee required or permitted under this
Plan shall be in such form as is prescribed from time to time by each such
Committee, shall be mailed by first-class mail or delivered to such location as
shall be specified by each such Committee, and shall be deemed to have been
given and delivered only upon actual receipt thereof by such Committee at such
location.
SECTION 20.13 PARTIES IN INTEREST
The provisions of the Plan and the terms and conditions of any Award
shall, in accordance with their terms, be binding upon, and inure to the benefit
of, all successors of each Grantee, including, without limitation, such
Grantee's estate and the executors, administrators, or trustees thereof, heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Grantee. The obligations of the Company under the Plan shall
be binding upon the Company and its successors and assigns.
SECTION 20.14 SEVERABILITY
Whenever possible, each provision in the Plan and every Award at any
time granted under the Plan shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of the Plan or
any
39
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Award at any time granted under the Plan shall be held to be prohibited by or
invalid under applicable law, then (a) such provision shall be deemed amended to
accomplish the objectives of the provision as originally written to the fullest
extent permitted by law, and (b) all other provisions of the Plan and every
other Award at any time granted under the Plan shall remain in full force and
effect.
SECTION 20.15 COMPLIANCE WITH LAWS
The Plan and the grant of Awards shall be subject to all applicable
Federal and state laws, rules and regulations and to such approvals by any
government or regulatory agency as may be required. It is intended that the Plan
be applied and administered in compliance with Rule 16b-3. If any provision of
the Plan would be in violation of Rule 16b-3 if applied as written, such
provision shall not have effect as written and shall be given effect so as to
comply with Rule 16b-3, as determined by the Committee. The Board is authorized
to amend the Plan and to make any such modifications to Award Commitments to
comply with Rule 16b-3, and to make any such other amendments or modifications
as it deems necessary or appropriate to better accomplish the purposes of the
Plan in light of any amendments made to Rule 16b-3.
SECTION 20.16 NO STRICT CONSTRUCTION
No rule of strict construction shall be implied against the Company,
the Committee, the CEO or any other person in the interpretation of any of the
terms of the Plan, any Award granted under the Plan or any rule or procedure
established by the Committee.
SECTION 20.17 MODIFICATION
This document contains all of the provisions of the Plan and no
provisions may be waived, modified or otherwise altered except in a writing
adopted by the Board.
SECTION 20.18 GOVERNING LAW
All questions pertaining to validity, construction and administration
of the Plan and the rights of all persons hereunder shall be determined with
reference to, and the provisions of the Plan shall be governed by and shall be
construed in conformity with, the internal laws of the State of Delaware.
40
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Exhibit 10-L
BETZDEARBORN INC.
EMPLOYEE STOCK OWNERSHIP AND 401(K) PLAN
(As Amended and Restated Effective January 1, 1998)
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TABLE OF CONTENTS
<TABLE>
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SECTION 1 DEFINITIONS...................................................................................... 2
1.1 ACCOUNTS......................................................................................... 2
1.2 ACCRUED BENEFIT.................................................................................. 2
1.3 AFFILIATE........................................................................................ 2
1.4 APPROPRIATE FORM................................................................................. 2
1.5 BOARD OF DIRECTORS............................................................................... 2
1.6 CODE............................................................................................. 2
1.7 COMMITTEE........................................................................................ 2
1.8 COMMON STOCK..................................................................................... 2
1.9 COMPANY.......................................................................................... 2
1.10 COMPANY STOCK.................................................................................... 2
1.11 COMPANY STOCK ACCOUNT............................................................................ 2
1.12 COMPENSATION..................................................................................... 2
1.13 COMPENSATION DEFERRAL CONTRIBUTION............................................................... 3
1.14 COMPENSATION DEFERRAL PERCENTAGE................................................................. 3
1.15 DIVERSIFICATION ACCOUNT.......................................................................... 3
1.16 EFFECTIVE DATE................................................................................... 3
1.17 ELIGIBLE EMPLOYEE................................................................................ 3
1.18 EMPLOYEE......................................................................................... 3
1.20 EXEMPT LOAN...................................................................................... 3
1.21 401(K) ACCOUNT................................................................................... 3
1.22 INVESTMENT FUND.................................................................................. 4
1.23 INVESTMENT VEHICLE............................................................................... 4
1.24 LEASED EMPLOYEE.................................................................................. 4
1.25 MATCHING ACCOUNT................................................................................. 4
1.26 MATCHING CONTRIBUTIONS........................................................................... 4
1.27 MATCHING PERCENTAGE.............................................................................. 4
1.28 MAXIMUM COMPENSATION DEFERRAL MATCHING PERCENTAGE................................................ 4
1.29 NORMAL RETIREMENT AGE............................................................................ 4
1.30 NORMAL RETIREMENT DATE........................................................................... 4
1.31 OTHER INVESTMENTS ACCOUNT........................................................................ 4
1.32 PARTICIPANT...................................................................................... 4
1.33 PAYSOP ACCOUNT................................................................................... 4
1.34 PLAN............................................................................................. 4
1.35 PLAN ADMINISTRATOR............................................................................... 4
1.36 PREFERRED STOCK.................................................................................. 5
1.37 QUALIFIED ELECTION PERIOD........................................................................ 5
1.38 QUALIFIED PARTICIPANT............................................................................ 5
1.39 ROLLOVER ACCOUNT................................................................................. 5
1.40 STOCK BONUS ACCOUNT.............................................................................. 5
1.41 STOCK BONUS PLAN................................................................................. 5
1.42 SUSPENSE SUBFUND................................................................................. 5
1.43 TRUST............................................................................................ 5
1.44 TRUST AGREEMENT.................................................................................. 5
1.45 TRUST FUND....................................................................................... 5
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1.46 TRUSTEE......................................................................................... 5
1.47 VALUATION DATE.................................................................................. 5
1.48 VOLUNTARY ACCOUNT............................................................................... 5
SECTION 2 SERVICE......................................................................................... 6
2.1 HOUR OF SERVICE................................................................................. 6
2.2 ELIGIBILITY COMPUTATION PERIOD.................................................................. 8
2.3 YEAR OF ELIGIBILITY SERVICE..................................................................... 8
2.4 YEAR OF VESTING SERVICE......................................................................... 8
2.5 ONE-YEAR BREAK IN SERVICE....................................................................... 8
2.6 NO PARITY BREAK................................................................................. 8
2.7 SERVICE WITH A FOREIGN AFFILIATE................................................................ 8
SECTION 3 PARTICIPATION................................................................................... 9
3.1 CONTINUED PARTICIPATION OF PARTICIPANTS AS OF DECEMBER 31, 1997................................. 9
3.2 ELIGIBILITY AND PARTICIPATION................................................................... 9
3.3 PARTICIPATION AFTER BREAK IN SERVICE............................................................ 9
3.4 LEASED EMPLOYEES................................................................................ 9
SECTION 4 COMPANY CONTRIBUTIONS........................................................................... 9
4.1 COMPANY CONTRIBUTIONS........................................................................... 9
4.2 TIME OF PAYMENT................................................................................. 9
4.3 CONTRIBUTIONS IRREVOCABLE....................................................................... 10
SECTION 5 PARTICIPANTS' ACCOUNTS AND INVESTMENT THEREOF; EXEMPT LOANS..................................... 10
5.1 ACCOUNTS........................................................................................ 10
5.2 INVESTMENT OF TRUST FUND........................................................................ 10
5.3 EXEMPT LOAN..................................................................................... 10
5.4 DIVERSIFICATION OF INVESTMENTS.................................................................. 11
SECTION 6 ALLOCATION OF CONTRIBUTIONS..................................................................... 12
6.1 PARTICIPANTS ENTITLED TO ALLOCATION............................................................. 12
6.2 ALLOCATION OF COMPANY STOCK CONTRIBUTIONS....................................................... 12
6.3 ALLOCATION OF OTHER CONTRIBUTIONS............................................................... 12
6.4 ALLOCATION OF COMPANY STOCK ACQUIRED WITH EXEMPT LOAN........................................... 12
6.5 RELEASE FROM SUSPENSE SUBFUND................................................................... 13
6.6 ALLOCATION OF SHARES RELEASED FROM SUSPENSE SUBFUND............................................. 14
6.7 ALLOCATION OF FORFEITURES....................................................................... 14
SECTION 7 VALUATION....................................................................................... 14
7.1 VALUATION....................................................................................... 14
7.2 ALLOCATION OF GAINS AND LOSSES.................................................................. 15
7.3 DIVIDENDS ON COMPANY STOCK...................................................................... 15
SECTION 8 401(K) PLAN..................................................................................... 16
8.1 DEFINITIONS..................................................................................... 16
8.2 PARTICIPANT COMPENSATION DEFERRALS.............................................................. 17
8.3 COMPANY MATCHING CONTRIBUTIONS.................................................................. 17
8.4 DESIGNATION OF ACCOUNT.......................................................................... 18
8.5 CHANGING RATES OF CONTRIBUTION.................................................................. 18
</TABLE>
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8.6 WITHDRAWALS OF COMPENSATION DEFERRAL CONTRIBUTIONS.............................................. 18
8.7 RESTRICTIONS.................................................................................... 19
8.8 PERIODS OF ABSENCE.............................................................................. 19
8.9 TERMINATION OF CONTRIBUTIONS.................................................................... 19
8.10 LIMITATION ON COMPENSATION DEFERRAL CONTRIBUTIONS............................................... 19
8.11 LIMITATIONS ON MATCHING CONTRIBUTIONS........................................................... 20
8.12 ELECTION TO USE CURRENT PLAN YEAR............................................................... 21
8.13 DISTRIBUTION OF EXCESS DEFERRALS................................................................ 22
8.14 DISTRIBUTION OF EXCESS CONTRIBUTIONS............................................................ 22
8.15 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS.................................................. 23
8.16 DESIGNATION AS PROFIT-SHARING PLAN.............................................................. 24
8.17 PARTICIPANT ROLLOVER CONTRIBUTION............................................................... 24
8.18 LOANS........................................................................................... 24
SECTION 9 BENEFITS AND DISTRIBUTIONS...................................................................... 26
9.1 VESTING......................................................................................... 26
9.2 AMOUNT, METHOD, FORM OF BENEFIT PAYMENTS........................................................ 26
9.3 NORMAL AND LATE RETIREMENT...................................................................... 27
9.4 VESTED DEFERRED BENEFITS........................................................................ 27
9.5 DISABILITY RETIREMENT........................................................................... 28
9.6 DEATH........................................................................................... 28
9.7 DESIGNATION OF BENEFICIARY AND FORM OF PAYMENT OF DEATH BENEFIT;
SPOUSE'S CONSENT TO NON-SPOUSE BENEFICIARY...................................................... 28
9.8 SPECIAL PROVISION AS TO TIMING OF DISTRIBUTIONS................................................. 29
9.9 REQUIREMENTS CONCERNING DISTRIBUTIONS........................................................... 29
9.10 PUT OPTIONS ON DISTRIBUTED SHARES OF CERTAIN COMPANY STOCK...................................... 30
9.11 DIRECT ROLLOVERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS MADE FROM THIS PLAN......................... 31
9.12 PARTICIPANT'S CONSENT TO DISTRIBUTION OF BENEFITS............................................... 31
SECTION 10 LIMITATIONS ON CONTRIBUTIONS.................................................................... 32
10.1 DEFINITIONS FOR LIMITATIONS ON CONTRIBUTIONS.................................................... 32
10.2 BASIC LIMITATION................................................................................ 33
10.3 COMBINED LIMIT WITH PENSION PLAN................................................................ 34
10.4 COMBINING AND AGGREGATING PLANS................................................................. 34
SECTION 11 TOP-HEAVY PROVISIONS............................................................................ 34
11.1 TOP-HEAVY PREEMPTION............................................................................ 34
11.2 TOP-HEAVY DEFINITIONS........................................................................... 34
11.3 TOP-HEAVY RULES................................................................................. 36
11.4 IMPACT ON MAXIMUM BENEFITS...................................................................... 37
11.5 CHANGE IN TOP-HEAVY STATUS...................................................................... 37
11.6 DUPLICATION OF MINIMUM CONTRIBUTIONS NOT REQUIRED............................................... 37
11.7 REPEAL OF LIMITATION............................................................................ 37
SECTION 12 NONALIENATION OF BENEFITS....................................................................... 37
12.1 NONALIENATION RULE.............................................................................. 37
SECTION 13 FIDUCIARY RESPONSIBILITY........................................................................ 38
13.1 FIDUCIARY DUTIES................................................................................ 38
13.2 ALLOCATION OF RESPONSIBILITY.................................................................... 38
13.3 NO JOINT RESPONSIBILITY......................................................................... 39
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13.4 NO CO-FIDUCIARY LIABILITY.......................................................................39
13.5 ACT IN INTEREST OF PARTICIPANTS.................................................................39
13.6 EMPLOYMENT OF ADVISORS..........................................................................39
13.7 TRANSFER OR MAINTENANCE OF INDICIA OF OWNERSHIP OF PLAN ASSETS
OUTSIDE UNITED STATES PROHIBITED................................................................40
13.8 PROHIBITED TRANSACTIONS.........................................................................40
SECTION 14 ADMINISTRATION OF PLAN 00 STOCK BONUS PROFIT SHARING/RETIREMENT
COMMITTEE AND PLAN ADMINISTRATOR................................................................42
14.1 MEMBERS OF COMMITTEE............................................................................42
14.2 OFFICERS AND EMPLOYEES OF THE COMMITTEE.........................................................42
14.3 ACTION OF COMMITTEE.............................................................................42
14.4 DISQUALIFICATION OF COMMITTEE MEMBER............................................................43
14.5 EXPENSES OF COMMITTEE...........................................................................43
14.6 POWERS OF THE COMMITTEE.........................................................................43
14.7 ALLOCATION OF FIDUCIARY RESPONSIBILITY..........................................................43
14.8 PLAN ADMINISTRATOR AND HIS GENERAL POWERS.......................................................43
14.9 GENERAL DUTIES OF THE PLAN ADMINISTRATOR........................................................43
14.10 INFORMATION TO BE SUBMITTED BY COMPANY TO THE PLAN ADMINISTRATOR................................44
14.11 CLAIM PROCEDURE.................................................................................44
14.12 SERVICE OF LEGAL PROCESS........................................................................46
14.13 DISCRETIONARY AUTHORITY.........................................................................46
SECTION 15 THE TRUSTEE AND TRUST...........................................................................46
15.1 THE TRUST.......................................................................................46
15.2 ACTIONS AND RESPONSIBILITY OF TRUSTEE...........................................................46
15.3 PAYMENTS........................................................................................46
15.4 RESIGNATION AND REMOVAL OF TRUSTEE..............................................................46
15.5 VOTING RIGHTS AND TENDER OFFERS.................................................................46
SECTION 16 PLAN AMENDMENT, MERGER OR CONSOLIDATION.........................................................48
16.1 AMENDMENT.......................................................................................48
SECTION 17 PLAN TERMINATION................................................................................49
17.1 DISCONTINUANCE OF CONTRIBUTIONS OR TERMINATION..................................................49
SECTION 18 TRANSFERS OF 401(K) ACCOUNTS, MATCHING, STOCK BONUS, VOLUNTARY, AND DIVERSIFICATION ACCOUNTS
FROM THE STOCK BONUS PLAN.......................................................................49
18.1 TRANSFERS OF 401(K), MATCHING, STOCK BONUS, VOLUNTARY, AND DIVERSIFICATION
ACCOUNTS FROM THE STOCK BONUS PLAN.............................................................49
18.2 DISTRIBUTIONS AND WITHDRAWALS OF AMOUNTS ATTRIBUTABLE TO AMOUNTS TRANSFERRED....................50
18.3 TRANSFER TO DIVERSIFICATION ACCOUNT.............................................................51
18.4 PROTECTED FORMS OF DISTRIBUTION.................................................................51
SECTION 19 TRANSFERS OF PAYSOP ACCOUNTS FROM THE STOCK BONUS PLAN..........................................51
19.1 TRANSFERS OF PAYSOP ACCOUNTS FROM THE STOCK BONUS PLAN..........................................51
19.2 INCOME ON PAYSOP ACCOUNTS.......................................................................51
19.3 NONFORFEITABLE RIGHT TO ALLOCATED COMMON STOCK..................................................52
19.4 ADMINISTRATIVE EXPENSES.........................................................................52
19.5 DIVERSIFICATION WITHDRAWALS.....................................................................52
</TABLE>
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19.6 DISTRIBUTIONS OF PAYSOP ACCOUNTS................................................................53
SECTION 20 MISCELLANEOUS...................................................................................53
20.1 PARTICIPATION BY AFFILIATES WITH CONSENT OF BETZDEARBORN INC....................................53
20.2 APPLICATION OF PLAN.............................................................................53
20.3 NO EMPLOYMENT RIGHTS CREATED....................................................................53
20.4 INCAPACITATED PARTICIPANT OR BENEFICIARY........................................................54
20.5 PAYMENT OF PLAN EXPENSES........................................................................54
20.6 UNCLAIMED BENEFITS..............................................................................54
20.7 TREATMENT OF LEASED EMPLOYEES...................................................................54
20.8 CONSTRUCTION....................................................................................54
SECTION 21 SPECIAL PROVISIONS CONCERNING CERTAIN FORMER EMPLOYEES
OF THE GRACE GROUP..............................................................................54
21.1 DEFINITIONS.....................................................................................54
21.2 PARTICIPATION BY CERTAIN EMPLOYEES OF THE DEARBORN BUSINESS.....................................55
21.3 YEARS OF VESTING SERVICE........................................................................55
21.4 ALLOCATION OF COMPANY STOCK CONTRIBUTION FOR 1996...............................................55
</TABLE>
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BETZDEARBORN INC.
EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN
(As Amended and Restated January 1, 1998)
WHEREAS, BETZDEARBORN INC. (the "Company") (formerly named
"Betz Laboratories, Inc."), a Pennsylvania corporation, established the
BetzDearborn Inc. Employee Stock Ownership and 401(k) Plan (the "Plan")
(formerly named the "Betz Laboratories, Inc. Employee Stock Ownership and 401(k)
Plan"), effective as of January 1, 1989, for the purpose of providing the
employees eligible to participate in the Plan the opportunity to share in the
success of the Company through stock ownership;
WHEREAS, the Plan was most recently amended and restated
effective January 1, 1995 and has been amended on three occasions thereafter;
WHEREAS, in Section 16.1 of the Plan, the Company has reserved
the right to amend the Plan, with certain inapplicable limitations;
WHEREAS, the Company desires to amend and restate the Plan to
consolidate such three amendments and to make certain other changes;
WHEREAS, the ESOP will continue to be maintained for the
exclusive benefit of eligible employees and their beneficiaries (within the
meaning of section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code")), and is intended to continue to qualify as an "employee stock ownership
plan," as defined in section 4975(e)(7) of the Code and as a stock bonus plan
under section 401(a) of the Code with a cash or deferred arrangement under
section 401(k) of the Code;
NOW, THEREFORE, effective January 1, 1998, the BetzDearborn
Inc. Employee Stock Ownership and 401(k) Plan is hereby amended and restated;
1
<PAGE> 8
SECTION 1
DEFINITIONS
The following words and phrases, as used herein, shall have the
following meanings, unless the context clearly indicates otherwise:
1.1 "Accounts" shall mean a Participant's Company Stock Account, 401(k)
Account, Matching Account, Rollover Account and Other Investments Account.
"Accounts" shall also include a Participant's 401(k), Matching, PAYSOP, Stock
Bonus, Voluntary, and Diversification Account, if any, transferred from the
Stock Bonus Plan.
1.2 "Accrued Benefit" shall mean the sum of the amounts credited to a
Participant's Accounts.
1.3 "Affiliate" shall mean any corporation which is a member of a
controlled group of corporations, as defined in section 414(b) of the Code, of
which the Company is a member; any other trade or business which is under common
control, as defined in section 414(c) of the Code, with the Company; any trade
or business which is a member of an affiliated service group, as defined in
section 414(m) of the Code, of which the Company is a member; and any entity
required to be aggregated with the Company pursuant to section 414(o) of the
Code. For purposes of applying sections 414(b) and 414(c) of the Code to the
limitations on contributions set forth in Section X, the phrase "more than 50
percent" shall be substituted for the phrase "at least 80 percent" each place it
appears in section 1563(a)(1) of the Code.
1.4 "Appropriate Form" shall mean the form provided or prescribed by
the Plan Administrator for the particular purpose.
1.5 "Board of Directors" shall mean the Board of Directors of
BetzDearborn Inc., as such Board may be constituted from time to time.
1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.7 "Committee" shall mean the Stock Bonus Profit Sharing/ Retirement
Plan Committee appointed by the Board to establish the guidelines for
administration and operation of the Plan and to perform such other duties as are
prescribed in Section XIV.
1.8 "Common Stock" shall mean voting common shares issued by
BetzDearborn Inc. (formerly named "Betz Laboratories, Inc."), its being intended
that such Common Stock constitute "qualifying employer securities" within the
meaning of section 4975(e)(8) of the Code.
1.9 "Company" shall mean BetzDearborn Inc. (formerly named "Betz
Laboratories, Inc.") and any other corporation which adopts this Plan in
accordance with the provisions of Section 20.1.
1.10 "Company Stock" shall mean Preferred Stock and/or Common Stock.
1.11 "Company Stock Account" shall mean the account established by the
Plan Administrator for each Participant to which Company Stock allocated to the
Participant under Section 6.2, 6.6(a), or 6.6(b) is credited.
1.12 "Compensation" shall mean an Eligible Employee's base salary or
wages, including any shift premium pay, overtime pay, incentive compensation,
commissions and bonuses paid pursuant to any
2
<PAGE> 9
established plan, but excluding any special bonuses, deferred compensation or
compensation earned pursuant to the Company's Employee Stock Incentive Plan,
except that Compensation shall include the amount includable in the taxable
gross income of an employee making an election described in section 83 of the
Code. Compensation shall include an Eligible Employee's Compensation Deferral
Contribution, if any. Compensation shall include Compensation paid by an
Affiliate which is a controlled foreign corporation pursuant to section 957 of
the Code. The Plan Administrator may establish rules for translating foreign
compensation into U.S. dollars.
The annual Compensation of each Participant taken into account under
the Plan shall not exceed $160,000, as adjusted by the Commissioner of Internal
Revenue for increases in the cost of living in accordance with section
401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a
calendar year shall apply to any period, not exceeding 12 months, beginning in
such calendar year over which Compensation is determined (the "determination
period"). If a determination period consists of fewer than 12 months, the
applicable limit (as adjusted) shall be multiplied by a fraction, the numerator
of which is the number of months in the determination period, and the
denominator of which is 12.
1.13 "Compensation Deferral Contribution" shall mean the amount of the
deferred compensation contributed to the Plan in accordance with Section 8.2.
1.14 "Compensation Deferral Percentage" shall mean any whole percentage
number by which a Participant may elect to have the Company reduce his
Compensation and make Compensation Deferral Contributions to the Plan.
1.15 "Diversification Account" shall mean the account established in
the Investment Fund by the Plan Administrator for each applicable Participant to
which such Participant's Diversification Account under the Stock Bonus Plan is
transferred, as provided under Section 18.1, and to which diversifications under
Section 18.3 are credited.
1.16 "Effective Date" shall mean January 1, 1989.
1.17 "Eligible Employee" shall mean any person employed by the Company
other than (i) a nonresident alien who receives no earned income (as defined in
section 911(b) of the Code) which constitutes United States source income (as
defined in section 861(a)(3) of the Code), or (ii) a person who receives all or
a portion of his Compensation from a Foreign Affiliate (as described in Section
2.7 of the Plan). The term "Eligible Employee" shall not include any person who
is classified as an independent contractor or a Leased Employee by the Company,
regardless of how such individual is classified by the Internal Revenue Service,
by any other governmental agency or government, or by any court.
1.18 "Employee" shall mean any individual employed by the Company or an
Affiliate.
1.19 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.20 "Exempt Loan" shall mean any loan to the Trust not prohibited by
section 4975(c) of the Code, including a loan which meets the requirements set
forth in section 4975(d)(3) of the Code and the regulations promulgated
thereunder, the proceeds of which are used to finance the acquisition of Company
Stock or to refinance such a loan.
1.21 "401(k) Account" shall mean the account established by the Plan
Administrator for each Participant to which Compensation Deferral Contributions
allocated to the Participant are credited.
3
<PAGE> 10
1.22 "Investment Fund" shall mean, in the aggregate, all of the 401(k)
Accounts, Other Investments Accounts, Rollover Accounts, Voluntary Accounts, and
Diversification Accounts established by the Plan Administrator.
1.23 "Investment Vehicle" shall mean any separate options available for
the investment of amounts credited to accounts in the Investment Fund.
1.24 "Leased Employee" shall mean a leased employee of the Company or
an Affiliate within the meaning of section 414(n)(2) of the Code.
Notwithstanding the foregoing, if all such leased employees constitute less than
twenty percent (20%) of the nonhighly compensated work force (within the meaning
of section 414(n)(5)(C)(ii) of the Code) of the Company and the Affiliates, the
term "Leased Employee" shall not include any leased employee covered by a plan
described in section 414(n)(5) of the Code.
1.25 "Matching Account" shall mean the account established by the Plan
Administrator for each Participant to which Matching Contributions allocated to
the Participant are credited.
1.26 "Matching Contributions" shall mean all amounts allocated to a
Participant's Matching Account.
1.27 "Matching Percentage" shall mean the rate at which the Company
matches each Participant's Compensation Deferral Percentage.
1.28 "Maximum Compensation Deferral Matching Percentage" shall mean the
greatest Compensation Deferral Percentage to be multiplied by the Matching
Percentage in the calculation of Matching Contributions.
1.29 "Normal Retirement Age" shall mean age 65.
1.30 "Normal Retirement Date" shall mean the first day of the month
following the month in which a Participant attains Normal Retirement Age.
1.31 "Other Investments Account" shall mean the account established by
the Plan Administrator for each Participant to which assets allocated to the
Participant other than Company Stock and Compensation Deferral Contributions are
credited.
1.32 "Participant" shall mean any Eligible Employee who meets or who
has met the eligibility requirements of Section 3 and who has commenced to
participate in the Plan pursuant to Section 3.2.
1.33 "PAYSOP Account" shall mean the account established by the Plan
Administrator for each applicable Participant to which such Participant's PAYSOP
Account under the Stock Bonus Plan is transferred, as provided under Section
19.1.
1.34 "Plan" shall mean the BetzDearborn Inc. Employee Stock Ownership
and 401(k) Plan (formerly named the "Betz Laboratories, Inc. Employee Stock
Ownership and 401(k) Plan"), as set forth in this document and as it may be
amended from time to time.
1.35 "Plan Administrator" shall mean the person designated by the Board
of Directors to execute the administrative functions required by the Board of
Directors, the Committee, the Plan and the Trust Agreement.
4
<PAGE> 11
1.36 "Preferred Stock" shall mean Series A ESOP Convertible Preferred
Stock issued by BetzDearborn Inc., (formerly named "Betz Laboratories, Inc.")
which is convertible into Common Stock, its being intended that such Preferred
Stock constitute "qualifying employer securities" within the meaning of section
4975(e)(8) of the Code.
1.37 "Qualified Election Period" shall mean the six-Plan-Year period
beginning with the first Plan Year in which the Participant becomes a Qualified
Participant.
1.38 "Qualified Participant" shall mean a Participant who has attained
age 55 and who has completed at least 10 years of participation in the Plan.
1.39 "Rollover Account" shall mean the account established by the Plan
Administrator for each applicable Participant to which assets rolled over to the
Plan by the Participant (including a direct rollover) to the Plan are credited.
A Participant's Rollover Account shall include a separate subaccount consisting
of the Participant's Matching Account, if any, transferred from the Stock Bonus
Plan.
1.40 "Stock Bonus Account" shall mean the account established by the
Plan Administrator for each applicable Participant to which such Participant's
Stock Bonus Account under the Stock Bonus Plan was transferred, as provided
under Section 18.1.
1.41 "Stock Bonus Plan" shall mean the Betz Laboratories, Inc. Stock
Bonus Profit Sharing and 401(k) Plan.
1.42 "Suspense Subfund" shall mean the subfund established pursuant to
Section 6.4 as part of the Trust Fund to hold Company Stock purchased with the
proceeds of an Exempt Loan pending the allocation of such Company Stock to
Participants' Company Stock Accounts.
1.43 "Trust" shall mean the BetzDearborn Inc. Employee Stock Ownership
and 401(k) Trust, created by the Trust Agreement.
1.44 "Trust Agreement" shall mean the agreement by and between the
Company and the Trustee, as it may be amended from time to time.
1.45 "Trust Fund" shall mean all cash and securities and all other
assets deposited with or acquired by the Trustee in its capacity as such
hereunder, together with accumulated income.
1.46 "Trustee" shall mean Putnam Fiduciary Trust Company, or its duly
appointed successor.
1.47 "Valuation Date" shall mean the date as of which the Investment
Vehicles are valued and Account balances are able to be determined under Section
5, which shall be each business day.
1.48 "Voluntary Account" shall mean the account established by the Plan
Administrator for each applicable Participant to which such Participant's
Voluntary Account under the Stock Bonus Plan is transferred, as provided under
Section 18.1. (Contributions to the Voluntary Account under the Stock Bonus Plan
were employee after-tax contributions.)
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<PAGE> 12
SECTION 2
SERVICE
2.1 "Hour of Service" shall mean each hour during the applicable
service computation period for which:
(a) an Employee is paid, or entitled to be paid, for the
performance of duties for the Company or an Affiliate;
(b) an Employee is paid, or is entitled to be paid, by the
Company or an Affiliate, on account of a period of time during which no duties
were performed (whether or not the employment relationship has terminated) due
to vacation, holiday, illness, incapacity (including disability, layoff, jury
duty, military duty or leave of absence); or
(c) back pay, determined without regard to mitigation of
damages, is either awarded, or agreed to be awarded, to an Employee by the
Company or an Affiliate, provided that no Hour of Service shall be credited
under this subsection (c) if such Hour of Service has been credited under either
subsection (a) or subsection (b).
Notwithstanding subsection (b),
(1) no more than 501 Hours of Service shall be credited under
subsection (b) to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not
such period occurs in a single computation period) except that during
any period not to exceed six months during which the Employee is
temporarily absent with the Company's or an Affiliate's authorization
for reasons such as sickness, short-term disability, maternity leave,
leave of absence, jury duty or layoff, such Employee shall be credited
with the number of Hours of Service during such period of absence equal
to those he would have received had he not been absent based on his
customary period of work;
(2) no Hour of Service shall be credited under subsection (b)
to an Employee indirectly paid, or entitled on account of a period
during which no duties are performed if such payment is made or due
under a plan maintained solely for the purposes of complying with any
applicable worker's compensation, unemployment compensation or
disability insurance laws;
(3) no Hour of Service shall be credited under subsection (b)
to an Employee for any payment which solely reimburses him for medical
or medically related expenses he has incurred; and
(4) no Hour of Service shall be credited under subsection (b)
to an Employee for any payments made or due to him under this Plan or
any other employee pension benefit plan maintained by the Company or an
Affiliate.
For purposes of subsection (b), a payment shall be deemed to
be made by, or due from, the Company or an Affiliate regardless of whether such
payment is made by, or due from, the Company or an Affiliate directly, or
indirectly through, among others, a trust fund, insurer, or other entity to
which the Company or an Affiliate contributes or pays premiums and regardless or
whether contributions made or due to the trust fund, insurer or other entity are
for the benefit of particular Employees or are on behalf of a group of Employees
in the aggregate.
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<PAGE> 13
An authorized leave of absence for service in active duty in
the Armed Forces of the United States shall not constitute a One-Year Break in
Service and an Employee shall receive, upon his return, in addition to the
credit for Hours of Service to which he is entitled under the provisions of this
section, such other credit for such military service as may be prescribed by
Federal laws relating to military service and veteran's reemployment rights.
In the case of a payment which is made, or due, on account of
a period during which an Employee performs no duties, and which results in the
crediting of Hours of Service under subsection (b), or in the case of an award
or agreement for back pay, to the extent that such award or agreement is made
with respect to a period described in subsection (b) the number of Hours of
Service to be credited shall be determined in accordance with the applicable
regulations prescribed by the Secretary of Labor and set forth in 29 CFR
Section 2530.200b-2(b).
Hours of Service described in subsection (a), (b) and (c)
shall be credited to service computation periods in accordance with the
applicable regulations prescribed by the Secretary of Labor and set forth in 29
CFR Section 2530.200b-2(c).
The number of Hours of Service to be credited to an Employee
in a service computation period shall be determined in the following manner:
(a) In the case of an Employee for whom the Company or the
Affiliate maintains records of his hours worked and hours for which payment is
made or due, the number of Hours of Service to be credited to such Employee in a
service computation period shall be determined from such records.
(b) In the case of an Employee for whom the Company or the
Affiliate does not maintain records of his hours worked and hours for which
payment is made or due, the number of Hours of Service to be credited to such
Employee in a service computation period shall be determined on the basis of
periods of employment which shall be the payroll periods of the Company or the
Affiliate applicable to such Employee. An Employee shall be credited with a
number of Hours of Service, determined in accordance with the following table,
for each of his payroll periods in which he actually has at least one Hour of
Service;
PAYROLL PERIOD HOURS OF SERVICE CREDITED
<TABLE>
<CAPTION>
<S> <C>
weekly 45
bi-weekly 90
</TABLE>
The nature and extent of credit for Hours of Service
recognized under this subsection shall be determined in accordance with any
applicable law or regulation.
(c) Solely for the purpose of determining whether a
Participant has incurred a One-Year Break in Service, an "Hour of Service" is
also, with respect to any Employee who is absent from work for maternity or
paternity reasons, each hour which would otherwise have been credited to such
Employee but for such absence, or, in any case in which such hours cannot be
determined, eight hours per day of such absence. An absence from work for
maternity or paternity reasons means a continuous absence:
(1) by reason of the pregnancy of the Employee;
(2) by reason of the birth of a child of the Employee;
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<PAGE> 14
(3) by reason of the placement of a child with the Employee in
connection with the adoption of such child by such Employee; or
(4) for purposes of caring for such child for a period
beginning immediately following such birth or placement. The Hours of
Service credited under this subsection (c) shall be credited in the
service computation period in which the absence begins if the crediting
is necessary to prevent a One-Year Break in Service in that service
computation period, or, in all other cases, in the following service
computation period.
2.2 "Eligibility Computation Period" shall mean any of the following
12-consecutive-month periods:
(a) the 12-consecutive-month period beginning on the date on
which an Employee first completes an Hour of Service (his "date of employment")
or the date on which an Employee first completes an Hour of Service following a
One-Year Break in Service (his "date of reemployment");
(b) any Plan Year beginning after an Employee's date of
employment or date of reemployment.
2.3 "Year of Eligibility Service" shall mean an Eligibility Computation
Period during which an Employee completes 1,000 or more Hours of Service.
2.4 Year of Vesting Service. An individual shall complete a Year of
Vesting Service in any Plan Year in which he completes 1,000 or more Hours of
Service, whether or not he is in the employ of the Company or an Affiliate at
the end of such Plan Year. In addition to Years of Vesting Service completed
pursuant to the preceding sentence, any individual who was a participant in the
BetzDearborn Inc. Employees' Retirement Plan (formerly named the "Betz
Laboratories, Inc. Retirement Plan") on December 31, 1988, shall be credited
with the number of Years of Vesting Service under this Plan with which he was
credited under such Retirement Plan on that date for purposes of vesting.
2.5 One-Year Break in Service. An Employee shall be considered to have
incurred a "One-Year Break in Service" in any Plan Year beginning on or after
January 1, 1989 in which he does not have at least 501 Hours of Service.
2.6 No Parity Break. All of a Participant's Years of Eligibility
Service and Years of Vesting Service shall be taken into account without regard
to how many One-Year Breaks in Service a Participant incurs.
2.7 Service with a Foreign Affiliate. An Employee's service with a
Foreign Affiliate shall be counted for purposes of eligibility to participate in
the Plan and for determination of Years of Vesting Service. An Employee who is
21 and who has completed a Year of Eligibility Service by reason of employment
with a Foreign Affiliate shall commence participation upon his first Hour of
Service with the Company. "Foreign Affiliate" shall mean (i) any corporation
more than eighty percent (80%) owned by the Company which is incorporated in a
country other than the United States, and (ii) any Affiliate incorporated in the
United States to the extent it does business (and the Employee performs
services) in a country other than the United States.
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<PAGE> 15
SECTION 3
PARTICIPATION
3.1 Continued Participation of Participants as of December 31, 1997.
Any Employee who was a Participant as of December 31, 1997, shall continue to
participate in the Plan, provided he is an Eligible Employee on that date.
3.2 Eligibility and Participation. An Eligible Employee, other than an
indificual who is hired on a temporary basis (i.e., for a period expected to be
less than one year), shall become a Participant in the Plan on the later of (i)
the date he first completes an Hour of Service for the Company, or (ii) the date
he attains age 21, provided he is an Eligible Employee on such date. An Eligible
Employee who is hired on a temporary basis shall become a Participant in the
Plan on the January 1 or July 1 coincident with or immediately following the
later of (i) the date he completes one Year of Eligibility Service, or (ii) the
date he attains age 21, provided he is an Eligible Employee on such date. An
Employee who becomes an Eligible Employee after satisfying the foregoing
eligibility requirements shall become a Participant on the date on which he
becomes an Eligible Employee.
3.3 Participation After Break in Service. If a Participant separates
from service and is thereafter reemployed by the Company, he shall resume
participation in the Plan immediately upon his return to the service of the
Company.
3.4 Leased Employees. A Leased Employee shall not be eligible to
participate in the Plan.
SECTION 4
COMPANY CONTRIBUTIONS
4.1 Company Contributions
(a) For each of its fiscal years, the Company shall make a
contribution to the Trust in cash sufficient to pay any currently maturing
obligations under an Exempt Loan (to the extent such obligations will not be
paid by dividends on Company Stock under Section 7.3).
(b) In addition, for each of its fiscal years, the Company may
make a contribution to the Trust, in cash or in kind (including Company Stock).
The amount of such contribution (if any) for any year shall be determined by
appropriate action by the Board of Directors.
(c) All or any part of the cash contributions made pursuant to
subsection (a) or (b) may be applied to repay any outstanding Exempt Loan. The
Plan Administrator, subject to any pledge or similar agreement, shall direct the
Trustee as to the portion of such contributions to be applied to repay each such
Exempt Loan.
(d) The Company shall also contribute to the Trust in cash
each Participant's Compensation Deferral Contributions under Section 8.
4.2 Time of Payment. The Company shall make payment of those cash
contributions to the Trust necessary to pay any currently maturing obligations
under an Exempt Loan in sufficient time to enable the Trustee to make timely
payment of the obligation to the lender under the Exempt Loan. The Company shall
make payment of a Participant's Compensation Deferral Contribution as soon as
practicable after the applicable deferral date. The Company shall make payment
of any other contributions to the Trust for any fiscal year for which it makes
other contributions within the time
9
<PAGE> 16
prescribed by law, including extensions of time, for the filing of its Federal
income tax return for such year.
4.3 Contributions Irrevocable
(a) General Rule. Except as provided in subsection (b), all
Company contributions to the Trust shall be irrevocable. Neither such
contributions nor any income therefrom shall be used for any purpose other than
the exclusive benefit of Participants or their beneficiaries under the Plan.
(b) Circumstances of Return of Company Contributions.
(1) In the case of a Company contribution made by a mistake of
fact, such contribution may be returned to the Company within one year
after the payment of the contribution.
(2) Company contributions are conditioned on their
deductibility under section 404 of the Code, and, to the extent a
deduction is disallowed, the affected contribution (to the extent
disallowed) may be returned to the Company within one year after the
disallowance of the deduction.
SECTION 5
PARTICIPANTS' ACCOUNTS AND INVESTMENT
THEREOF; EXEMPT LOANS
5.1 Accounts. A Participant's interest in the Trust Fund shall be
reflected in his Accounts. The Plan Administrator shall establish Account
records for each Participant. Notwithstanding the foregoing, the Trust Fund
shall be treated as a single trust for purposes of investment and
administration, and nothing contained herein shall require a physical
segregation of assets for any such Account.
5.2 Investment of Trust Fund. Subject to Section 5.4, the Trust Fund
shall be invested primarily in Company Stock. Among other investments, cash or
cash equivalents may be held in the Trust Fund for the purposes of, inter alia,
making distributions to Participants, acquiring shares of Company Stock from
shareholders of BetzDearborn Inc. or directly from BetzDearborn Inc. or enabling
the Plan to repay an Exempt Loan. Neither the Company nor the Committee nor the
Plan Administrator nor the Trustee shall have any responsibility or duty to time
any transaction involving Company Stock in order to anticipate market conditions
or changes in stock value, nor shall any such person have any responsibility or
duty to sell Company Stock held in the Trust Fund (or otherwise to provide
investment management for Company Stock held in the Trust Fund) in order to
maximize return or minimize loss.
5.3 Exempt Loan. The Board of Directors may direct the Trustee to have
the Plan enter into one or more Exempt Loans to finance the acquisition of
Company Stock. Notwithstanding any other provision of the Plan, all proceeds of
an Exempt Loan shall be used, within a reasonable time after receipt by the
Trustee, for the following purposes only:
(a) to acquire Company Stock;
(b) to repay the same Exempt Loan; or
(c) to repay any previous Exempt Loan.
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<PAGE> 17
An Exempt Loan shall be repaid only from amounts loaned to the
Trust, from Company cash contributions to the Trust and earnings attributable
thereto, from any collateral given for the Exempt Loan and from dividends paid
on Company Stock acquired with proceeds of an Exempt Loan.
An Exempt Loan shall be for a specific term, shall bear a
reasonable rate of interest and shall not be payable on demand except in the
event of default. An Exempt Loan may be secured by a pledge of the Company Stock
acquired with its proceeds (or acquired with the proceeds of a prior Exempt Loan
which is being refinanced). No other assets of the Trust Fund may be pledged as
collateral for an Exempt Loan, and no lender shall have recourse against assets
of the Trust Fund other than any Company Stock remaining subject to pledge.
Except as otherwise permitted by section 409(l) of the Code
and any regulations issued thereunder, no Company Stock acquired with the
proceeds of an Exempt Loan may be subject to a put, call or other option, or
buy-sell or similar arrangement while held in or when distributed from the Trust
Fund, whether or not the Plan continues to be an employee stock ownership plan
within the meaning of section 4975(e)(7) of the Code and whether or not the
Exempt Loan has been repaid. A Participant's protections in the preceding
sentence shall be nonterminable, within the meaning of Treas. Reg.
Section 4975-11(a)(3)(ii).
5.4 Diversification of Investments.
(a) Election by Qualified Participant. Subject to subsection
(d), each Qualified Participant shall be permitted to direct the Plan, within 90
days after the last day of each Plan Year during the Participant's Qualified
Election Period, as to the investment of (i) twenty-five percent (25%) of the
total number of shares of Company Stock that have ever been allocated to the
Qualified Participant's Company Stock Account and Matching Account on or before
the most recent allocation date immediately preceding the applicable 90-day
period, less (ii) the number of shares of Company Stock previously directed
pursuant to a prior diversification election under this subsection (a). The
number of shares of Company Stock subject to direction shall be rounded to the
nearest whole integer. With respect to a Qualified Participant's diversification
election for the last Plan Year in his Qualified Election Period, "fifty percent
(50%)" shall be substituted for "twenty-five percent (25%)" where it appears in
this subsection (a).
Any such diversification election that requires a disposition
of Preferred Stock by the Trustee shall be effected by the Trustee only by the
tender of such Preferred Stock to the Company in exchange for shares of Common
Stock with a fair market value on the date of tender (net after commissions and
cost of sale) equal to the cash redemption price of such Preferred Shares. The
Company is obligated to make such exchange pursuant to Section 6 of the Trust
Agreement. For purposes of this subsection (a), "fair market value" shall have
the same meaning as in Section 6 of the Trust Agreement.
(b) Method of Directing Investment. The Participant's
direction shall be provided to the Plan Administrator in writing or in any other
manner acceptable to the Plan Administrator; shall be implemented no later than
180 days after the close of the Plan Year to which the direction applies; and
shall specify which, if any, of the options set forth in subsection (c) the
Participant selects.
(c) Investment Options.
(1) A fund invested principally in equity securities
offering unusual opportunities for growth and capital appreciation, but
which may also be invested in preferred stocks and other securities
convertible into such equity securities.
11
<PAGE> 18
(2) A fund invested principally in fixed income
securities and other property which produces a fixed return.
(3) A fund invested principally in fixed income
securities maturing in not over two years.
(d) De Minimis Rule. If the fair market value (determined on
the Valuation Date immediately preceding the applicable 90-day direction period)
of the Company Stock allocated to a Qualified Participant's Company Stock
Account and Matching Account is $500 or less, the Qualified Participant may not
direct the investment of any portion of his Company Stock Account and Matching
Account balance pursuant to this Section for the Plan Year ending on the
Valuation Date.
SECTION 6
ALLOCATION OF CONTRIBUTIONS
6.1 Participants Entitled to Allocation. Except as provided in Section
8, each contribution to the Trust Fund for a Plan Year (except for a
contribution to be used to amortize an Exempt Loan) and Company Stock released
from the Suspense Subfund pursuant to Section 6.5 for a Plan Year shall be
allocated by the Plan Administrator to and among each Participant (i) who in
such Plan Year completed 1,000 or more Hours of Service for the Company, and
(ii) who was an Eligible Employee on the last day of such Plan Year.
Notwithstanding the preceding clause (ii), a Participant or his beneficiary, as
the case may be, shall be entitled to an allocation for the Plan Year in which
the Participant's employment terminates, regardless of whether the Participant
was an Eligible Employee on the last day of such Plan Year, if the Participant
meets one or both of the following:
(a) the Participant's termination of employment occurs on or
after his Normal Retirement Date; or
(b) the Participant's termination of employment occurs by
reason of his death or by reason of his total and permanent disability (as
defined in Section 9.5(b)).
(c) the Participant elects Early Retirement under the
BetzDearborn Inc. Employees' Retirement Plan upon his termination of employment.
6.2 Allocation of Company Stock Contributions. The Plan Administrator
shall, as of December 31 of each Plan Year for which the Company makes a Company
Stock contribution, allocate such contribution (including fractional shares to
1/1000 of a share) to the Company Stock Account of each Participant entitled to
an allocation for the Plan Year in the same proportion that such Participant's
Compensation for the Plan Year bears to the total Compensation of all
Participants entitled to an allocation for the Plan Year.
6.3 Allocation of Other Contributions. The Plan Administrator shall, as
of December 31 of each Plan Year for which the Company makes a contribution in a
form other than Company Stock (except for a contribution to be used to amortize
an Exempt Loan or a contribution under Section 8), allocate such contribution to
the Other Investments Account of each Participant entitled to an allocation for
the Plan Year in the same proportion that such Participant's Compensation for
the Plan Year bears to the total Compensation of all Participants entitled to an
allocation for the Plan Year.
6.4 Allocation of Company Stock Acquired with Exempt Loan. Company
Stock acquired by the Trust with the proceeds of an Exempt Loan shall be added
to and maintained in the Suspense Subfund
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<PAGE> 19
established within the Trust Fund and shall thereafter be released from the
Suspense Subfund as provided in Section 6.5 and allocated to the Company Stock
Accounts of Participants as provided in Section 6.6.
6.5 Release from Suspense Subfund. Company Stock acquired by the Trust
with the proceeds of an Exempt Loan shall be released from the Suspense Subfund
as the Exempt Loan is repaid, in one of the alternative methods set forth in
subsection (a) and subsection (b) as elected by the Committee in its sole
discretion.
(a) First Alternative. The first alternative method is, for
each Plan Year until the Exempt Loan is fully repaid, to release a number of
shares of Company Stock from the Suspense Subfund (including fractional shares
to 1/1000 of a share) equal to the number of unreleased shares of Company Stock
in the Suspense Subfund immediately before such release multiplied by a
fraction. The numerator of the fraction is the amount of principal and interest
paid on the Exempt Loan for the Plan Year, and the denominator of the fraction
is the sum of the numerator plus the principal and interest to be paid on the
Exempt Loan for all future Plan Years during the term of the Exempt Loan
(determined without reference to any possible extensions or renewals thereof).
For purposes of computing the denominator of the fraction, if the interest rate
on the Exempt Loan is variable, the interest to be paid in future Plan Years
shall be calculated by assuming that the interest rate in effect as of the end
of the applicable Plan Year will be the interest rate in effect for the
remainder of the term of the Exempt Loan. Notwithstanding the foregoing, if the
Exempt Loan is repaid with the proceeds of a subsequent Exempt Loan, such
repayment shall not operate to release all the Company Stock in the Suspense
Subfund; rather, such release shall be effected pursuant to the foregoing
provisions of this section on the basis of payments of principal and interest on
such substitute loan.
(b) Second Alternative. The second alternative method is, for
each Plan Year until the Exempt Loan is fully repaid, to determine the number of
shares of Company Stock released from the Suspense Subfund as provided in
subsection (a) but basing such release upon only the amount of principal paid on
the Exempt Loan for the Plan Year (without regard to interest payments). This
method may be used only if the following three conditions are met:
(1) the Exempt Loan provides for annual payments of principal
and interest at a cumulative rate that is not less rapid at any time
than level annual payments of such amounts for 10 years;
(2) the interest portion of any payment is disregarded for
purposes of determining the number of shares released only to the
extent it would be treated as interest under standard loan amortization
tables; and
(3) if the Exempt Loan is renewed, extended or refinanced, the
sum of the expired duration of the Exempt Loan and the renewal period,
the extension period or the duration of a new Exempt Loan does not
exceed 10 years.
(c) More Than One Exempt Loan. If at any time there is more
than one Exempt Loan outstanding, separate accounts shall be established under
the Suspense Subfund for each Exempt Loan. Each Exempt Loan for which a separate
account is maintained shall be treated separately for purposes of subsections
(a) and (b) governing the release of shares from the Suspense Subfund.
(d) Treasury Regulations. It is intended that the provisions
of this section be applied and construed in a manner consistent with the
requirements and provisions of Treas. Reg. Section54.4975-7(b)(8), and any
successor regulation thereto.
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<PAGE> 20
6.6 Allocation of Shares Released from Suspense Subfund.
(a) Company Stock released from the Suspense Subfund under
Section 6.5 shall first be allocated under this subsection (a). The number of
shares of Company Stock released from the Suspense Subfund as a result of the
cash dividends described in Section 7.3(a)(2) shall be determined. There shall
then be allocated to each Participant's Company Stock Account a sufficient
number of such shares (including fractional shares to 1/1000 of a share) such
that the fair market value of the shares allocated to the Participant's Company
Stock Account equals the amount of such dividends which would have been
allocated to the Participant's Other Investments Account but for the requirement
in Section 7.3(a)(2) that such dividends be used to repay an Exempt Loan. If the
foregoing rule is not met, the Plan Administrator shall notify the Company and
additional contributions to the Plan shall be made by the Company and used by
the Trustee to repay the Exempt Loan to the extent necessary to release
additional shares of Company Stock from the Suspense Subfund to meet the
foregoing rule.
(b) Allocations to Match Participants' Compensation Deferral
Contributions. After the allocations described in subsection (a) are made,
shares of Company Stock released from the Suspense Subfund for a Plan Year under
Section 6.5 (including fractional shares of 1/1000 of a share) shall be
allocated to Participants' Matching Accounts as described in Section 8.3(a).
(c) Allocation of Remainder. After the allocations described
in subsections (a) and (b) are made, any remaining shares of Company Stock
released from the Suspense Subfund for a Plan Year pursuant to Section 6.5
(including fractional shares to 1/1000 of a share) shall be allocated by the
Plan Administrator as of December 31 of the Plan Year to the Company Stock
Accounts of each Participant entitled to an allocation for the Plan Year in the
same proportion that such Participant's Compensation for the Plan Year bears to
the total Compensation for the Plan Year of all Participants entitled to an
allocation for the Plan Year.
6.7 Allocation of Forfeitures. All forfeitures occurring under Section
9.4 shall be allocated in the manner described in Section 6.2 or Section 6.3 (as
applicable) as of December 31 of the Plan Year in which the event causing the
forfeiture occurs.
SECTION 7
VALUATION
7.1 Valuation.
(a) The "Company Stock Subfund" established within the Trust
Fund consists of all of the Company Stock Accounts, Matching Accounts, Stock
Bonus Accounts, and PAYSOP Accounts of Participants. The "Other Investments
Subfund" established within the Trust Fund consists of the Investment Fund. As
of each Valuation Date, each such Subfund and the Suspense Subfund shall be
valued separately by the Trustee (or, if required by applicable law, the Trustee
shall cause the Subfund to be valued by an independent appraiser, as described
in the following paragraph), and any net increase or decrease in the fair market
value of the applicable Subfund, including earnings or losses realized or
sustained during the Plan Year or part of the Plan Year then ending, shall be
computed. For the purpose of determining such net increase or decrease, the
value of the applicable Subfund on the immediately preceding Valuation Date
shall be reduced by amounts paid out or due as benefits from such Subfund during
the Plan Year or part of the Plan Year then ending.
For purposes of the valuation described above, the fair market
value of shares of Company Stock held by the Trustee shall be determined as of
the Valuation Date coincident with the last
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<PAGE> 21
day of the Plan Year, and as of such other Valuation Dates as the Plan
Administrator so directs, and, in the case of Preferred Stock, by a recognized
independent firm of security analysts or appraisers meeting requirements similar
to those contained in Treasury regulations under section 170(a)(1) of the Code
(if any).
(b) Notwithstanding any other provision of the Plan, to the
extent that Participants' Accounts are invested in Investment Vehicles, the
value of which is priced daily ("Daily Pricing Media"), all amounts contributed
to the Trust Fund will be invested at the time of the actual receipt by the
Investment Vehicle, and the value of each Account shall reflect the results of
such daily pricing from the time of actual receipt until the time of
distribution. Investment elections and changes shall be effective upon receipt
of authorized transaction instructions. References elsewhere in the Plan to the
investment of contributions "as of" a date other than that described in this
Section shall apply only to the extent, if any, that assets of the Trust Fund
are not invested in Daily Pricing Media.
7.2 Allocation of Gains and Losses. As of each Valuation Date, the net
increase or decrease in the market value of the Company Stock Subfund and of the
Other Investments Subfund, as calculated under Section 7.1, shall be separately
allocated (i) with respect to the Company Stock Subfund, among the Company Stock
Accounts, Matching Accounts, Stock Bonus Accounts, and PAYSOP Accounts of the
Participants in the proportion that each such Account bears to the total of all
such Accounts immediately prior to the valuation and before the allocations for
the current Plan Year pursuant to Section 6 and (ii) with respect to the Other
Investments Subfund, among the separate Accounts in the Investment Vehicles in
the proportion that an amount in each Account in the Investment Vehicle bears to
the total of all Accounts in the Investment Vehicle prior to the valuation and
before the allocations for the current Plan Year pursuant to Section 6.
7.3 Dividends on Company Stock.
(a) Cash Dividends.
(1) Any cash dividends received which are attributable to
shares of Company Stock held in Participants' Accounts which were not
acquired with the proceeds of an Exempt Loan shall be credited to such
Accounts as of the record date of the dividend.
(2) Any cash dividends received which are attributable to
shares of Company Stock (i) acquired with the proceeds of an Exempt
Loan and (ii) previously allocated to Participants' Company Stock
Accounts or Matching Accounts shall be used by the Trustee to repay an
Exempt Loan. Upon such repayment, shares of Company Stock shall be (i)
released from the Suspense Subfund in accordance with Section 6.5(a) or
Section 6.5(b) (as applicable) and (ii) allocated to Participants'
Company Stock Accounts and Matching Accounts in accordance with Section
6.6.
(3) Any cash dividends received which are attributable to
shares of Company Stock (i) acquired with the proceeds of an Exempt
Loan and (ii) held in the Suspense Subfund shall be used by the Trustee
to repay an Exempt Loan. Upon such repayment, shares of Company Stock
shall be (i) released from the Suspense Subfund in accordance with
Section 6.5(a) or Section 6.5(b) (as applicable) and (ii) allocated to
Participants' Company Stock Accounts and/or Matching Accounts in
accordance with Section 6.6.
(b) Stock Dividends. Stock dividends paid (and stock received
by the Trustee as a result of a stock split, stock conversion or reorganization
or recapitalization of the Company) with respect to shares of Company Stock held
in the Trust Fund shall be credited (i) to the Accounts to which such Company
Stock was previously allocated or is otherwise held or (ii) in the case of
Company Stock still
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maintained in the Suspense Subfund pursuant to Section 6 or otherwise
unallocated, to the Suspense Subfund or to the otherwise unallocated Company
Stock.
SECTION 8
401(k) PLAN
8.1 Definitions. The following definitions shall apply for purposes of
this Section:
(a) "Actual Deferral Percentage" shall mean the ratio
(expressed as a percent) of Compensation Deferral Contributions on behalf of an
Eligible Participant for the relevant Plan Year to such Eligible Participant's
Statutory Compensation for such Plan Year. Actual Deferral Percentages shall be
calculated to the nearest 1/100th of one percent.
(b) "Average Actual Deferral Percentage" shall mean the
average (expressed as a percentage) of the Actual Deferral Percentages of the
Eligible Participants in a group. Average Actual Deferral Percentages shall be
calculated to the nearest 1/100 of one percent.
(c) "Average Contribution Percentage" shall mean the average
(expressed as a percentage) of the Contribution Percentages of the Eligible
Participants in a group. Average contribution Percentage shall be calculated to
the nearest 1/100 of one percent.
(d) "Contribution Percentage" shall mean the ratio (expressed
as a percent) of the Matching Contributions on behalf of an Eligible Participant
for the relevant Plan Year to such Eligible Participant's Statutory Compensation
for such Plan Year. Contribution Percentages shall be calculated to the nearest
1/100th of one percent.
(e) "Determination Year" shall mean the Plan Year for which a
determination of which Employees are Highly Compensated Employees is being made.
(f) "Eligible Participant" shall mean an Employee who is
authorized under the terms of the Plan to have Compensation Deferral
Contributions made to the Plan on his behalf for the relevant Plan Year.
(g) "Excess Aggregate Contributions" shall mean the amount
described in section 401(m)(6)(B) of the Code.
(h) "Excess Contributions" shall mean the amount described in
section 401(k)(8)(B) of the Code.
(i) "Excess Deferral Amount" shall mean the Amount of
Compensation Deferral Contributions for a calendar year which the Participant
allocates to this Plan pursuant to the claims procedure set forth in Section
8.13(b).
(j) "Highly Compensated Employee" shall mean, for Plan Years
beginning after December 31, 1996, an Employee described in either paragraph (1)
or paragraph (2). The determination of who is a Highly Compensated Employee
shall be made in accordance with section 414(q) of the Code and Treasury
regulations thereunder.
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(1) An Employee is a Highly Compensated Employee for a Plan
Year if he is a five percent (5%) owner (as defined in section
416(i)(1)(B) of the Code) of the Company or an Affiliate at any time
during the Determination Year or the Look-Back Year.
(2) An Employee is a Highly Compensated Employee for a Plan
Year if he received "compensation" (as defined in section 414(q)(4) of
the Code) from the Company and Affiliates in excess of $80,000 (as
adjusted by the Secretary of the Treasury in accordance with section
414(q)(1) of the Code) during the Look-Back Year, and (if the Committee
so elects for any Determination Year) was in the Top-Paid Group for the
Look-Back Year.
(k) "Non-Highly Compensated Employee" shall mean, for Plan
Years beginning after December 31, 1996, an Employee who is not a Highly
Compensated Employee.
(l) "Statutory Compensation" shall mean all compensation as
defined in Treas. Reg. Sections 1.415-2(d)(2) and (3) paid to or on behalf of an
Eligible Participant during the portion of the relEvant Plan Year during which
he is eligible to participate in the Plan, plus all amounts that are not
currently includable in the Eligible Participant's gross income during such
period by reason of the application of section 125, 402(e)(3) or 402(h)(1)(B) of
the Code. The annual Statutory Compensation of each Eligible Participant taken
into account under the Plan shall not exceed $150,000, as adjusted by the
Commissioner of Internal Revenue for increases in the cost of living in
accordance with section 401(a)(17)(B) of the Code.
(m) "Top-Paid Group" shall mean the top twenty percent (20%)
of the Employees when ranked on the basis of Compensation from the Company and
Affiliates. Employees described in section 414(q)(5) of the Code shall be
excluded for purposes of determining the number of employees in the Top-Paid
Group.
8.2 Participant Compensation Deferrals.
(a) Deferral Percentages. Each Participant may direct the
Company to reduce his Compensation by 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14
or fifteen percent (15%). Compensation shall be reduced by means of payroll
deductions.
(b) Determination of Maximum Compensation Deferral Percentage.
Notwithstanding subsection (a), prior to the beginning of each Plan Year, for
the purpose of meeting the nondiscrimination requirements and limitations of
Sections 8.10 and 8.11, the Plan Administrator may establish a maximum
limitation of less than fifteen percent (15%) on the elective deferrals that may
be elected by Highly Compensated Employees.
8.3 Company Matching Contributions.
(a) Matching Contributions. Shares of Company Stock that have
been released from the Suspense Subfund under Section 6.5 and that have not and
will not be transferred to the Company Stock Account of Participants under
Section 6.6(a) shall be allocated to a Participant's Matching Account. The
shares so allocated shall have a fair market value as of the immediately
preceding Valuation Date equal to the Matching Rate, multiplied by the lesser of
(i) the Participant's Compensation Deferral Percentage or (ii) the Maximum
Compensation Deferral Matching Percentage, multiplied by the Participant's
Compensation.
(b) Matching Rate. The Matching Rate shall be twenty-five
(25%). The Maximum Compensation Deferral Matching Percentage shall be four
percent (4%).
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8.4 Designation of Account. A Participant may designate in which
Investment Vehicles his Compensation Deferral Contributions (including
Compensation Deferral Contributions which were made under the Stock Bonus Plan
and are transferred to the Participant's 401(k) Account in this Plan) and his
Rollover Account (if any) shall be invested. Each Participant shall submit
instructions designating in multiples of five percent (5%) the Investment
Vehicles in which his Account balances in the Investment Fund shall be invested.
Allocations to the Accounts of the Participant in the Investment Fund shall
continue to be invested in the manner selected by the Participant until the
receipt of instructions changing the Participant's investment selection. The
Plan Administrator shall establish rules and procedures for the selection of
Investment Vehicles including rules for the designation of an investment
selection in the event any Participant fails to make a designation. The Plan
Administrator may limit the number of times per year that Participants may
change their investment selection.
A Participant's selection of his investment option shall be
effective as of any Valuation Date. The Participant's Account balances shall be
adjusted as of each Valuation Date, in accordance with Section 7.2, based on the
performance of the Investment Vehicles selected by the Participant. Each Account
shall be valued separately.
8.5 Changing Rates of Contribution. A Participant shall establish,
suspend, increase or decrease his Compensation Deferral Percentage by filing an
Appropriate Form with the Plan Administrator or his designee, or in any other
manner acceptable to the Plan Administrator, which shall be made effective
within 30 days from day of receipt or other notification. A Participant's
Compensation Deferral Percentage shall continue in effect, notwithstanding any
change in Compensation, until the Participant elects to change it. The Plan
Administrator may limit the number of times per year each Participant may change
his Compensation Deferral Percentage.
8.6 Withdrawals of Compensation Deferral Contributions. A Participant
may not withdraw any Matching Contributions (including Matching Contributions
which were made under the Stock Bonus Plan and are transferred to the
Participant's Rollover Account in this Plan) or earnings on his 401(k) Account.
A Participant may withdraw Compensation Deferral Contributions (including
Compensation Deferral Contributions which were made under the Stock Bonus Plan
and are transferred to the Participant's 401(k) Account in this Plan) in
accordance with subsections (a) and (b).
(a) The Plan Administrator may grant consent to a requested
withdrawal only to the extent of an immediate and heavy financial need of the
Participant for which funds are not reasonably available from other resources of
the Participant. The amount of an immediate and heavy financial need may include
any amounts necessary to pay any Federal, state, or local income taxes or
penalties reasonably anticipated to result from the withdrawal.
The circumstances which may warrant approval of a
Participant's application for a hardship withdrawal are:
(1) payment of tuition and related educational expenses for
the next 12 months of post-secondary education for the Participant, his
dependents, spouse or children;
(2) expenses for medical care described in section 213(d) of
the Code previously incurred by the Participant, his spouse, or his
dependents, or necessary for those persons to obtain medical care
described in section 213(d) of the Code;
(3) costs directly related to the purchase of a principal
residence for the Participant (excluding mortgage payments);
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<PAGE> 25
(4) the need to prevent the eviction of the Participant from
his principal residence or foreclosure on the mortgage of the
Participant's principal residence; or
(5) such other circumstances as may be deemed hardships
pursuant to Treas. Reg. Section 1.401(k)-1(d)(2)(ii)(B).
A Participant may apply to withdraw from his 401(k) Account at
any time by submitting an Appropriate Form to the Plan Administrator specifying
the reason for the withdrawal and the amount of the withdrawal, or in any other
manner acceptable to the Plan Administrator.
The Plan Administrator shall review all requests for
withdrawal within 30 days. If approved by the Plan Administrator, withdrawals
shall equal the lesser of (i) the amount required to meet the need created by
the hardship, or (ii) the amount to the credit of the Participant's 401(k)
Account. The Plan Administrator must make the determination of the existence of
financial hardship in a uniform and nondiscriminating manner.
If the Plan Administrator consents to a request for a
withdrawal, then the sum approved to be withdrawn shall be paid to the
Participant as soon as administratively practicable after approval of the
request.
(b) A Participant may withdraw his Compensation Deferral
Contributions or any portion thereof without the consent of the Plan
Administrator at any time after he has attained age 59-1/2.
8.7 Restrictions. A Participant may make one or more withdrawals, in
accordance with Section 8.6, in a Plan Year. All withdrawals will be based on
the value of the Participant's 401(k) Account as of the Valuation Date
immediately preceding the distribution. The Plan Administrator shall establish
guidelines for determining from which Investment Vehicles the withdrawal shall
be taken. In the event of a withdrawal of all or any part of his 401(k) Account
prior to the date he attains age 59-1/2, the Participant's Compensation Deferral
Contributions shall thereupon cease and the Participant shall not be eligible to
resume Compensation Deferral Contributions or elective contributions to any
other plan maintained by the Company or any Affiliate which is qualified under
section 401(a) of the Code, until the first payroll period following the
12-month period after the Participant's receipt of the hardship withdrawal. The
suspension described in the preceding sentence shall not apply if the withdrawal
occurs after the Participant attains age 59-1/2.
8.8 Periods of Absence. A Participant who is on a leave of absence with
the consent of the Company may continue to have contributions made under the
Plan by salary reduction and payroll deductions when Compensation is being
continued by the Company.
8.9 Termination of Contributions. Compensation Deferral Contributions
shall terminate coincident with the date the Participant terminates employment
for any reason, including retirement or death.
8.10 Limitation on Compensation Deferral Contributions.
(a) Maximum Amount of Compensation Deferral Contributions. No
Participant shall be permitted to have Compensation Deferral Contributions made
under this Plan during any calendar year in excess of $10,000 as adjusted by the
Secretary of the Treasury for increases in the cost of living in accordance with
section 402(g)(5) of the Code.
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(b) Average Actual Deferral Percentage. For Plan Years
beginning after December 31, 1996, Compensation Deferral Contributions for
Eligible Participants who are Highly Compensated Employees shall meet at least
one of the following two tests:
(1) The Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees for the Plan Year
shall not exceed the Average Actual Deferral Percentage for the
preceding Plan Year, for those Eligible Participants in such preceding
Plan Year who were Non-Highly Compensated Employees for such preceding
Plan Year, multiplied by 1.25.
(2) The Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees for the Plan Year
shall not exceed the Average Actual Deferral Percentage for the
preceding Plan Year, for those Eligible Participants in such preceding
Plan Year who were Non-Highly Compensated Employees for such preceding
Plan Year, multiplied by two; provided that the Average Actual Deferral
Percentage for those Eligible Participants who are Highly Compensated
Employees for the Plan Year does not exceed the Average Actual Deferral
Percentage for Eligible Participants who were Non-Highly Compensated
Employees for the preceding Plan Year by more than two percentage
points.
(c) Special Rules.
(1) For purposes of this Section, the Actual Deferral
Percentage for any Eligible Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to have elective
deferrals allocated to his account under two or more plans or
arrangements described in section 401(k) of the Code that are
maintained by the Company or an Affiliate shall be determined as if all
such elective deferrals were made under a single arrangement.
(2) A Compensation Deferral Contribution shall be taken into
account under subsection (b) for a Plan Year only if it relates to
Compensation that would have been received by the Eligible Participant
in the Plan Year, but for the Eligible Participant's election to defer
a portion of his Compensation under Section 8.2.
(3) A Compensation Deferral Contribution shall be taken into
account under subsection (b) for a Plan Year only if it is allocated to
the Eligible Participant's 401(k) Account as of a date within that Plan
Year. For this purpose, a Compensation Deferral Contribution shall be
considered allocated as of a date within the Plan Year if the
allocation is not contingent on participation in the Plan or the
performance of services after the date and the Compensation Deferral
Contribution is actually paid to the Trust Fund no later than 12 months
after the end of the Plan Year to which the Compensation Deferral
Contribution relates.
(4) The determination and treatment of the Compensation
Deferral Contributions and Actual Deferral Percentage of any Eligible
Participant shall satisfy such other requirements as may be prescribed
by the Secretary of the Treasury.
8.11 Limitations on Matching Contributions.
(a) Contribution Percentages. For Plan Years beginning after
December 31, 1996, the Matching Contributions for Eligible Participants who are
Highly Compensated Employees shall meet at least one of the following two tests:
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<PAGE> 27
(1) The Average Contribution Percentage for Eligible
Participants who are Highly Compensated Employees for the Plan Year
shall not exceed the Average Contribution Percentage for the preceding
Plan Year, for those Eligible Participants in such preceding Plan Year
who were Non-Highly Compensated Employees for such preceding Plan Year,
multiplied by 1.25.
(2) The Average Contribution Percentage for Eligible
Participants who are Highly Compensated Employees for the Plan Year
shall not exceed the Average Contribution Percentage for the preceding
Plan Year, for those Eligible Participants in such preceding Plan Year
who were Non-Highly Compensated Employees for such preceding Plan Year,
multiplied by two; provided that the Average Contribution Percentage
for Eligible Participants who are Highly Compensated Employees for the
Plan Year does not exceed the Average Contribution Percentage for
Eligible Participants who were Non- Highly Compensated Employees for
the preceding Plan Year by more than two percentage points, subject to
Treas. Reg. Section 1.401(m)-2 (modified as necessary to reflect the
Small Business Job Protection Act of 1996). If it is necessary to
reduce the Average Contribution Percentage for Eligible Participants
who are Highly Compensated Employees for the Plan Year to prevent the
multiple use of the alternative limitation, the Contribution Percentage
of all Highly Compensated Employees shall be subject to reduction to
the extent necessary under Section 8.15.
(b) Special Rules.
(1) For purposes of this Section, the Contribution Percentage
for any Eligible Participant who is a Highly Compensated Employee for
the Plan Year and who is eligible to make after-tax contributions, or
to have employer matching contributions allocated to his account, under
two or more plans described in section 401(a) of the Code or
arrangements described in section 401(k) of the Code that are
maintained by the Company or an Affiliate shall be determined as if all
such after-tax and employer matching contributions were made under a
single plan.
(2) In the event that this Plan satisfies the requirements of
section 410(b) of the Code only if aggregated with one or more other
plans, or if one or more other plans satisfy the requirements of
section 410(b) of the Code only if aggregated with this Plan, then this
Section shall be applied by determining the Contribution Percentages of
Eligible Participants as if all such plans were a single plan.
(3) A Matching Contribution shall be taken into account under
subsection (a) for a Plan Year only if it is (i) made on account of the
Eligible Participant's Compensation Deferral Contributions for the Plan
Year, (ii) allocated to the Eligible Participant's Company Stock
Account during the Plan Year, and (iii) paid to the Trust Fund on or
before the last day of the 12th month following the end of the Plan
Year.
(4) The determination and treatment of the Contribution
Percentage of any Participant shall satisfy such other requirements as
may be prescribed by the Secretary of the Treasury.
8.12 Election to Use Current Plan Year. The Company may elect to apply
Section 8.10(b) and (c) and Section 8.11 by using the Plan Year rather than the
preceding Plan Year, as permitted under section 401(k)(3)(A) of the Code,
provided that if such an election is made, it may not be changed except as
provided by the Secretary of the Treasury.
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8.13 Distribution of Excess Deferrals.
(a) In General. Notwithstanding any other provision of the
Plan, Excess Deferral Amounts plus any income and minus any loss allocable
thereto shall be distributed no later than each April 15 to Participants who
claim allocable Excess Deferral Amounts for the preceding calendar year.
(b) Claims. A Participant's claim shall be in writing; shall
be submitted to the Plan Administrator no later than March 1; shall specify the
Participant's Excess Deferral Amount for the preceding calendar year; and shall
be accompanied by the Participant's written statement that if the Excess
Deferral Amount is not distributed, it, when added to amounts deferred under
other plans or arrangements described in section 401(k), 408(k) or 403(b) of the
Code, exceeds the limit imposed on the Participant by section 402(g) of the Code
for the year in which the deferral occurred.
(c) Determination of Income or Loss. A Participant's Excess
Deferral Amount shall be adjusted for income or loss up to December 31 of the
taxable year for which the Excess Deferral Amount was deferred or to the extent
that such Excess Deferral Amount is invested in Investment Vehicles the value of
which is priced daily, up to the date of distribution in accordance with Section
7.1(b). The income or loss allocable to a Participant's Excess Deferral Amount
shall be determined in accordance with Section 7.2.
(d) Accounting for Excess Deferral Amounts. Excess Deferral
Amounts distributed under this Section shall be distributed from the
Participant's 401(k) Account.
8.14 Distribution of Excess Contributions.
(a) In General. Notwithstanding any other provision of the
Plan, Excess Contributions plus any income and minus any loss allocable thereto
shall be distributed within the 12-month period beginning on the earlier of the
last day of the Plan Year for which such Excess Contributions were made, or the
date of the complete termination of the Plan, to Participants on whose behalf
the Excess Contributions were made for such Plan Year. (If the Excess
Contributions are distributed after the first March 15, after the last day of
the Plan Year in which the Excess Contributions arose, the Company will be
subject to a ten percent (10%) excise tax under section 4979 of the Code with
respect to the Excess Contributions.)
(b) Determination and Distribution of Excess Contributions.
The amount of Excess Contributions for Plan Years beginning on or after January
1, 1997 shall be determined in the following manner. First, the Actual Deferral
Percentage for the ("ADP") of the Highly Compensated Employee(s) with the
highest ADP shall be reduced to the extent necessary to satisfy Section 8.10(b)
or to cause such ADP to equal the ADP of the Highly Compensated Employee(s) with
the next highest ADP. Second, this process shall be repeated until Section
8.10(b) is satisfied. The amount of Excess Contributions equals the total amount
of reductions in Compensation Deferral Contributions that would be required to
achieve the ADPs determined in the preceding sentences.
Then, the Compensation Deferral Contributions of the Highly
Compensated Employee(s) with the highest Compensation Deferral Contribution
amount for the Plan Year shall be reduced and distributed to such Employee(s) to
the extent necessary to equal the amount of Excess Contributions determined in
the preceding paragraph, or to cause the amount of such Compensation Deferral
Contributions to equal the amount of Compensation Deferral Contributions of the
Highly Compensated Employee(s) with the next highest amount for the Plan Year.
This process shall be repeated until an amount equal to the total Excess
Contributions determined in the preceding paragraph is distributed. The Average
Actual Deferral Percentage tests in Section 8.10(b) shall not be re-run.
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(c) Determination of Income or Loss. The Excess Contributions
shall be adjusted for income or loss up to the last day of the Plan Year for
which such Excess Contributions were made, or, to the extent that such Excess
Contributions are invested in Investment Vehicles the value of which is priced
daily, up to the date of distribution in accordance with Section 7.1(b). The
income or loss allocable to a Participant's Excess Contributions shall be
determined in accordance with Section 7.2.
(d) Accounting for Excess Contributions. Excess Contributions
shall be distributed from the Participant's 401(k) Account in proportion to the
Participant's Compensation Deferral Contributions for the Plan Year.
(e) Reduction for Excess Deferrals Distributed. The Excess
Contributions which would otherwise be distributed under this Section shall be
reduced, in accordance with regulations issued under section 401(k) of the Code,
by the amount of Excess Deferrals distributed to the Participant under Section
8.13.
8.15 Distribution of Excess Aggregate Contributions.
(a) In General. Excess Aggregate Contributions, plus any
income and minus any loss allocable thereto, shall be distributed within the
12-month period beginning on the earlier of the last day of the Plan Year for
which such Excess Aggregate Contributions were made or the date of the complete
termination of the Plan, to Participants on whose behalf the Excess Aggregate
Contributions were allocated for such Plan Year. (If the Excess Aggregate
Contributions are distributed after the first March 15 after the last day of the
Plan Year in which the Excess Aggregate Contributions arose, the Company will be
subject to a ten percent (10%) excise tax under section 4979 of the Code with
respect to the Excess Aggregate Contributions.)
(b) Determination of Excess Aggregate Contributions. The
amount of Excess Aggregate Contributions for a Highly Compensated Employee for
Plan Years beginning on or after January 1, 1997 shall be determined in the
following manner. First, the Average Contribution Percentage ("ACP") of the
Highly Compensated Employee(s) with the highest ACP shall be reduced to the
extent necessary to satisfy Section 8.11(a) or to cause such ACP to equal the
ACP of the Highly Compensated Employee(s) with the next highest ACP. Second,
this process shall be repeated until Section 8.11(a) is satisfied. The amount of
Excess Aggregate Contributions equals the total amount of reductions in Matching
Contributions that would be required to achieve the ACPs determined in the
preceding sentences.
Then, the Matching Contributions of the Highly Compensated
Employee(s) with the highest Matching Contribution amount for the Plan Year
shall be reduced and distributed to such Employee(s) to the extent necessary to
equal the amount of Excess Aggregate Contributions determined in the preceding
paragraph, or to cause the amount of such Matching Contributions to equal the
amount of Matching Contributions of the Highly Compensated Employee(s) with the
next highest amount for the Plan Year. This process shall be repeated until an
amount equal to the total Excess Aggregate Contributions determined in the
preceding paragraph is distributed. The Average Contribution Percentage tests in
Section 8.11(a) shall not be re-run.
(c) Determination of Income or Loss. The Excess Aggregate
Contributions shall be adjusted for income or loss up to the last day of the
Plan Year for which such Excess Aggregate Contributions were made, or, to the
extent that such Excess Aggregate Contributions are invested in Investment
Vehicles the value of which is priced daily, up to the date of distribution in
accordance with
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Section 7.1(b). The income or loss allocable to a Participant's Excess Aggregate
Contributions shall be determined in accordance with Section 7.2.
8.16 Designation as Profit-Sharing Plan. This Section, in conjunction
with the remainder of the Plan, constitutes a profit-sharing plan, within the
meaning of section 401(a)(27) of the Code.
8.17 Participant Rollover Contribution.
(a) Rollovers. With the approval of the Committee, a
Participant may make a contribution to the Plan of any portion of an amount that
qualifies as an eligible rollover distribution under section 402(c)(4) or
403(a)(4) of the Code, or as a rollover contribution under section
408(d)(3)(A)(ii) of the Code. Any rollover contribution so authorized shall be
placed in the Participant's Rollover Account.
8.18 Loans.
(a) General Rule. Upon receipt of a request for a loan, the
Plan Administrator shall direct the Trustee to make a loan to a Participant who
is an active employee (or to any terminated Participant or beneficiary who is a
"party in interest" to the Plan within the meaning of section 3(14) of ERISA),
provided such loan meets the requirements of this Section and the requirements
of such procedures and guidelines as may be adopted by the Plan Administrator
which are consistent with this Section. For purposes of this Section, the term
"Participant" shall be deemed to include any terminated Participant or
beneficiary to whom Plan loans are available, except where the context otherwise
requires. A Participant's loan request shall be made by means of a completed
application on a form supplied by the Plan Administrator, or in any other manner
acceptable to the Plan Administrator.
(b) Terms of Loan. Each loan granted or renewed under this
Section shall bear a rate of interest which is two percentage points greater
than the prime lending rate, as announced in The Wall Street Journal, on the
business day coincident with or first following the fifteenth calendar day of
the month in which the loan is made or such other rate as may be determined by
the Plan Administrator to be required by law. The interest rate and other
conditions for the repayment of the loan shall be fixed at the time the loan is
made. All loans shall be repayable by their terms within five years.
(c) Limitations. The amount of a loan to a Participant shall
not exceed the lesser of:
(1) one-half of the amount of the sum of the Participant's
Rollover and 401(k) Accounts as of such date; or
(2) $50,000, reduced by the highest outstanding balance of the
Participant's loans from the Plan during the one-year period ending on
the day before such loan is made.
The minimum amount of any loan under this Section shall be
$1,000.
A Participant may not have more than one loan outstanding at
any time.
(d) Repayment Terms. Except as may be provided in regulations
issued by the Secretary of the Treasury, each loan shall require substantially
level amortization, with payments not less frequently than quarterly over the
term of the loan. A Participant shall be required to repay any loans through
payroll deduction, except that he may elect to prepay the entire outstanding
balance of the loan in a single lump sum.
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<PAGE> 31
Each loan shall be evidenced by a promissory note and shall be
secured by the vested balance of the Participant's Accounts; provided that,
immediately after the origination of such loan, not more than fifty percent
(50%) of the vested balance of the Participant's Accounts shall be used as
security for the loan. Each loan shall also be secured by such other collateral,
if any, as may be required by the Plan Administrator. If the Participant ceases
to be actively employed and receiving Compensation before absence or disability
leave, the Plan Administrator may permit the Participant to continue to make
loan repayments or may, in the Plan Administrator's discretion accelerate such
loan. If the Participant separates from service, and if, following such
separation, the Participant is no longer a party in interest to the Plan, the
loan shall be accelerated, and the unpaid balance of the loan, and accrued
interest thereon, shall be deducted from the amount of any benefits which become
payable to or on behalf of the Participant under the Plan.
(e) General Requirements. All loans shall (i) be available to
all eligible Participants on a reasonably equivalent basis, (ii) not be made
available to Highly Compensated Employees (as defined in Section 8.1(j) in an
amount (when calculated as a percentage of the borrower's Accrued Benefit under
the Plan) greater than the amount (similarly calculated) made available to other
Participants, and (iii) be made in accordance with this Section.
(f) Accounts Available for Loans.
(1) Order of Accounts. Any loan made to a Participant under
this Section shall be considered an earmarked investment of such
Participant's Accounts. Each loan shall be made from, and repayments
shall be credited to, the Participant's Accounts in the order listed
below:
(A) first, from the Participant's Rollover Account;
and
(B) second, from the Participant's 401(k) Account.
(2) Investment of Participant's Accounts. Until a loan to a
Participant is repaid, the outstanding balance of the loan shall be
treated as an investment by such Participant for his Account(s) only,
and the interest paid by such Participant shall be credited to his
Account(s) only. The Participant's Account(s) shall not share in any
other earnings of the Plan with respect to the amount of the loan.
(3) Loan Date. Each loan shall be made as soon as practicable
following approval of the Participant's loan application by the Plan
Administrator. To the extent any loan is made from a particular Account
of a Participant which is invested partially in different investment
media, such loan shall be made pro-rata from the investments of such
Account in each such investment medium (other than Preferred Stock),
valued as of the most recent Valuation Date or, to the extent that such
loan is made from amounts invested in Investment Vehicles the value of
which is priced daily, as of the date of the loan.
(4) Investment of Loan Repayments. Loan repayments which are
credited to a Participant's Account(s) shall be reinvested in
accordance with Sections 5.2, 5.4, or 8.4, as applicable.
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<PAGE> 32
SECTION 9
BENEFITS AND DISTRIBUTIONS
9.1 Vesting. A Participant shall at all times have a nonforfeitable
(vested) right to all amounts allocated to his 401(k) and Rollover Accounts. A
Participant shall have a nonforfeitable (vested) right to his entire Accrued
Benefit when he attains Normal Retirement Age. Before his Normal Retirement Age,
a Participant shall have a nonforfeitable (vested) right to the percentage of
his Company Stock, Matching, and Other Investments Accounts determined under the
following table:
<TABLE>
<CAPTION>
Years Nonforfeitable
of Vesting Service Percentage
------------------ ----------
<S> <C>
less than 5 0%
5 or more 100%
</TABLE>
There shall be no divestment of a Participant's Accrued Benefit for
cause.
9.2 Amount, Method, Form of Benefit Payments.
(a) Amount. The amount of any benefits payable under this
Section shall be the Participant's vested Accrued Benefit and based on the
Valuation Date immediately preceding distribution.
(b) Method. Except as otherwise required by Sections 9.8 and
9.9, benefits shall be paid as follows:
(1) with respect to any Participant who dies while in the
service of the Company or an Affiliate, or any Participant whose
Accrued Benefit does not exceed (and has not at the time of any prior
distribution exceeded) $5,000, one lump sum payment paid as soon as
practicable following the Participant's death or other event which
requires the benefit payment, as applicable;
(2) with respect to any Participant whose vested Accrued
Benefit exceeds (or at the time of any prior distribution exceeded)
$5,000, one lump sum payment paid as soon as practicable after the
event occurs which requires the benefit payment, provided any consent
required by Section 9.4(b) is given.
(c) Form. Benefits from the Participant's Company Stock,
Matching, and Other Investments Accounts shall be paid in whole shares of
Company Stock. To the extent the Participant's Company Stock and Matching
Accounts hold Preferred Stock, benefits shall be paid in shares of Common Stock
derived from the sale to the Company or conversion of the Preferred Stock, plus
cash for any fractional shares. If the fair market value of Common Stock
(closing price) is equal to or greater than the value of the Preferred Stock,
both as determined under subsection (a), then shares of Common Stock derived
from the sale or conversion of the Preferred Stock to Common Stock shall be
distributed to the Participant. If the fair market value of Common Stock
(closing price), determined as of the date of distribution, is less than the
value of the Preferred Stock, determined under subsection (a), then, in addition
to the shares of Common Stock derived from the sale or conversion of the
Preferred Stock, there shall be contributed to the Plan by the Company and
distributed to the Participant additional whole shares of Common Stock with a
value as of the date of distribution as close as possible to equaling (but not
exceeding) the shortfall, with any remaining shortfall distributed to the
Participant in cash. Benefits from the Participant's 401(k) and Rollover
Accounts shall be paid in cash, except that, to the extent the Investment
Vehicle in which the Accounts are invested consists of Company Stock, such
benefits shall be paid in Company Stock.
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<PAGE> 33
Notwithstanding the foregoing, a Participant may elect to
receive all benefits from his Other Investments, 401(k) and Rollover Accounts in
cash.
9.3 Normal and Late Retirement.
(a) A Participant may retire at any time on or after his
Normal Retirement Date.
(b) If a Participant continues in the service of the Company
after his Normal Retirement Date, he shall continue to participate in the Plan
until he actually retires. The benefits of a Participant who retires on or after
his Normal Retirement Date shall be paid in accordance with Section 9.2, but not
later than the time specified in Sections 9.8 and 9.9.
9.4 Vested Deferred Benefits.
(a) If a Participant with a vested Accrued Benefit separates
from service before attaining Normal Retirement Age for any reason other than
death, benefits shall be paid to him in accordance with Section 9.2, but not
later than the time specified in Sections 9.8 and 9.9.
(b) In the case of any Participant whose vested Accrued
Benefit exceeds (or at the time of any prior distribution exceeded) $5,000, the
Plan Administrator shall not direct that all or any part of such vested Accrued
Benefit be distributed, or commence to be distributed, before the Participant
attains Normal Retirement Age, unless the Participant consents in writing to
such distribution, or unless the benefit becomes distributable under Section 9.6
upon the death of the Participant.
(c) If a Participant without a vested right to his Accrued
Benefit (other than his 401(k) and Rollover Accounts) separates from service,
his Accrued Benefit (other than his 401(k) and Rollover Accounts) shall be
immediately forfeited and allocated as provided in Section 6.7.
(d) If the terminated Participant returns to service with the
Company prior to incurring five consecutive One-Year Breaks in Service, any
amount forfeited under subsection (c) shall be restored to the Participant's
Company Stock, Matching and Other Investments Accounts as of the last day of the
month in which the terminated Participant returns to service. For this purpose,
unallocated forfeitures shall be utilized first. If not sufficient, the Company
shall contribute additional amounts to restore the specified Accounts.
(e) The following events shall constitute a separation from
service for purposes of this Section:
(1) the sale or other disposition by the Company to
an unrelated entity of substantially all of the assets (within
the meaning of section 409(d)(2) of the Code) used by the
Company in a trade or business of the Company with respect to
a Participant who continues employment with the entity
acquiring such assets; or
(2) the sale or other disposition by the Company to
an unrelated entity of the Company's interest in a subsidiary
(within the meaning of section 409(d)(3) of the Code) with
respect to a Participant who continues employment with the
subsidiary.
Notwithstanding the foregoing, an event shall not be treated
as described in this subsection unless (i) the Participant receives a "lump-sum
distribution" (as defined in section 401(k)(10)(B)(ii) of the Code) by reason of
the event, (ii) the Company continues to maintain the Plan
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<PAGE> 34
after the sale or other disposition and the purchaser does not maintain the Plan
after the sale or other disposition, within the meaning of Treas. Reg.
Section 1.401(k)-1(d)(4)(i), and (iii) the distribution is made in connection
with the disposition of assets or a subsidiary, within the meaning of Treas.
Reg. Section 1.401(k)-1(d)(4)(iii).
9.5 Disability Retirement.
(a) If, before attaining Normal Retirement Age, a Participant
in the service of the Company suffers a total and permanent disability (as
defined in subsection (b)), such Participant shall then retire, he shall become
one hundred percent (100%) vested in his Accrued Benefit and his Accrued Benefit
shall be paid to him pursuant to Section 9.4(a).
(b) "Total and Permanent Disability" shall mean the total and
permanent incapacity of a Participant to perform the duties of such
Participant's employment with the Company, such incapacity to be deemed to exist
when so determined by the Company's long term disability carrier under the
Company's long term disability policy.
9.6 Death. If a Participant dies while in the service of the Company,
his Accrued Benefit shall be paid to his designated beneficiary or beneficiaries
in accordance with Section 9.7. If a Participant with a vested Accrued Benefit
dies after separating from service and before receiving all of the benefit
payments to which he was entitled, the remainder of his vested Accrued Benefit
shall be paid to his designated beneficiary or beneficiaries in accordance with
Section 9.7.
9.7 Designation of Beneficiary and Form of Payment of Death Benefit;
Spouse's Consent to Non-Spouse Beneficiary.
(a) Designation of Beneficiary and Form of Payment. In the
event a Participant has a surviving spouse at his death, such surviving spouse
shall be the Participant's beneficiary, unless the spouse has consented in the
manner described in subsection (b) to the payment of the Participant's Accrued
Benefit to a beneficiary other than the spouse. In the event the Participant has
no surviving spouse at his death, the beneficiary shall be the beneficiary
designated by the Participant. Any designation by the Participant and/or consent
by the Participant's spouse shall be made by a written form delivered to the
Plan Administrator. Except as otherwise provided with respect to a surviving
spouse, a Participant may, at any time prior to his death, change his
beneficiary designation by completing a new written form, but a beneficiary
designation shall remain in effect until such new form is received by the Plan
Administrator.
The death benefit shall be paid in one lump sum payment, to be
made as soon as practicable following receipt of all information and documents
necessary to make the distribution.
If a Participant dies without effectively designating a
surviving beneficiary and without a surviving spouse, then the beneficiary shall
be legal representative of the Participant.
(b) Requirements for Spouse's Consent. To be effective, a
consent by a spouse to a Participant's designation of a nonspouse beneficiary
must be filed in writing with the Plan Administrator, must be specific with
respect to the particular nonspouse beneficiary consented to, must be
irrevocable and must be witnessed by a Plan representative designated by the
Plan Administrator or by a notary public. In addition, any such spousal consent
shall be limited to the nonspouse beneficiary or beneficiaries specifically
designated by the Participant, which designation may not be changed without a
further spousal consent (unless the initial spousal consent expressly permits
designations by the Participant without any further consent by the spouse).
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<PAGE> 35
Notwithstanding the foregoing, if the Participant establishes to the
satisfaction of the Plan Administrator that such written consent may not be
obtained because there is no spouse or the spouse cannot be located, the
Participant's designation of a nonspouse beneficiary will be effective without
the requirement of the spouse's consent. Any consent required under this Section
shall be valid only with respect to the spouse who signs the consent, and any
establishment that the consent of a spouse may not be obtained shall be
effective only with respect to such spouse. Additionally, a revocation of a
prior beneficiary designation may be made by a Participant without the consent
of the spouse at any time. The number of revocations or consents shall not be
limited.
9.8 Special Provision as to Timing of Distributions. Notwithstanding
any other provision of the Plan, other than such provisions as require the
consent of the Participant to a distribution with a present value in excess of
$3,500, a Participant's Accrued Benefit shall be distributed not later than the
times set forth below:
(a) If the Participant separates from service by reason of the
attainment of Normal Retirement Age or disability, the distribution of the
Participant's Accrued Benefit shall be made in a lump sum payment not later than
one year after the end of the Plan Year in which such event occurs.
(b) If the Participant separates from service for a reason
other than those enumerated in subsection (a) and other than by reason of his
death and is not reemployed by the Company by the end of the fifth Plan Year
following the Plan Year of such separation from service, distribution of the
Participant's Accrued Benefit shall be made in a lump sum payment not later than
one year after the end of the fifth Plan Year following the Plan Year in which
the Participant separated from service.
(c) If the Participant separates from service for a reason
other than those enumerated in subsection (a), and is reemployed by the Company
before the date distribution is required to begin under subsection (b),
distribution to the Participant, prior to any subsequent separation from
service, shall be in accordance with terms of the Plan other than this Section.
9.9 Requirements Concerning Distributions. All benefit distributions
under this Section shall be subject to the following requirements:
(a) Before Death.
(1) Last Date for Commencement of Payments. The payment of
benefits to a Participant under this Plan shall occur not later than
the 60th day after the close of the Plan Year in which the latest of
the following events occurs:
(i) the Participant attains Normal Retirement Age; or
(ii) the Participant terminates service with the Company.
Notwithstanding the above, if the amount of payment required otherwise
to occur on a date determined under this Section or under any other
Section of the Plan cannot be ascertained by such date, or if the Plan
Administrator is unable to locate the Participant or beneficiary after
making reasonable efforts to do so, a payment retroactive to such date
may be made no later than 60 days after the later of (i) the earliest
date on which the amount of such payment can be ascertained under the
Plan, or (ii) the earliest date on which the Participant or beneficiary
is located.
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<PAGE> 36
(2) Additional Rule for Commencement of Benefit Payments. The
distribution of benefits to a Participant who attains age 70-1/2 after
December 31, 1996 shall occur not later than April 1 of the calendar
year following the calendar year in which the Participant attains age
70-1/2 or the Participant terminates employment, whichever is later.
However, if the Participant is a five percent (5%) owner (within the
meaning of Q&A B-2(d) of Prop. Treas. Reg. Section1.401(a)(9)-1 or any
successor thereto), then the distribution of benefits shall occur not
later than April 1 of the calendar year following the calendar year in
which the Participant attains age 70-1/2, regardless of whether the
Participant has terminated employment. An active Participant who
attained age 70-1/2 before January 1, 1997 and, therefore, commenced
benefit payments under the prior terms of the Plan, and who is not a
five percent (5%) owner, shall be permitted to cease such benefit
payments (except for the payment due by April 1, 1997 for a Participant
who attained age 70-1/2 in 1996) until April 1 of the calendar year
following the calendar year in which he terminates employment. With
respect to a Participant (other than a five percent (5%) owner) who
attains age 70-1/2 prior to January 1, 1999, such Participant may elect
in the form and manner prescribed by the Plan Administrator to receive
a distribution of benefits commencing no later than April 1 of the
calendar year in which the Participant attains age 70-1/2.
(b) After Death. If a Participant dies before the date
described in subsection (a)(2), and before his Accrued Benefit is distributed to
him, his entire benefit shall be distributed by December 31 of the year
containing the fifth anniversary of the date of the Participant's death.
(c) Regulations Control. Distributions under this Section
shall be made in accordance with section 401(a)(9) of the Code and regulations
issued thereunder. This section and section 401(a)(9) of the Code shall take
precedence over any distribution options in the Plan inconsistent with this
Section or section 401(a)(9) of the Code.
9.10 Put Options on Distributed Shares of Certain Company Stock. If the
distribution of the benefits under Section 9.2 is made in the form of shares of
Company Stock which are "not readily tradeable on an established market," within
the meaning of section 409(h)(1)(B) of the Code, a Participant or a beneficiary,
or a donee or heir of a Participant or beneficiary, shall be granted at the time
that shares are distributed to him, an option to "put" the shares to the
Company, provided that all such shares are so put; provided, further, that the
Trust shall have the option to assume the rights and obligations of the Company
at the time the put option is exercised. A put option shall provide that, for a
period of 60 days after such shares are distributed to a Participant or
beneficiary, or donee or heir of a Participant or beneficiary, (and, if the put
is not exercised within such 60-day period, for an additional period of 60 days
in the following Plan Year), he would have the right to have the Company
purchase such shares at their fair market value, determined by an independent
appraiser as described in Section 7.1, under a fair valuation formula. The put
option shall be exercised by notifying the Company it writing. The terms of
payment for the purchase of such shares of Company Stock shall be as set forth
in the put and may be either in a lump sum or in up to five equal annual
installments (with interest on the unpaid principal balance at a reasonable rate
of interest), as determined by the Plan Administrator. Payment for the purchase
of such shares must commence within 30 days after the put is exercised. The
period during which the put option is exercisable does not include any time
during which the distributee is unable to exercise it because the party bound by
the put option is prohibited from honoring it by applicable Federal or state
law. If payment is made in installments, adequate security and a reasonable rate
of interest must be provided.
In the case of a purchase from a "disqualified person" (as defined in
Section 13.8(d)), all purchases of Company Stock shall be made at prices which,
in the judgment of the Plan Administrator, do not exceed the fair market value
of such shares as of the date of the transaction.
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<PAGE> 37
A Participant's rights set forth in this Section shall be
nonterminable, within the meaning of Treas. Reg. Section 4975-11(a)(3)(ii).
9.11 Direct Rollovers of Eligible Rollover Distributions Made from
this Plan.
(a) Direct Rollovers. This Section applies to distributions
made on or after January 1, 1993. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a Distributee's election under this
Section, a Distributee may elect, at the time and in the manner prescribed by
the Committee, to have any portion of an Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan specified by the Distributee in a Direct
Rollover.
(b) Definitions.
(1) "Eligible Rollover Distribution" shall mean any
distribution of all or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution does not
include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the Distributee or the joint lives (or
joint life expectancies) of the Distributee and the Distributee's
designated beneficiary, or for a specified period of 10 years or more;
any distribution to the extent such distributions is required under
section 401(a)(9) of the Code; and the portion of any distribution that
is not includable in gross income (determined without regard to the
exclusion of net unrealized appreciation with respect to employer
securities).
(2) "Eligible Retirement Plan" shall mean an individual
retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code,
an annuity plan described in section 403(a) of the Code, or a qualified
trust described in section 401(a) of the Code, that accepts the
Distributee's eligible Rollover Distribution. However, in the case of
an Eligible Rollover Distribution to the surviving spouse, an Eligible
Retirement Plan is an individual retirement account or individual
retirement annuity.
(3) "Distributee" includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order (within the
meaning of section 414(p) of the Code) are Distributees with regard to
the interest of the spouse or former spouse.
(4) "Direct Rollover" shall mean a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
9.12 Participant's Consent to Distribution of Benefits.
(a) Except as provided in paragraphs (b) and (c) below, the
committee shall provide each Participant, not more than 90 days and not fewer
than 30 days prior to the date his Accrued Benefit is paid to him, written
notice of his right to defer receipt of the payment until his Normal Retirement
Date. Payment shall not be made prior to the Participant's Normal Retirement
Date unless the Participant affirmatively elects a distribution in writing, on a
form filed with the Committee.
(b) The written notice described in paragraph (a) above shall
not apply to the payment if (i) the Participant receives an involuntary lump sum
payment pursuant to Section 9.2(b)(1), or (ii) the payment is made on or after
the Participant's Normal Retirement Date.
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(c) A payment may be made fewer than 30 days after the notice
described in paragraph (a) above is given to the Participant, provided that:
(1) The Committee clearly informs the Participant that he has
a right to a period of at least 30 days after receiving such notice to
consider whether or not to elect the distribution; and
(2) The Participant, after receiving the notice, affirmatively
elects the distribution.
SECTION 10
LIMITATIONS ON CONTRIBUTIONS
10.1 Definitions for Limitations on Contributions.
(a) "Annual additions" shall mean the sum of the following
amounts credited to a Participant's Company Stock, 401(k), Matching and Other
Investments Accounts for the limitation year:
(1) Company contributions (including Compensation Deferral
Contributions, other than Excess Deferral Amounts distributed in
accordance with Section 8.13); and
(2) forfeitures.
For this purpose, Company contributions credited to a Participant's Company
Stock and Matching Accounts shall include amounts contributed by the Company for
the Plan Year which are used to repay principal and/or interest (except as
provided below) on one or more Exempt Loans, or to purchase shares of Company
Stock, and which are deemed allocated to such Participant's Company Stock and
Matching Accounts for purposes of this subsection (a). The portion of such
Company contribution which is deemed allocated to a Participant's Company Stock
and Matching Accounts for purposes of this subsection (a) shall be an amount
which bears the same ratio to the total contribution made by the Company for
such Plan Year which is used to repay principal and/or interest (except as
provided below) on one or more Exempt Loans, or to purchase shares of Company
Stock, as the number of shares of Company Stock allocated to such Participant's
Company Stock Account for such Plan Year on the Valuation Date coincident with
the last day of such Plan Year bears to the total number of shares of Company
Stock allocated to the Company Stock and Matching Accounts of all Participants
for such Plan Year on such Valuation Date.
Notwithstanding the above, (i) allocations of Company Stock
resulting from Company contributions used to pay interest on an Exempt Loan and
(ii) allocations of forfeited Company Stock previously acquired with the
proceeds of an Exempt Loan shall not be annual additions for the limitation
year; provided that the requirements of section 415(c)(6)(C) of the Code are met
for such limitation year.
Company contributions and forfeitures allocated to an
Employee's 401(k) and Matching Accounts under the Stock Bonus Plan which are
transferred to this Plan will not constitute annual additions to this Plan.
(b) "Defined benefit fraction" shall mean a fraction, the
numerator of which is the Participant's projected annual benefit under the
BetzDearborn Inc. Employees' Retirement Plan, and the denominator of which is
the lesser of 125% of the dollar limitation in effect for the limitation year
under section 415(b)(1)(A) of the Code or 140% of the Participant's highest
average limitation compensation.
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<PAGE> 39
(c) "Defined contribution fraction" shall mean a fraction, the
numerator of which is the sum of the annual additions to the Participant's
Company Stock, 401(k), Matching and Other Investments Accounts under the Plan
for the current and all prior limitation years, and the denominator of which is
the sum of the maximum amounts for the current and all prior years of employment
with the Company. The maximum amount in any limitation year is the lesser of
125% of the dollar limitation in effect under section 415(c)(1)(A) of the Code
or thirty-five percent (35%) of the Participant's limitation compensation for
such year.
(d) "Highest average compensation" shall mean the
Participant's average limitation compensation for the three consecutive years of
service that produce the highest average.
(e) "Limitation compensation" shall mean a Participant's
wages, salaries and fees for professional services and other amounts received
for personal services actually rendered in the service of the Company or any
Affiliate, and excluding contributions by the Company or any Affiliate to a plan
of deferred compensation which are not includable in the Participant's gross
income for the taxable year in which contributed, or any distributions from a
plan of deferred compensation (except any amounts received by a Participant
pursuant to an unfunded, nonqualified plan in the year such amounts are
includable in his gross income). For purposes of applying the limitations of
this Section, compensation for a limitation year is the compensation actually
paid or includable in gross income during such year. For Limitation Years
beginning after December 31, 1997, the term "Limitation Compensation" shall
include any elective deferral (as defined in section 402(g)(3) of the Code), and
any amount which is contributed or deferred by the Company or an Affiliate at
the election of the Employee and which is not includable in the gross income of
the Employee by reason of section 125 of the Code.
(f) "Limitation year" shall mean the calendar year.
(g) "Maximum permissible amount" shall mean the lesser of--
(1) $30,000 (or, if greater, 1/4 fourth of the defined benefit
dollar limitation set forth in section 415(b)(1) of the Code as in
effect for the limitation year); or
(2) twenty-five percent (25%) of the Participant's limitation
compensation for the limitation year.
The dollar amount of the maximum permissible amount under
paragraph (1) for a limitation year shall be increased by the lesser of (i) one
hundred percent (100%) of the otherwise applicable dollar amount or (ii) the
amount of Company Stock allocated to the Participant's Company Stock and
Matching Accounts for the limitation year, provided the requirements of section
415(c)(6)(A) of the Code are met for such limitation year.
(h) "Projected annual benefit" shall mean the annual
retirement benefit (adjusted to an actuarially equivalent straight life annuity
if such benefit is expressed in a form other than a straight life annuity or
qualified joint and survivor annuity) to which the Participant is entitled under
the terms of the BetzDearborn Inc. Employees' Retirement Plan.
10.2 Basic Limitation. The amount of annual additions which may be
credited to the Participant's Accounts for any limitation year shall not exceed
the lesser of the maximum permissible amount or any other limitation contained
in this Plan. If, as a result of the allocation of forfeitures, a reasonable
error in estimating a Participant's annual compensation, or a reasonable error
in determining the amount of Compensation Deferral Contributions that may be
made to the Plan with respect to any Participant under the limits of section 415
of the Code, or under other limited facts and under the limits
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<PAGE> 40
And circumstances as determined by the Commissioner of Internal Revenue, the
annual additions for a Participant for the limitation year would otherwise
exceed the maximum permissible amount, then:
(a) Compensation Deferral Contributions for such limitation
year shall be distributed to the Participant, to the extent required to reduce
the annual additions to the maximum permissible amount; and
(b) If necessary, other amounts to be contributed by the
Company on behalf of such Participant shall be reduced so that the annual
additions for the limitation year equal the maximum permissible amount.
Compensation Deferral Contributions distributed in accordance
with subsection (a) shall be disregarded for purposes of Section 8.10 and
Section 8.11.
10.3 Combined Limit with Pension Plan. Before January 1, 2000, for any
Participant who also has an accrued benefit under the BetzDearborn Inc.
Employees' Retirement Plan, the sum of the Participant's defined benefit
fraction and defined contribution fraction shall not exceed 1.0 in any
limitation year. If the sum of such fractions with respect to any Participant
for any limitation year would otherwise exceed 1.0, the allocations and benefits
under this Plan and the Retirement Plan shall be adjusted in accordance with
section 415 of the Code and regulations issued thereunder.
10.4 Combining and Aggregating Plans. For purposes of applying the
limitations set forth in this Section:
(a) all qualified defined benefit plans ever maintained by the
Company or any Affiliate shall be treated as one defined benefit plan; and
(b) all qualified defined contribution plans ever maintained
by the Company or any Affiliate shall be treated as one defined contribution
plan.
SECTION 11
TOP-HEAVY PROVISIONS
11.1 Top-Heavy Preemption. Notwithstanding any other provision of this
Plan the contrary, during any Plan Year in which this Plan is top-heavy, as
defined in Section 11.2, the Plan shall be governed in accordance with this
Section, which shall control over other provisions hereof.
11.2 Top-Heavy Definitions.
(a) "Determination date" shall mean, with respect to any Plan
Year after the first Plan Year, the last day of the preceding Plan Year and,
with respect to the first Plan Year, the last day of such first Plan Year.
(b) "Determination period" shall mean, with respect to any
Plan Year, the Plan Year containing the determination date and the four
preceding Plan Years.
(c) "Key Employee" shall mean any Employee or former Employee
(and the beneficiaries of such Employee) who at any time during a Plan Year
included in the determination period was--
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<PAGE> 41
(1) an officer of the Company or any Affiliate having an
annual limitation compensation greater than 150% of the amount in
effect under section 415(c)(1)(A) of the Code for such Plan Year;
(2) one of the 10 Employees having annual limitation
compensation from the Company and the Affiliates greater than the
amount in effect under section 415(c)(1) (A) of the Code and owning (or
considered as owning within the meaning of section 318 of the Code)
both more than a one-half percent (1/2 percent) interest and the
largest interests in the Company or any Affiliate;
(3) a five percent (5%) owner of the Company or any Affiliate;
or
(4) a one percent (1%) owner of the Company or any Affiliate
who has an annual limitation compensation from the Company and the
Affiliates of more than $150,000.
The determination of who is a key Employee shall be made in Accordance with
section 416(i) of the Code and regulations thereunder.
(d) "Limitation compensation" shall mean limitation
compensation as defined in Section 10.1(e).
(e) "Non-key Employee" shall mean any Employee who is not a
key Employee.
(f) "Permissive aggregation group" shall mean, with respect to
any Plan Year, the required aggregation group plus any other defined
contribution plan or defined benefit plan which the Plan Administrator elects to
include, provided such permissive aggregation group meets the requirements of
sections 401(a)(4) and 410 of the Code with such defined contribution plan or
defined benefit plan being taken into account.
(g) "Required aggregation group" shall mean, with respect to
any Plan Year:
(1) Each defined contribution plan and each defined benefit
plan of the Company or any Affiliate in which a key Employee is a
participant or was a participant at any time during the determination
period (regardless of whether the plan has been terminated); and
(2) Each other defined contribution plan and each other
defined benefit plan of the Company or any Affiliate which, during the
determination period, enables any defined benefit plan or defined
contribution plan described in paragraph (1) to meet the requirements
of section 401(a)(4) or 410 of the Code.
(h) "Top-heavy plan" shall mean, for any Plan Year beginning
on or after January 1, 1989, this Plan if:
(1) this Plan is not part of a required or permissive
aggregation group, and the top-heavy ratio for the Plan exceeds sixty
percent (60%);
(2) this Plan is part of a required aggregation group and not
part of a permissive aggregation group, and the top-heavy ratio for the
required aggregation group exceeds sixty percent (60%); or
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<PAGE> 42
(3) this Plan is part of a required aggregation group and part
of a permissive aggregation group, and the top-heavy ratio for the
permissive aggregation group exceeds sixty percent (60%).
(i) "Top-heavy ratio" shall mean a fraction. The numerator of
the fraction is the sum of the account balances of all key Employees under the
Plan, or, if the Plan is a member of a required or permissive aggregation group,
under all defined contribution plans in such required or permissive aggregation
group (hereinafter the "aggregation group"), plus the sum of the present values
of accrued benefits of all key Employees under all defined benefit plans in the
aggregation group, as of the determination date. The denominator of the fraction
is a similar sum determined for all Employees. For purposes of determining the
fraction, the numerator and denominator shall include any part of any account
balance or accrued benefit distributed in the determination period. With respect
to Plan Years beginning on or after January 1, 1989, if any individual has not
been credited with at least one Hour of Service with the Company or any
Affiliate at any time during the determination period, any account balance or
accrued benefit of, or distribution to, such individual shall not be taken into
account.
For purposes of the preceding paragraph, the sum of account
balances and the present values of accrued benefits shall be determined as of
the most recent valuation date that falls within the 12-month period ending on
the determination date. The calculation of the top-heavy ratio shall be made in
accordance with section 416 of the Code and the regulations thereunder.
Solely for the purpose of determining if the Plan, or any
other plan included in a required aggregation group of which this Plan is a
part, is top-heavy (within the meaning of section 416(g) of the Code) the
accrued benefit of a non-key Employee shall be determined under (i) the method,
if any, that uniformly applies for accrual purposes under all plans maintained
by the Company and the Affiliates, or (ii) if there is no such method, as if
such benefit accrued not more rapidly than the slowest accrual rate permitted
under the fractional accrual rate of section 411(b)(1)(C) of the Code.
(j) "Valuation date" shall mean, with respect to this Plan,
the first day of the Plan Year.
11.3 Top-Heavy Rules. Notwithstanding any other provision of the Plan,
the following rules shall apply for any Plan Year in which the Plan is
determined to be a top-heavy plan:
(a) Minimum Benefit. The Company contributions and forfeitures
allocated on behalf of any Participant in this Plan who is a non-key Employee
for the Plan Year shall not be less than the lesser of (i) five percent (5%) of
such Participant's limitation compensation or (ii) the largest percentage of the
Company contributions and forfeitures allocated on behalf of any key Employee
under this Plan for such Plan Year (as a percentage of the first $150,000 as
adjusted for increases in the cost of living in accordance with section
401(a)(17)(B) of the Code of the key Employee's limitation compensation). For
purposes of clause (ii) of the preceding sentence, Company contributions made on
behalf of a key Employee, pursuant to the key Employee's salary reduction
agreement, shall be treated as Company contributions allocated on behalf of the
key Employee. This paragraph (a) shall not apply to any Participant who was not
employed by the Company on the last day of the Plan Year.
The minimum benefit shall be provided without regard to any
Social Security contribution. The minimum benefit shall be provided even though,
under other Plan provisions, the Participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation, in the Plan
Year because (i) of the Participant's failure to complete 1,000 Hours of
Service, (ii) of the Participant's failure to make mandatory employee
contributions to the Plan or (iii) the Participant's limitation compensation is
less than a stated amount.
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<PAGE> 43
(b) Minimum Vesting. Notwithstanding the provisions of Section
9.1, for any Plan Year in which this Plan is a top-heavy plan, the following
minimum vesting schedule shall apply to the Participant's Accrued Benefit:
<TABLE>
<CAPTION>
Years of Nonforfeitable
Vesting Service Percentage
--------------- --------------
<S> <C> <C>
less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 or more 100%
</TABLE>
This subsection (b) does not apply to the Accrued Benefit of any Participant who
does not have an Hour of Service after the Plan has initially become a top-heavy
plan; such Participant's vested Accrued Benefit shall be determined without
regard to this subsection (b).
11.4 Impact on Maximum Benefits. For any Plan Year in which the Plan is
a top-heavy plan, Section 10.1 shall be read by substituting the number "100"
for the number "125" wherever it appears therein, except that such substitution
shall not have the effect of reducing any benefit accrued under a defined
benefit plan prior to the first day of the Plan Year in which this provision
becomes applicable.
11.5 Change in Top-Heavy Status. If the Plan becomes a top-heavy plan
and subsequently ceases to be such, the vesting schedule in Section 11.3(b)
shall continue to apply in determining the nonforfeitable percentage of any
Participant who had at least three years of service as of December 31 of the
last Plan Year of top-heaviness. For other Participants, such schedule shall
apply only to the Participant's Accrued Benefit as of such December 31.
11.6 Duplication of Minimum Contributions Not Required. The Plan
Administrator shall, to the maximum extent permitted by the Code and regulations
thereunder, apply the provisions of this Section by taking into account the
benefits payable and the contributions made under all other defined contribution
and defined benefit plans maintained by the Company or any Affiliate which are
qualified under section 401(a) of the Code to prevent inappropriate omissions or
duplication of minimum benefits or contributions.
11.7 Repeal of Limitation. In the event that Congress should provide by
statute, or the Treasury Department should provide by regulation or ruling, that
the limitations provided in this Section are no longer necessary for the Plan to
meet the requirements of section 401 of the Code or other applicable law then in
effect, such limitations shall become void and shall no longer apply, without
the necessity of further amendment to the Plan.
SECTION 12
NONALIENATION OF BENEFITS
12.1 Nonalienation Rule. The right of any Participant or beneficiary to
any benefit payment shall not be subject to any voluntary or involuntary
alienation or assignment. The preceding sentence shall also apply to the
creation, assignment or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order, unless such
order is determined to be a qualified
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<PAGE> 44
domestic relations order (as defined in section 414(p) of the Code) or a
domestic relations order entered before January 1, 1985.
SECTION 13
FIDUCIARY RESPONSIBILITY
13.1 Fiduciary Duties. A "fiduciary," as defined in section 3(21) of
ERISA, shall discharge its duties with respect to the Plan and Trust in the
interest of the Participants and their beneficiaries:
(a) for the exclusive purpose of:
(1) providing benefits to Participants and their
beneficiaries; and
(2) defraying reasonable expenses of
administering the Plan and Trust;
(b) with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims;
(c) by diversifying the investments of the Plan and Trust so
as to minimize the risk of large losses, unless under the circumstances it is
clearly prudent not to do so; and
(d) in accordance with the documents and instruments governing
the Plan and Trust insofar as they are consistent with the provisions of ERISA.
Notwithstanding the above, the diversification requirements of
subsection (c) and the prudence requirement (to the extent that it requires
diversification) of subsection (b) are not violated by the acquisition or
holding of Company Stock to the extent permitted under the Plan and Trust
Agreement.
13.2 Allocation of Responsibility. Authority and responsibility for
management of the Plan and Trust shall be allocated among the following persons:
(a) The Board of Directors shall have sole responsibility for
the appointment, removal and replacement of members of the Committee and the
Plan Administrator described in Section 14, and the Trustee described in Section
XV. The Board shall also have sole responsibility for:
(1) the design of the Plan and Trust Agreement, including the
right to amend or terminate the Plan and Trust Agreement (under Section
16.1 or 17.1, respectively) at any time;
(2) qualification of the Plan and Trust Agreement and any
amendments or documents relating thereto under the Code and ERISA;
(3) funding of the Company's contributions to the Plan; and
(4) the exercise of all other fiduciary functions assigned to
it in the Plan or Trust Agreement. To the extent that it is carrying
out this responsibility, the members of the Board of Directors shall be
"named fiduciaries" of the Plan for purposes of section 402(a)(1) of
ERISA.
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<PAGE> 45
(b) The Committee shall have sole responsibility for
establishing the guidelines for the administration and operation of the Plan, as
set forth in Section 14. To the extent it is carrying out these duties, the
members of the Committee shall be "named fiduciaries" with respect to the Plan.
(c) The Plan Administrator shall have sole responsibility for
the execution of the administrative duties assigned him by the Board of
Directors, the Committee, and the Plan and Trust Agreement. To the extent he is
carrying out this responsibility, the Plan Administrator shall be a "named
fiduciary" of the Plan.
(d) The Trustee shall, subject to any guidelines established
by the Committee, have sole responsibility for investment, management and
control of the assets in the Trust Fund in accordance with the terms of the Plan
and the Trust Agreement. To the extent it is carrying out this responsibility,
the Trustee shall be a "named fiduciary" of the Plan.
13.3 No Joint Responsibility. It is the purpose of this Plan and Trust
Agreement to allocate to each of the fiduciaries identified in Section 13.2
exclusive responsibility of prudent execution of the functions assigned to him
or it (or to the entity of which he or it is a member) and no responsibility for
execution of functions assigned to others. Whenever one such fiduciary is
required by the Plan and Trust Agreement to follow the directions of another
such fiduciary, the two fiduciaries shall not be deemed to have been assigned a
shared responsibility, but the fiduciary giving the directions shall have sole
responsibility for the functions assigned to him or it, including issuing of
such directions, and the fiduciary receiving the directions shall have sole
responsibility for the functions assigned to him or it, including following such
directions insofar as they are on their face proper under this Plan and Trust
Agreement and under applicable law.
13.4 No Co-Fiduciary Liability.
(a) A fiduciary shall not be liable for a breach of fiduciary
responsibility by another fiduciary to whom other fiduciary responsibilities
have been assigned under the Plan except under the following circumstances:
(1) if he or it participates knowingly in, or knowingly
undertakes to conceal, an act or omission of such other fiduciary,
knowing such act or omission is a breach;
(2) if, by his or its failure properly to discharge his or its
own fiduciary responsibilities, he or it has enabled such other
fiduciary to commit a breach; or
(3) if he or it has knowledge of a breach by such other
fiduciary, unless he or it makes reasonable efforts under the
circumstances to remedy the breach.
(b) If the Committee appoints an investment manager or
managers under Section 14.6, then, notwithstanding Section 13.3 and subsections
(a)(2) and (3), the Trustee shall not be liable for the acts and omissions of
such investment manager.
13.5 Act in Interest of Participants. In carrying out the
responsibilities allocated to him or it under this Plan and Trust Agreement,
each fiduciary shall act solely in the interests of the Plan's Participants and
their beneficiaries.
13.6 Employment of Advisors. A fiduciary identified in Section 13.2 may
consult with counsel, who may be counsel to the Company, and shall be fully
protected in acting upon the advise of such counsel, with regard to such
fiduciary's responsibilities under the Plan.
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<PAGE> 46
13.7 Transfer or Maintenance of Indicia of Ownership of Plan Assets
Outside United States Prohibited. Except as authorized by the Secretary of Labor
by regulation, no fiduciary shall maintain the indicia of ownership of any
assets of the Plan or Trust outside the jurisdiction of the district courts of
the United States.
13.8 Prohibited Transactions
(a) Unless otherwise exempted by ERISA or by the Secretary of
Labor, a fiduciary with respect to the Plan or Trust shall not cause the Plan or
Trust to engage in a transaction if he or it knows, or should know, that such
transaction constitutes a direct or indirect:
(1) sale or exchange, or leasing, of any property between the
Plan or Trust and a party in interest or a disqualified person;
(2) lending of money or other extension of credit between the
Plan or Trust and a party in interest or a disqualified person;
(3) furnishing of goods, services, or facilities between the
Plan or Trust and a party in interest or a disqualified person;
(4) transfer to, or use by or for the benefit of, a party in
interest or a disqualified person, of any assets of the Plan or Trust;
or
(5) an acquisition, on behalf of the Plan or Trust, of any
securities issued by the Company or an affiliate which are not
"qualifying employer securities" within the meaning of section
4975(e)(8) of the Code.
(b) Unless otherwise exempted by the Secretary of Labor, a
fiduciary with respect to the Plan or Trust shall not:
(1) deal with the assets of the Plan or Trust in his or its
own interest or for his or its own account;
(2) in his or its individual or any other capacity act in any
transaction involving the Plan or Trust on behalf of a party (or
represent a party) whose interests are adverse to the interests of the
Plan or Trust or the interests of the Participants or their
beneficiaries; or
(3) receive any consideration for his or its own personal
account from any party dealing with the Plan or Trust in connection
with a transaction involving the assets of the Plan or Trust.
(c) Notwithstanding anything to the contrary set forth in this
Section, a fiduciary shall be entitled to:
(1) receive any benefit to which the fiduciary may be entitled
as a Participant or beneficiary in the Plan or Trust, so long as the
benefit is computed and paid on a basis which is consistent with the
terms of the Plan and Trust as applied to all Participants and their
beneficiaries;
40
<PAGE> 47
(2) receive any reasonable compensation for services rendered
except that no person so serving who already receives full-time pay
from the Company, from an employee organization whose employees are
Participants in the Plan or from an association of employers whose
employees are Participants in the Plan shall receive compensation from
the Plan or Trust, except for reimbursement of expenses properly and
actually incurred;
(3) receive reimbursement of expenses properly and actually
incurred, in the performance of its duties with the Plan and Trust;
(4) serve as a fiduciary in addition to being an officer,
employee, agent or other representative of a party in interest or
disqualified person; and
(5) acquire or sell qualifying employer securities if (i) such
acquisition or sale is for adequate consideration, and (ii) no
commission is charged with respect to such acquisition or sale.
(d) For purposes of this Section, the words "party in
interest" or "disqualified person" mean:
(1) any fiduciary, counsel or employee of the Plan or
Trust;
(2) a person providing services to the Plan or Trust;
(3) the Company;
(4) an employee organization any of whose members are
covered by the Plan;
(5) an owner, direct or indirect of fifty percent (50%)
or more of:
(A) the combined voting power of all classes of stock
entitled to vote or the total value of shares of all classes
of stock of a corporation,
(B) the capital interest or the profits interest of a
partnership, or
(C) the beneficial interest of a trust or
unincorporated enterprise, which is an employer or employee
organization described in subsection (d)(1), (2), (3) or (5)
above;
(6) a corporation, partnership, or trust or estate of
which (or in which) fifty percent (50%) or more of:
(A) the combined voting power of all classes of stock
entitled to vote or the total value of shares of all classes
of stock of such corporation,
(B) the capital interest or profits interest of such
partnership, or
(C) the beneficial interest of such trust or estate
is owned directly or indirectly, or held by persons described
in subsection (d)(1), (2), (3), (4) or (5) above;
(7) an employee, officer, director (or an individual having
powers or responsibilities similar to those of officers or directors),
or a ten percent (10%) or more shareholder directly or indirectly of a
person described in subsection (d)(2), (3), (4), (5) or (6), or of the
Plan or Trust; or
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<PAGE> 48
(8) a ten percent (10%) or more (directly or indirectly in
capital or profits) partner or joint venturer of a person described in
subsection (d)(2), (3), (4), (5) or (6).
(e) For purposes of this Section, the words "adequate
consideration" mean:
(1) in the case of a security for which there is a
generally recognized market either,
(A) the price of the security prevailing on a
national securities exchange registered under section 6 of the
Securities Exchange Act of 1934, or which has been listed for
more than one month (at the time of such sale or purchase), on
an electronic quotation system administered by a national
securities association registered under such Act, or
(B) if the security is not traded on such a national
securities exchange, or so listed on such an electronic
quotation system, a price not less favorable to the Plan than
the offering price for the security as established by the
current bid and asked prices quoted by persons independent of
the issuer and of any party in interest or disqualified
person; and
(2) in the case of an asset other than a security for which
there is a generally recognized market, the fair market value of the
asset as determined in good faith by the Trustee or named fiduciary
pursuant to the terms of the Plan and in accordance with regulations
prescribed by the Secretary of Labor.
SECTION 14
ADMINISTRATION OF PLAN --
STOCK BONUS PROFIT SHARING/RETIREMENT
COMMITTEE AND PLAN ADMINISTRATOR
14.1 Members of Committee. The Board shall appoint a Stock Bonus Profit
Sharing/Retirement Plan Committee (the "Committee") to consist of not less than
three members, to hold office, without special compensation for Committee
membership, at the pleasure of the Board of Directors. Members of the Committee
may, but are not required to, be Participants under the Plan or officers,
employees or members of the Board of Directors. Any member may resign by giving
notice, in writing, filed with the Chairman or Secretary of the Board of
Directors. Vacancies shall be filled promptly by the Board of Directors in such
manner that the composition of the Committee shall be as herein prescribed. The
Plan Administrator shall notify the Trustee of the appointment of the Committee
and of any subsequent changes in its membership.
14.2 Officers and Employees of the Committee. The members of the
Committee shall elect a Chairman who shall be a member of the Committee and a
Secretary who may, but need not be, a member of the Committee. The Secretary
shall keep minutes of the Committee's proceedings and all data, records and
documents pertaining to the Committee's guidelines for administration and
operation of the Plan and the Trust.
14.3 Action of Committee. A majority of the Committee shall constitute
a quorum for the transaction of business. Resolutions or other actions of the
Committee at any meeting shall be determined by the vote or other affirmative
expression of a majority of its members present at such meeting. Resolutions or
other action may be taken without a meeting upon the written consent of all
members of the Committee. The Chairman or the Secretary may execute any
certificate or other written direction on
42
<PAGE> 49
behalf of the Committee. In the event the Committee members entitled to vote on
any question are unable to determine such question by a majority vote, such
question shall be determined by the Board of Directors.
14.4 Disqualification of Committee Member. A member of the Committee
who is a Participant or beneficiary shall not vote on any question relating
specifically to himself.
14.5 Expenses of Committee. All expenses of the Committee properly and
actually incurred in the performance of its duties under the Plan and the Trust
Agreement shall be paid or reimbursed by the Company.
14.6 Powers of the Committee. The Committee shall have full power to
establish guidelines for the administration and operation of the Plan and to
review any action taken by the Plan Administrator, including the power to
appoint one or more investment managers to manage (including the power to
acquire and dispose of) any designated assets of the Trust.
14.7 Allocation of Fiduciary Responsibility. The Committee from time to
time may allocate to one of its members, to the Plan Administrator and/or may
delegate to any other persons or organizations any of the rights, powers, duties
and responsibilities of the Committee with respect to the operation and
administration of the Plan and the Trust Agreement. Any such allocation or
delegation shall be reviewed periodically by the Committee and shall be
terminable upon such notice as the Committee, in its discretion, deems
reasonable and proper under the circumstances.
14.8 Plan Administrator and His General Powers. The Plan Administrator
shall be the Vice President - Human Resources of the Company or any other person
designated by the Board. The Plan Administrator shall serve without
compensation, and at the pleasure of the Board. The Plan Administrator shall be
responsible for the administration and operation of the Plan pursuant to the
guidelines established by the Committee and subject to the review of the
Committee, and for any other duties assigned him by the Board of Directors
and/or the Committee.
14.9 General Duties of the Plan Administrator. The general duties of
the Plan Administrator shall include the following:
(a) determining all questions relating to the eligibility
of Employees to become Participants and the status of Employees as Participants
under the Plan;
(b) determining the Accrued Benefit payable to
Participants or beneficiaries and authorizing and directing the Trustee with
respect to the payment of, or provision for, benefits under the Plan;
(c) engaging for the Plan any administrative, legal,
medical, accounting, clerical or other services he may deem appropriate to
effectuate the Plan;
(d) as provided in Section 14.13, construing and
interpreting the Plan and the Trust Agreement whenever necessary to carry out
their intention and purpose and making and publishing such rules for the
regulation of the Plan and the Trust Agreement as are consistent with the
guidelines established by the Committee and with the terms of the Plan and the
Trust Agreement;
(e) compiling and maintaining, in conjunction with the
Company, all records he determines to be necessary, appropriate or convenient in
connection with the administration of the Plan and the Trust Agreement;
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<PAGE> 50
(f) determining, in accordance with the terms of the Plan, the
allocation, disposition and distribution of assets in the Trust Fund in the
event the Plan is terminated;
(g) appointing and contracting with such independent public
accountant or accountants as shall be necessary to comply with the reporting and
disclosure requirements of any applicable Federal or state law, including the
preparation and filing of all returns and reports required to be filed by the
Plan with any governmental agency;
(h) furnishing of all required forms, statements, information
and reports to Participants (or their beneficiaries);
(i) developing a policy for the funding of the Plan consistent
with the guidelines established by the Committee and subject to approval by the
Board of Directors and consistent with the needs of the Plan and the
requirements of ERISA; and
(j) processing of all Claims filed under Section 14.11. The
decision of the Plan Administrator, after review by the Committee, except as
otherwise provided in Section 14.7(i), with respect to matters within his
jurisdiction shall be final, binding and conclusive upon the Committee, the
Company and upon each Participant, beneficiary and every other person or party
interested or concerned.
14.10 Information to be Submitted by Company to the Plan Administrator.
To enable the Plan Administrator to perform his functions, the Company shall
supply full and timely information to him on all matters relating to
Participants, former Participants, and beneficiaries as the Plan Administrator
may require, and shall maintain such other records as the Plan Administrator may
determine are necessary in order to determine the benefits due or which may
become due to the Participants, former Participants and beneficiaries under the
Plan. The Plan Administrator shall advise the Trustee of such of the foregoing
facts as may be pertinent to the Trustee's responsibilities under the Plan and
Trust Agreement.
14.11 Claim Procedure.
(a) Filing Claim for Benefits. If an individual (hereinafter
referred to as the "Applicant," which reference shall include the legal
representative, if any, of the individual) does not receive the timely payment
of the benefits to which the Applicant believes he is entitled to receive under
the terms of the Plan, the Applicant may make a claim ("Claim") for benefits in
the manner hereinafter provided.
All Claims for benefits under the Plan shall be made in
writing and shall be signed by the Applicant. Claims shall be submitted to the
Plan Administrator. If the Applicant does not furnish sufficient information
with the Claim for the Plan Administrator to determine the validity of the
Claim, the Plan Administrator shall furnish the Applicant with forms prescribed
by the Plan Administrator within 10 days of receipt of the initial Claim,
indicating any additional information which is necessary for the Plan
Administrator to determine the validity of the Claim.
Each Claim hereunder shall be acted on and approved or
disapproved by the Plan Administrator within 60 days following the receipt by
the Plan Administrator of the information necessary to process the Claim.
In the event the Plan Administrator denies a Claim for
benefits in whole or in part, the Plan Administrator shall notify the Applicant
in writing of the denial of the Claim and notify such Applicant of his right to
a review of the Plan Administrator's decision by the Committee. Such notice by
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<PAGE> 51
the Plan Administrator shall also set forth, in a manner calculated to be
understood by the Applicant, the specific reason for such denial, the specific
Plan provisions on which the denial is based, a description of any additional
material or information necessary to perfect the Claim with an explanation of
such material or information where necessary and an explanation of the Plan's
Claim review procedure as set forth in this Section.
If no action is taken by the Plan Administrator on an
Applicant's Claim within 60 days after receipt by the Plan Administrator, such
application shall be deemed to be denied for purposes of the following appeals
procedure.
(b) Appeals Procedure. Any Applicant whose Claim for benefits
is denied in whole or in part (such Applicant being hereinafter referred to as
the "Claimant" which reference shall include the legal representative, if any,
of the individual) may appeal from such denial to the Committee for a review of
the decision by the Committee. Such appeal must be made within 60 days after the
Claimant has received written notice of the denial as provided above. An appeal
must be submitted in writing within such period and must:
(1) request a review by the Committee of the Claim for
benefits under the Plan;
(2) set forth all of the grounds upon which the Claimant's
request for review is based and any facts in support thereof; and
(3) set forth any issues or comments which the Claimant deems
pertinent to the appeal.
The Committee shall act upon each appeal within 60 days after
receipt thereof unless special circumstances require an extension of the time
for processing, in which case a decision shall be rendered by the Committee as
soon as possible but not later than 120 days after the appeal is received by the
Committee.
The Committee shall make a full and fair review of each appeal
and any written materials submitted by the Claimant and/or the Company in
connection therewith. The Committee may require the Claimant and/or the Company
to submit such additional facts, documents or other evidence as the Committee in
its discretion deems necessary or advisable in making its review. The Claimant
shall be given the opportunity to review pertinent documents or materials upon
submission of a written request to the Committee, provided the Committee finds
the requested documents or materials are pertinent to the appeal.
On the basis of its review, the Committee shall make an
independent determination of the Claimant's eligibility for benefits under the
Plan. The decision of the Committee on any Claim for benefits shall be final and
conclusive upon all parties thereto.
In the event the Committee denies an appeal, in whole or in
part, the Committee shall give written notice of the decision to the Claimant,
which notice shall set forth in a manner calculated to be understood by the
Claimant the specific reasons for such denial and which shall make specific
reference to the pertinent Plan provisions on which the Committee decision was
based.
(c) Review of Accrued Benefit Statement. If a Participant or
former Participant believes any statement of his Accrued Benefit he receives
pursuant to Section 14.11 is incorrect, such Participant, or former Participant
may submit a written request for correction or verification of such statement to
the Plan Administrator and the Plan Administrator shall respond in writing to
such request in
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<PAGE> 52
the same manner as provided above for an Applicant. If the Participant, or
former Participant believes the Plan Administrator's response is incorrect, the
Participant, or former Participant may request in writing within 30 days of the
response that the Committee review such statement, and the Committee shall
follow the same procedure with respect to such request as provided above for a
Claimant.
14.12 Service of Legal Process. The name and address of the person
designated for the service of legal process with respect to the Plan is as
follows:
Plan Administrator
Employee Stock Ownership and 401(k) Plan
BetzDearborn Inc.
4636 Somerton Road
Trevose, Pennsylvania 19053
14.13 Discretionary Authority. The Plan Administrator shall have sole
discretion to carry out his responsibilities under this Section to construe and
interpret the provisions of the Plan and to determine all questions concerning
benefit entitlements, including the power to construe and determine disputed or
doubtful terms. To the maximum extent permissible under law, the Plan
Administrator's determinations on all such matters shall be final and binding
upon all persons involved.
SECTION 15
THE TRUSTEE AND TRUST
15.1 The Trust. The Trust which is a part of this Plan shall consist of
all amounts contributed to the Plan, and the earnings and appreciation thereon,
less payments made by the Trustee under the Plan and the Trust Agreement entered
into pursuant to the Plan.
15.2 Actions and Responsibility of Trustee. The Trustee shall have,
subject to the power of the Committee to appoint investment managers,
responsibility to hold, invest, reinvest and administer the Trust assets and, in
so holding and otherwise managing such Trust assets, the Trustee shall act
solely in the interest of the Participants and their beneficiaries.
15.3 Payments. The Trustee shall make all payments of Accrued Benefits
under the Plan upon the written instructions of the Plan Administrator.
15.4 Resignation and Removal of Trustee. The Board may remove the
Trustee at any time upon delivery of any written notice called for in the Trust
Agreement; and the Trustee may resign at any time upon delivery of such notice
to the Board. Upon such removal or resignation of the Trustee, the Board shall
appoint a successor Trustee and enter into a successor trust agreement pursuant
to the Plan.
15.5 Voting Rights and Tender Offers.
(a) Voting Rights. The Trustee shall have no discretion or
authority to vote Company Stock held in the Trust on any matter presented for a
vote by the stockholders of the Company except in accordance with timely
directions received by the Trustee from Participants who have Company Stock
allocated to or otherwise held in their Accounts under the Plan. Such directions
shall be given by Participants acting in their capacity as "named fiduciaries"
within the meaning of section 403(a)(1) of ERISA ("Named Fiduciaries") with
respect to both allocated and otherwise held Company Stock and unallocated
Company Stock. Upon timely receipt of such instructions as described in
subsection (c)(1), the Trustee shall vote the Company Stock held in the Trust as
set forth below.
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Each Participant who has Company Stock allocated to or
otherwise held in his Accounts shall, as Named Fiduciary, direct the Trustee
with respect to the vote of Company Stock allocated to or otherwise held in his
Accounts and the Trustee shall follow the directions of those Participants who
provide timely instructions to the Trustee. The direction of a Participant with
respect to Company Stock allocated to or otherwise held in his Accounts shall
also constitute his direction, as Named Fiduciary, to the Trustee with respect
to the vote of a portion of the shares of Company Stock held in the Suspense
Subfund (or otherwise unallocated) or for which no directions were timely
received by the Trustee, whether or not allocated to the Account of any
Participant. Such direction shall be with respect to such number of votes equal
to the total number of votes attributable to Company Stock in the Suspense
Subfund (or otherwise unallocated) or with respect to which no directions were
timely received multiplied by a fraction, the numerator of which is the number
of votes attributable to Company Stock allocated to or otherwise held in the
Participant's Accounts and the denominator of which is the total number of votes
attributable to Company Stock allocated to or otherwise held in the Accounts of
all such Participants who have provided directions to the Trustee under this
subsection (a).
(b) Tender Offers for Company Stock. In the event an offer is
received by the Trustee (including but not limited to a tender offer or exchange
offer within the meaning of the Securities Exchange Act of 1934, as from time to
time amended and in effect) to acquire any shares of Company Stock held in the
Trust, or any shares or other securities into which shares of Company Stock held
in the Trust are convertible or for which they are exchangeable; whether or not
allocated or otherwise held in the Account of any Participant (an "Offer"), the
Trustee shall have no discretion or authority to sell, exchange, transfer or
convert any of such shares pursuant to such Offer except to the extent, and only
to the extent, that the Trustee is timely directed to do so in writing with
respect to any Company Stock subject to such Offer and allocated to or otherwise
held in a Participant's Account by the Participant, as Named Fiduciary. In
addition, such direction of a Participant with respect to Company Stock
allocated to or otherwise held in his Accounts shall also constitute his
direction, as Named Fiduciary, to the Trustee with respect to any Company Stock
subject to such Offer held in the Suspense Subfund (or otherwise unallocated),
with respect to an amount of such unallocated Company Stock equal to the total
amount of unallocated Company Stock multiplied by a fraction, the numerator of
which is the amount of Company Stock allocated to or otherwise held in the
Participant's Accounts and the denominator of which is the total amount of
Company Stock allocated to or otherwise held in the Accounts of all
Participants. Upon timely receipt of such directions as described in subsection
(c)(2), the Trustee shall sell, exchange or transfer pursuant to such Offer only
such shares as to which such directions were given.
In the event, under the terms of an Offer or otherwise, any
shares of Company Stock tendered for sale, exchange or transfer pursuant to such
Offer may be withdrawn from such Offer, the Trustee shall follow such directions
respecting the withdrawal of such securities from such Offer in the same manner
and the same proportion as shall be timely received by the Trustee from the
Participants as Named Fiduciaries entitled under this subsection (b) to give
directions as to the sale, exchange or transfer of securities pursuant to such
Offer.
(c) Voting and Tender Offer Directions. Voting and tender
offer directions shall be given in accordance with the following provisions:
(1) Voting Directions. As promptly as possible before each
annual or special shareholders' meeting of the Company, the Plan
Administrator shall direct the Trustee to furnish to each Participant a
copy of any proxy solicitation material, together with a form
requesting confidential instructions on how the Company Stock allocated
to or otherwise held in such Participant's Accounts and held in the
Suspense Subfund (or otherwise unallocated) (including fractional
shares to 1/1000 of a share) is to be voted. Upon timely receipt of
such instructions, the
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Trustee shall vote the Company Stock as directed, in blocks. The
instructions received by the Trustee from Participants shall be held by
the Trustee in strict confidence and shall not be divulged or released
to any person (except for agents of the Trustee who shall at all times
be subject to the same restrictions as the Trustee), including officers
of the Company or Eligible Employees or employees of any other company.
The Trustee and the Plan Administrator shall not make recommendations
to Participants on whether to vote or how to vote.
(2) Tender Offer Directions. The Trustee shall notify each
Participant of each tender or exchange offer and shall utilize its best
efforts to distribute or cause to be distributed to such Participant in
a timely manner all information distributed to shareholders of the
Company in connection with any such tender or exchange offer. A
Participant's instructions to the Trustee as to the manner in which to
respond to any such tender or exchange offer shall remain in force
until superseded in writing by the Participant. The Trustee shall
tender or exchange such shares of Company Stock as described in
subsection (b). Unless and until shares of Company Stock are tendered
or exchanged, the individual instructions received by the trustee from
Participants shall be held by the Trustee in strict confidence and
shall not be divulged or released to any person, including officers of
the Company or Eligible Employees, or employees of any other company.
SECTION 16
PLAN AMENDMENT, MERGER OR CONSOLIDATION
16.1 Amendment. The Board of Directors shall have the right to amend
this Plan at any time, by written resolution, subject to the following
limitations:
(a) No such amendment shall cause any part of the Trust Fund
to be used for or diverted to any purpose other than the exclusive benefit of
the Participants or their beneficiaries.
(b) No such amendment shall cause any reduction in the amount
of any Participant's Accrued Benefit. For purposes of this subsection (b), an
amendment which has the effect of (i) eliminating or reducing an early
retirement benefit or a retirement-type subsidy or (ii) eliminating an optional
form of benefit, with respect to benefits attributable to service before the
amendment, shall be treated as reducing accrued benefits as provided in section
411(d)(6) of the Code and the regulations thereunder.
(c) No such amendment shall change any vesting schedule
unless, in the case of an individual who is a Participant on (i) the date the
amendment is adopted or (ii) the date the amendment is effective, if later, the
nonforfeitable percentage of such Participant's right to his Accrued Benefit is
not less than his percentage computed under the Plan without regard to such
amendment. Furthermore, no such amendment shall otherwise change any vesting
schedule unless each Participant having three or more years of service is
permitted to elect, in accordance with regulations under the Code, to have the
nonforfeitable percentage of his Accrued Benefit determined under the Plan
without regard to such amendment; provided that no election shall be given to
any Participant whose nonforfeitable percentage under the Plan as amended cannot
at any time be less than such percentage determined without regard to such
amendment.
16.2 Merger or Consolidation. This Plan and Trust shall not be merged
or consolidated with, nor shall any assets or liabilities be transferred to, any
other plan and trust, unless the benefits payable to each Participant if the
Plan were terminated immediately after such action would be equal to or greater
than the benefits which would have been payable to each Participant if the Plan
had been terminated immediately before such action.
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SECTION 17
PLAN TERMINATION
17.1 Discontinuance of Contributions or Termination The Board of
Directors shall have the right to discontinue the Company's contributions
hereunder and to terminate or partially terminate this Plan by delivery of
written notice to the Trustee of such action.
Upon complete discontinuance of the Company's contributions,
or termination or partial termination of the Plan, the rights of all affected
Participants to benefits accrued to the date of such discontinuance or
termination shall become nonforfeitable except to the extent that law or
regulations may preclude such vesting in order to prevent discrimination in
favor of highly compensated Employees.
Upon final termination of the Plan, the Plan Administrator
shall direct the Trustee to distribute all assets remaining in the Trust, after
payment of any proper expenses, to the Participants in accordance with the
vested Accrued Benefits of such Participants as of the date of such termination.
Such payments shall be made in cash and at such time and in such manner as the
Plan Administrator shall in its discretion determine, subject to Section 9.8 and
Section 9.9. Any shares of Company Stock held in the Suspense Subfund which
cannot be allocated to the Company Stock Accounts of Participants because such
shares have not been released from the Suspense Subfund pursuant to Section 6.5,
shall be delivered to the Company.
Notwithstanding the foregoing, amounts credited to a
Participant's 401(k) Account shall not be distributed prior to the Participant's
attainment of age 59 1/2, separation from service (within the meaning of
Section 9.4), total and permanent disability (as defined in Section 9.5(b)),
death, or financial hardship (within the meaning of Section 8.6(a)), except as a
"lump-sum distribution" (as defined in section 401(k)(10)(B)(ii) of the Code) to
a Participant or his beneficiary as soon as administratively feasible after the
termination of the Plan, provided that the Company does not establish or
maintain a successor plan within the meaning of section 401(k)(10)(a)(i) of the
Code and Treas. Reg. Section 1.401(k)-1(d)(3).
SECTION 18
TRANSFERS OF 401(K) ACCOUNTS, MATCHING, STOCK BONUS,
VOLUNTARY, AND DIVERSIFICATION ACCOUNTS
FROM THE STOCK BONUS PLAN
18.1 Transfers of 401(k), Matching, Stock Bonus, Voluntary, and
Diversification Accounts from the Stock Bonus Plan. The Stock Bonus Plan has
been amended, effective September 1, 1990, to provide for the transfer of all
401(k), Matching, Stock Bonus, Voluntary, and Diversification Accounts (and all
liabilities attributable to such Accounts) thereunder to this Plan. The Plan
Administrator of this Plan is directed to accept such transfer. The Plan
Administrator shall deposit the transferred Accounts as follows:
(a) an Employee's transferred 401(k) Account, if any, shall be
consolidated with his 401(k) Account in this Plan;
(b) an Employee's transferred Matching Account, if any, shall
be deposited in his Rollover Account in this Plan; and
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(c) an Employee's transferred Stock Bonus, Voluntary, and/or
Diversification Accounts, if any, shall be maintained as separate Accounts in
this Plan.
The Plan Administrator shall establish a 401(k) Account and/or Rollover Account
in this Plan for each Employee who did not have such Account(s) prior to the
transfer of his 401(k) Account and/or Matching Account from the Stock Bonus
Plan. Once a Participant's Accounts have been transferred from the Stock Bonus
Plan, no subsequent employer or employee contribution shall be made under the
terms of the Stock Bonus Plan and credited to any Participant's Accounts in this
Plan. Notwithstanding the preceding sentence, Accounts transferred from the
Stock Bonus Plan shall share in allocations of gains and losses under Sections
7.1 and 7.2.
18.2 Distributions and Withdrawals of Amounts Attributable to
Amounts Transferred.
(a) Method of Distributions.
(1) Distribution Upon Retirement, Disability or
Death. Upon the retirement, total and permanent disability (as
defined in Section 9.5(b)), or death of a Participant whose
401(k), Matching, Stock Bonus, Voluntary, and/or
Diversification Accounts were transferred to this Plan from
the Stock Bonus Plan, the amounts in his Accounts shall be
payable to the Participant or his beneficiary in a lump sum,
installment payments, or any other manner permitted under the
Stock Bonus Plan (all references in this Section to the Stock
Bonus Plan shall be to the Stock Bonus Plan as it was in
effect on September 1, 1990). Installment payments, if
elected, will be made in equal quarterly, semiannual, or
annual installments, over a period certain not extending
beyond the life expectancy of the Participant or the joint
life expectancies of the Participant and his spouse.
If a Participant whose 401(k), Matching, Stock Bonus,
Voluntary, and/or Diversification Accounts were transferred to
this Plan from the Stock Bonus Plan dies without having made
an election as to the form of his benefit distribution, the
Participant's entire benefit under this Plan shall be
distributed in a lump sum to the beneficiary of the
Participant unless the beneficiary is the Participant's
spouse. In such event, payment of the amounts in the
Participant's Accounts shall be made in one lump sum to the
Participant's spouse unless the spouse elects, no later than
60 days after the date of death of such Participant, to have
the amounts due such spouse paid in installments. If the
spouse elects installment payments, such payments will be paid
in the manner described in the preceding paragraph.
Payment of the amounts in the Participant's Accounts
shall be made or commence no later than 60 days after the last
day of the Plan Year in which the Participant terminates
employment by reason of retirement, disability, or death.
(2) Distribution Upon Other Termination of
Employment. Upon termination of employment for reasons other
than retirement, disability, or death, a Participant whose
401(k), Matching, Stock Bonus, Voluntary, and/or
Diversification Accounts were transferred to this Plan from
the Stock Bonus Plan shall receive payment of his entire
Accrued Benefit under this Plan in accordance with Section 9.2
of this Plan.
(b) In-Service Withdrawals. An Employee whose Voluntary
Account was transferred to this Plan from the Stock Bonus Plan may elect to
withdraw at any time any portion or all of the amount in his Voluntary Account,
in accordance with Section 6.9 of the Stock Bonus Plan. Any
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withdrawal may not be for less than the lessor of (i) $500, or (ii) the
Employee's entire interest in the Voluntary Account.
(c) Form of Distribution or Withdrawal. To the extent
permitted under the Stock Bonus Plan, a lump sum distribution described in this
Section may be paid in cash or securities, including Common Stock, as elected by
the Employee. As provided in Sections 8.4 and 8.5 of the Stock Bonus Plan, an
Employee may receive only cash from his Voluntary Account and/or Diversification
Account.
18.3 Transfer to Diversification Account.
(a) Eligibility to Make Transfers. Any Participant may direct
the Trustee, in accordance with paragraphs (b) or (c) below, to transfer a
portion or all of the vested interest in such Participant's Stock Bonus Account
to the Investment Fund. Amounts diversified from a Stock Bonus Account shall be
allocated to the Participant's Diversification Account. A Participant may not
diversify any stock held in his separate PAYSOP Account.
(b) Valuation of Diversification. The transfer of the
Participant's vested interest from his Stock Bonus Account, invested in Common
Stock, to his Diversification Account shall be valued as provided in Section
7.1.
(c) How to Make Election. A Participant may elect to diversify
his shares of Common Stock at any time during the Plan Year by filing the
Appropriate Form with the Plan Administrator in respect to each diversification
request, or in any other manner acceptable to the Plan Administrator. No
automatic diversifications upon a regular basis shall be permitted.
18.4 Protected Forms of Distribution. A Participant whose 401(k),
Matching, Stock Bonus, Voluntary, and/or Diversification Accounts in the Stock
Bonus Plan were transferred to this Plan who was or becomes eligible for a
protected form of distribution (as described in section 411(d)(6) of the Code,
and rules and regulations thereunder), under the terms of the Stock Bonus Plan
as it was in effect on September 1, 1990, and which was not otherwise provided
under this Plan, shall be eligible to elect such form of distribution with
respect to that portion of his total Account which equals the value of the
amount transferred from the Stock Bonus Plan effective September 1, 1990.
Notwithstanding anything in this Plan to the contrary, it is intended that the
forms of distribution provided under the plan comply with section 411(d)(6) of
the Code, and rules and regulations thereunder.
SECTION 19
TRANSFERS OF PAYSOP ACCOUNTS FROM THE
STOCK BONUS PLAN
19.1 Transfers of PAYSOP Accounts from the Stock Bonus Plan. The Stock
Bonus Plan has been amended, effective October 1, 1992, to provide for the
transfer of all PAYSOP Accounts (and all liabilities attributable to such
Accounts) thereunder to this Plan. The Plan Administrator of this Plan is
directed to accept such transfer. A Participant's transferred PAYSOP Account
shall be maintained as a separate Account in this Plan.
19.2 Income on PAYSOP Accounts. Dividends and other income attributable
to the PAYSOP shall be reinvested in Common Stock and allocated to each
Participant's PAYSOP Account according to the number of shares allocated to such
Account within a reasonable time after receipt of such dividends.
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19.3 Nonforfeitable Right to Allocated Common Stock. Each Participant
shall have a nonforfeitable right to all Common Stock and income allocated to
his PAYSOP Account. However, no Common Stock may be distributed from a
Participant's PAYSOP Account before the end of the 84th month beginning after
the month in which such Common Stock was allocated. The foregoing rule shall not
apply in the following cases:
(a) The Participant's death, total and permanent disability
(as defined in Section 9.5(b) of this Plan), separation from service, or
termination of the PAYSOP Plan;
(b) A transfer of the Participant from the service of the
Company to the service of an acquiring employer where:
(1) The Company sells to the acquiring employer substantially
all of the assets used by the Company in a trade or business conducted
by the Company, or
(2) The Company sells to the acquiring employer all of the
stock of a subsidiary of the Company;
(c) Where the Company disposed of its interest in a subsidiary
and the Participant continues to be employed by such subsidiary; or
(d) Any distribution required under Section 9.9 or 19.5 of
this Plan.
19.4 Administrative Expenses. Administrative expenses or costs incurred
by the Trustee and by the Committee in connection with the PAYSOP, including the
fees of their counsel, accountants, salaries (if any), and other items, in the
performance of their duties may be paid by the Company; provided that, as
reimbursement for the expense of administering the PAYSOP, the Company may
direct the Trustee in writing to pay from the Trust Fund so much of the amounts
paid or incurred during a taxable year, as expenses of administering the PAYSOP,
as does not exceed the smaller of (i) the sum of ten percent (10%) of the first
$100,000 and five percent (5%) of any amount in excess of $100,000 of the income
from dividends paid to the PAYSOP during the Plan Year ending with or within the
Company's taxable year, or (ii) $100,000.
19.5 Diversification Withdrawals.
(a) Election. Within 90 days after the last day of each Plan
Year during a Participant's Qualified Election Period, the Qualified Participant
shall be permitted to elect on an Appropriate Form, or in any other manner
acceptable to the Plan Administrator, to withdraw from his PAYSOP Account
twenty-five percent (25%) of the value of his PAYSOP Account balance
attributable to shares of Company Stock which were acquired by the PAYSOP after
December 31, 1986. Within 90 days after the close of the last Plan Year in the
Participant's Qualified Election Period, a Qualified Participant may elect to
withdraw from his PAYSOP Account fifty percent (50%) of the value of such
account balance.
(b) Time of Distribution. The Participant's withdrawal shall
be distributed by the Plan Administrator no later than 180 days after the close
of the Plan Year to which the direction applies.
(c) Determination of Amount for Diversification Requirements.
The portion of a Participant's Account balance attributable to shares of Company
Stock which were acquired by the Plan after December 31, 1986, shall be
determined by multiplying the number of shares of such securities held in the
account by a fraction, the numerator of which is the number of shares acquired
by the PAYSOP
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after December 31, 1986 and allocated to Participant's PAYSOP Accounts (not to
exceed the number of shares held by the PAYSOP on the date the individual
becomes a Qualified Participant), and the denominator of which is the total
number of shares held by all PAYSOP Accounts at the date the individual becomes
a Qualified Participant.
19.6 Distributions of PAYSOP Accounts.
(a) Method of Distribution. Distribution of PAYSOP Accounts
shall be made in the same manner as described in Sections 18.2(a) and (b) and
18.4 of this Plan with respect to all other Accounts transferred from the Stock
Bonus Plan, except that all references to the Stock Bonus Plan shall be to the
Stock Bonus Plan as it was in effect on October 1, 1992.
(b) Form of Distribution.
(1) Distributions of Common Stock from a Participant's PAYSOP
Account shall be in full shares of Common Stock, and cash shall be
distributed in lieu of any fractional shares of Common Stock allocated.
Fractional shares shall be valued by reference to their fair market
value, determined in accordance with Section 7.1.
(2) Notwithstanding the foregoing, the Committee may determine
that any or all of the distributions under Section 19.3 or subsection
(1) above shall be made in cash in lieu of Common Stock, or partially
in cash and partially in Common Stock; provided, that the Committee
shall have advised each Participant (or beneficiary) in writing that he
has a right to demand that his benefits be distributed in the form of
shares of Common Stock. When a cash distribution is made, the
Participant's shares of Common Stock shall be valued at their fair
market value, determined in accordance with Section 7.1.
(3) It is intended that the distributions described in
subsections (1) and (2) above shall be made in accordance with
regulations which may hereafter be issued by the Department of
Treasury.
SECTION 20
MISCELLANEOUS
20.1 Participation by Affiliates with Consent of BetzDearborn Inc. Any
corporation which is an Affiliate, with approval of the Board of Directors, by
resolution of its own board of directors, may adopt the Plan and Trust hereby
created. From and after the effective date when such corporation shall have
become a party to this Plan and the Trust Agreement, it shall for all purposes
of this Plan and the Trust Agreement be included within the meaning of the word
"Company" and shall be an affiliated company for purposes of benefit accrual and
vesting.
20.2 Application of Plan. This Plan shall not apply to any person who
retired or otherwise separated from the service of the Company before the
Effective Date. The right of any such person to any retirement benefit or
otherwise shall be governed solely by the provisions of the BetzDearborn Inc.
Employees' Retirement Plan or the Plan in effect on the date of such retirement
or other separation from service.
20.3 No Employment Rights Created. The Plan and Trust do not confer
upon any Participant or other Employee any right to be continued in the employ
of the Company or an Affiliate, and the
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Company expressly reserves the right to terminate the employment of any Employee
whether or not a Participant, whenever the interest of the Company, in its sole
judgment, may so require.
20.4 Incapacitated Participant or Beneficiary. If the Plan
Administrator deems any person incapable of receiving any benefit to which he is
entitled by reason of minority, illness, infirmity or other incapacity, the Plan
Administrator may direct the Trustee to make payment to such person's legally
appointed guardian, or, if none has been appointed, to the holder of a legally
valid power of attorney from such person. Such payments shall, to the extent
thereof discharge the liability of the Company, the Committee, the Plan
Administrator, the Trustee and the Trust.
20.5 Payment of Plan Expenses. Except as otherwise provided in the
Trust Agreement, the Plan shall pay the expenses of administering the Trust
which is part of this Plan (to the extent such expenses are not paid by the
Company), including the compensation of the Trustee, which shall be as mutually
agreed by the Company and the Trustee.
20.6 Unclaimed Benefits. Any benefits payable to a Participant or
beneficiary not claimed for a period of five years from the date of entitlement
as determined by the Plan Administrator following a diligent effort to locate
such Participant or beneficiary and with the approval of the Plan Administrator,
shall be forfeited and applied in accordance with the terms of Section 6.7;
provided, however, that such forfeited benefits shall be reinstated if a claim
for them is made by the Participant or beneficiary.
20.7 Treatment of Leased Employees. Notwithstanding any other
provisions of the Plan, for purposes of the pension requirements of section
414(n)(3) of the Code, Employees shall include Leased Employees.
20.8 Construction. Construction and administration of this Plan and of
the Trust Agreement shall be governed by ERISA and other applicable Federal law
and to the extent not governed by Federal law, by Pennsylvania law.
20.9 Gender and Number. The masculine pronoun wherever used shall
include the feminine and the singular may include the plural, and vice versa, as
the context may require.
SECTION 21
SPECIAL PROVISIONS CONCERNING CERTAIN
FORMER EMPLOYEES OF THE GRACE GROUP
21.1 Definitions. The following words and phrases, as used herein,
shall have the following meanings, unless the context clearly indicates
otherwise:
(a) "Buyer Group" shall mean, collectively, Betz Laboratories,
Inc. and any entity of which it owns directly or indirectly fifty percent (50%)
or more of the voting power or other similar interests and, at any time on or
after the Closing Date, the Transferred Companies and Transferred Joint
Ventures.
(b) "Closing Date" shall mean the Closing Date under the Sale
Agreement, which is expected to be June 28, 1996.
(c) "Continued Employee" shall mean any employee -
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(1) who is an employee of the Grace Group (other than the
Transferred Companies or Transferred Joint Ventures) who is employed
exclusively in the Dearborn Business (as defined in the Sale
Agreement);
(2) who is an employee of the Grace Group (other than the
Transferred Companies or Transferred Joint Ventures) who performs
substantial services for the Dearborn Business and is designated by
Grace as an employee who is to be transferred with the Dearborn
Business; or
(3) who replaces any employee described in paragraph (i) or
(ii) above (excluding any such employee who is on long-term disability
on the Closing Date) and who accepts an offer of employment made by a
member of the Buyer Group in accordance with the Sale Agreement.
(d) "Grace" shall mean W.R. Grace & Co.-Conn.
(e) "Grace Group" shall mean, collectively, W.R. Grace & Co.
and any entities of which it owns directly or indirectly fifty percent (50%) or
more of the voting power or other similar interests at any time prior to the
closing under the Sale Agreement, the Transferred Companies, and the Transferred
Joint Ventures.
(f) "Sale Agreement" shall mean the Grace Dearborn Worldwide
Purchase and Sale Agreement, entered into by W.R. Grace & Co.-Conn. and the
Company, dated March 11, 1996.
(g) "Transferred Companies" shall mean Grace Dearborn N.V.;
Alexim N.V.; Finac N.V.; Grace Dearborn, Inc.; Grace Service Chemicals S.A.;
Grace Dearborn B.V.; Dearborn Holdings AB; Grace Dearborn AB; and Dearborn USA,
Limited Partnership.
(h) "Transferred Joint Ventures" shall mean Dearborn I.E.I.
(India) Private Ltd. and Nippon Dearborn K.K.
(i) "U.S. Employee" shall mean an employee of Dearborn USA,
Limited Partnership, or a Continued Employee.
21.2 Participation by Certain Employees of the Dearborn Business.
Notwithstanding Section 3.2, each U.S. Employee who participated in the W.R.
Grace & Co. Salaried Employees Savings and Investment Plan immediately prior to
the Closing Date shall become a Participant in the Plan on the date he first
completes an Hour of Service for the Company.
21.3 Years of Vesting Service. Each U.S. Employee's service with the
Grace Group prior to the Closing Date shall be counted for purposes of
determining Years of Vesting Service under this Plan on and after the Closing
Date.
21.4 Allocation of Company Stock Contribution for 1996. For purposes of
determining entitlement to allocations of contributions under Section 6 for
1996, a Participant's service in 1996 with the Grace Group prior to the Closing
Date shall be counted for purposes of determining if the Participant completed
1,000 or more Hours of Service under Section 6.1. However, only Compensation
received in 1996 as an Eligible Employee shall be counted for purposes of
determining the amount of a Participant's allocation under Sections 6.2, 6.3,
6.6(c), and 6.7.
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IN WITNESS WHEREOF, BETZDEARBORN INC. has caused these presents to be
duly executed as of this ----- day of ----------, ----.
BETZDEARBORN INC.
-------------------------
By:
-------------------------
Title:
-------------------------
ATTEST:
- ------------------------------
Title:
- ------------------------------
[CORPORATE SEAL]
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FIRST AMENDMENT TO BETZDEARBORN INC.
EMPLOYEE STOCK OWNERSHIP AND 401(K) PLAN
THIS FIRST AMENDMENT made on this day of ______________, 1998, by
BETZDEARBORN INC. (the "Corporation"), a corporation organized and existing
under the laws of the State of Pennsylvania;
W I T N E S S E T H:
WHEREAS, the Corporation, as Plan Sponsor, maintains the BetzDearborn
Inc. Employee Stock Ownership and 401(k) (the "Plan"), which was established by
an indenture dated January 1, 1989, and last amended and restated by an
indenture dated January 1, 1998; and
WHEREAS, the Corporation desires to amend the Plan to make certain
changes related to vesting and to the definitions of "Company Stock" and
"Preferred Stock."
NOW, THEREFORE, the Corporation does hereby amend the Plan effective as
of the effective time of the merger among the Corporation and Hercules Inc.
("Hercules") and Water Acquisition, Co., a wholly owned subsidiary of Hercules,
as follows:
1. By deleting existing Plan Section 1.8 in its entirety and replacing
it with the following new Plan Section 1.8:
"1.8 `Common Stock' shall mean the common stock of Hercules,
Inc., it being intended that such Common Stock constitute `qualifying
employer securities' within the meaning of Section 4975(e)(8) of the
Code."
2. By deleting existing Plan Section 1.10 in its entirety and replacing
with the following new Plan Section 1.10:
"1.10 `Company Stock' shall mean the common stock of Hercules,
Inc., it being intended that such Company Stock constitute `qualifying
employer securities' within the meaning of Section 4975(e)(8) of the
Code."
3. By deleting existing Plan Section 1.36 in its entirety and replacing
it with the following new Plan Section 1.36:
"1.36 [RESERVED]"
4. By deleting the second paragraph of Plan Section 5.4(a) in its
entirety.
<PAGE> 64
5. By deleting the second paragraph of existing Plan Section 7.1(a) in
its entirety and replacing it with the following new second paragraph of Plan
Section 7.1(a):
"For purposes of the valuation described above, the fair
market value of shares of Company Stock held by the Trustee shall be
determined as of the Valuation Date coincident with the last day of the
Plan Year, and as of such other Valuation Dates as the Plan
Administrator so directs."
6. By deleting existing Plan Section 8.18(f)(3) in its entirety and
replacing it with the following new Plan Section 8.18(f)(3):
"(3) Loan Date. Each loan shall be made as soon as practicable
following approval of the Participant's loan application by the Plan
Administrator. To the extent any loan is made from a particular Account
of a Participant which is invested partially in different investment
media, such loan shall be made pro rata from the investments of such
Account in each such investment medium, valued as of the most recent
Valuation Date or, to the extent that such loan is made from amounts
invested in Investment Vehicles the value of which is priced daily, as
of the date of the loan."
7. By adding the following sentence to the end of existing Plan Section
9.1:
"Notwithstanding any other provision of the Plan, an Employee
who is a Participant of the Plan as of the effective time of the merger
among the Corporation and Hercules, Inc. and Water Acquisition Co., a
wholly owned subsidiary of Hercules, Inc., shall be fully vested in all
of his Accounts."
8. By deleting existing Plan Section 9.2(c) in its entirety and
replacing it with the following new Plan Section 9.2(c):
"(c) Form. Benefits from the Participant's Company Stock,
Matching, and Other Investments Accounts shall be paid in whole shares
of Company Stock. Benefits from the Participant's 401(k) and Rollover
Accounts shall be paid in cash, except that, to the extent the
Investment Vehicle in which the Accounts are invested consists of
Company Stock, such benefits shall be paid in Company Stock.
Notwithstanding the foregoing, a Participant may elect to
receive all benefits from his Other Investments, 401(k) and Rollover
Accounts in cash."
9. By adding the following sentence to the end of existing Plan Section
18.4:
"Notwithstanding anything contained in Plan Section 18, any
distribution which would have been required to be made in the
form of "employer securities" (within the meaning of Code
Section 409(l)) will be made in the form of Common Stock."
2
<PAGE> 65
Except as specifically amended hereby, the Plan shall remain in full
force and effect as prior to this First Amendment.
IN WITNESS WHEREOF, the Corporation has executed this First Amendment
as of the date and the year first above written.
PLAN SPONSOR:
BETZDEARBORN INC.
By:
---------------------------
Title:
---------------------------
ATTEST:
- ---------------------------------
Title:
- ---------------------------------
[CORPORATE SEAL]
3
<PAGE> 66
SECOND AMENDMENT TO BETZDEARBORN INC.
EMPLOYEE STOCK OWNERSHIP AND 401(k) PLAN
THIS SECOND AMENDMENT made on this day of ___________, 1998, by
BETZDEARBORN INC. (the "Corporation"), a corporation organized and existing
under the laws of the State of Pennsylvania;
W I T N E S S E T H:
WHEREAS, the Corporation, as Plan Sponsor, maintains the BetzDearborn Inc.
Employee Stock Ownership and 401(k) (the "Plan"), which was established by an
indenture dated January 1, 1989, and last amended and restated by an indenture
dated January 1, 1998; and
WHEREAS, the Corporation desires to amend the Plan to revise the formula
for 'Company Matching Contributions' and the day on which the interest rate
applicable to loans under the Plan is set.
NOW, THEREFORE, the Corporation does hereby amend the Plan effective as of
January 1, 1999, as follows:
1. By deleting existing Plan Section 8.3(b) in its entirety and replacing
it with the following new Plan Section 8.3(b):
"(b) Matching Rate. The Matching Rate shall be fifty percent (50%).
The Maximum Compensation deferral Percentage shall be six percent (6%)."
2. By deleting existing Plan Section 8.18(b) in its entirety and
replacing it with the following new Plan Section 8.18(b):
"(b) Terms of Loan. Each loan granted or renewed under this Section
shall bear a rate of interest which is two percentage points greater than the
prime lending rate, as announced in The Wall Street Journal, on the first
business day of each calendar quarter in which the loan is made or such other
rate as may be determined by the Plan Administrator to be required by law. The
interest rate and other conditions for the repayment of the loan shall be fixed
at the time the loan is made. All loans shall be repayable by their terms within
five years."
<PAGE> 67
Except as specifically amended hereby, the Plan shall remain in full
force and effect as prior to this Second Amendment.
IN WITNESS WHEREOF, the Corporation has executed this Second Amendment as
of the date and the year first above written.
PLAN SPONSOR:
BETZDEARBORN INC.
By:
-------------------------------------
Title:
----------------------------------
ATTEST:
- ------------------------------------
Title:
------------------------------
[CORPORATE SEAL]
<PAGE> 68
THIRD AMENDMENT TO BETZDEARBORN INC.
EMPLOYEE STOCK OWNERSHIP AND 401(K) PLAN
THIS THIRD AMENDMENT made on this --- day of March, 1999, by
BETZDEARBORN INC. (the "Corporation"), a corporation organized and existing
under the laws of the State of Pennsylvania;
W I T N E S S E T H:
WHEREAS, the Corporation, as Plan Sponsor, maintains the BetzDearborn
Inc. Employee Stock Ownership and 401(k) (the "Plan"), which was established by
an indenture dated January 1, 1989, and last amended and restated by an
indenture dated January 1, 1998; and
WHEREAS, as a condition to receipt of a favorable determination on the
tax-qualified status of the Plan, the Corporation desires to amend the Plan to
reflect the required provisions of the Uniformed Service Employment and
Reemployment Rights Act of 1994; and
WHEREAS, the officers of the Corporation are authorized to amend the
Plan as required for the continued qualification of the Plan.
NOW, THEREFORE, the Corporation does hereby amend the Plan effective as
of December 12, 1994, by adding the following new Plan Section 4.4 to the Plan:
"4.4 Notwithstanding any provision of the Plan to the
contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Section
414(u) of the Code."
Except as specifically amended hereby, the Plan shall remain in full
force and effect as prior to this Third Amendment.
IN WITNESS WHEREOF, the Corporation has executed this Third Amendment
as of the date and the year first above written.
BETZDEARBORN INC.
By:
-----------------------------
Title:
-----------------------------
ATTEST:
- --------------------------------
Title:
- --------------------------------
[CORPORATE SEAL]
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement of Hercules Incorporated on Form S-8 Registration No. 33-37279 (which
includes Registration No. 33-21668), No. 33-21667, No. 33-47664, No. 33-51178,
No. 33-52621, No. 33-66136, No. 33-62314, No. 33-65352, No. 333-38795, No.
333-38797 and No. 333-68863 and on Form S-3 (Registration No. 333-63423 and No.
333-29225) of our report, which includes an explanatory paragraph regarding a
change, in 1997, in the company's method of accounting for costs incurred in
connection with an enterprise software installation, dated February 24, 2000, on
our audits of the consolidated financial statements and financial statement
schedule of Hercules Incorporated and subsidiary companies as of December 31,
1999 and 1998 and for each of the three years in the period ended December 31,
1999, which report is included in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers
Philadelphia, Pennsylvania
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HERCULES
INCORPORATED'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 63,000
<SECURITIES> 0
<RECEIVABLES> 782,000
<ALLOWANCES> 16,000
<INVENTORY> 380,000
<CURRENT-ASSETS> 1,338,000
<PP&E> 2,978,000
<DEPRECIATION> 1,657,000
<TOTAL-ASSETS> 5,896,000
<CURRENT-LIABILITIES> 1,559,000
<BONDS> 1,777,000
992,000
0
<COMMON> 83,000
<OTHER-SE> 780,000
<TOTAL-LIABILITY-AND-EQUITY> 5,896,000
<SALES> 3,248,000
<TOTAL-REVENUES> 3,248,000
<CGS> 1,770,000
<TOTAL-COSTS> 2,768,000
<OTHER-EXPENSES> 51,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,000
<INCOME-PRETAX> 243,000
<INCOME-TAX> 75,000
<INCOME-CONTINUING> 168,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168,000
<EPS-BASIC> 1.63
<EPS-DILUTED> 1.62
</TABLE>
