UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year
ended December 31, 1994
- OR -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission File Number 1-994
PRATT & LAMBERT UNITED, INC.
(Exact Name of Registrant as specified in its Charter)
New York 16-0594810
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
75 Tonawanda Street, Buffalo, New York 14207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 716-873-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on which Registered
Common Stock, Par Value $.01 Per Share New York Stock Exchange
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. ______
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 [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 23, 1995: $124,113,219.
The number of shares of Registrant's Common Stock, Par Value $.01 per share
outstanding as of February 23, 1995: 10,625,726 shares.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF FORM 10K
Pratt & Lambert United, Inc. Part III
Proxy Statement for the Annual Meeting
of Shareholders Items 10, 11, 12 and 13
<PAGE>
ITEM 1. BUSINESS
PRODUCTS, MARKETS, DISTRIBUTION:
During the year ended December 31, 1994, Pratt & Lambert
United, Inc. (the company), founded in 1849, operated in one
dominant industry segment which consisted of the development,
production and sale of paint and specialty chemicals, comprised
of industrial coatings and adhesives. Ancillary to the company's
distribution of paint, it manufactured and purchased for resale a
variety of sundry products, primarily brushes and rollers, etc.
In 1994, proceeds from this activity accounted for approximately
2% of consolidated net sales.
On August 4, 1994, the company merged with United Coatings,
Inc., a leading producer of paint for the private label market.
Under the terms of the merger agreement, the company purchased
all of United's outstanding stock for 5,000,000 shares of the
company's common stock, approximately $17,000,000 in cash and the
assumption of United's debt. United's sales in 1993 were
$176,719,000. As the merger has been recorded under the purchase
method of accounting, United's operations since August 4, 1994
have been included in the company's 1994 financial statements.
Sales of paint and specialty chemicals for the three years
ended December 31, 1994, were as follows:
NET SALES
(In Thousands of Dollars)
Specialty
Paint Chemicals Total
1994 $150,589 $178,312 $328,901
1993 80,698 161,063 241,761
1992 81,101 154,527 235,628
Paints and allied products are distributed primarily through
an extensive network of independent dealers and company-owned
service centers where they are marketed nationally under the
Pratt & Lambert name, and regionally under several other brand
names. The company manufactures and markets paint applicators
and related accessories and also distributes wallcoverings,
ladders and a variety of other products.
In addition, the company manufactures and markets a broad
line of interior and exterior paints and aerosol paints to mass
merchandisers, chain stores and home improvement centers and is
believed to be one of the highest volume manufacturers of private
label paint products in the United States. Products are used
principally by consumers, are generally formulated to each
retailer's requirements and sold using labels specifically
designed for each account.
The company offers one of the most comprehensive product
lines of industrial coatings, adhesives and intermediates of any
of its competitors. Major markets served include original
<PAGE>
equipment manufacturers; manufacturers of aircraft, building
materials, metal decorating, offshore oil equipment, mechanical
fasteners, gas cylinders, transportation equipment, farm
equipment; prefabricated metal buildings; printers; packaging and
paper converters; defense contractors; textile, refining and
chemical plants; structural steel and pipe coaters; private
aviation recoaters; and the United States General Services
Administration. The company occupies a leadership position in
the field of ultraviolet curable coatings, with a variety of
applications in the lithographic industry. In recent years, the
company's Dualite product line of polymeric microspheres has
become a popular additive in the compounding of automobile
undercoats, fiberglass reinforced plastics, and other end uses
where reduced weight is desirable.
The following are registered trademarks or trademarks of
Pratt & Lambert United, Inc. or its subsidiaries for its major
product lines: Accolade, Acry Glo, Aqua Royal, Aqua Satin,
Calibrated Colors, M.L. Campbell, CB5O Vapor Barrier Coating,
Chem-skid, Chemtec Zinc Rich Primers, Color-Touch, DSA-20 Drywall
Adhesive, D-T-M, Dualite, Dura-Pox Epoxy, Duravar, Ed Dwigans,
Enducryl, Endu-thane, Enviro-Guard, Fabulon, 50+ Ceramic Tile
Adhesive, Final Touch, Foam Lock, Foamcoat, Glowz, Gold Wheels,
Hybond, Jet-Glo, Job Site Brand, Laticote, Lumber Lock, Magnalac,
Miracle, Miracure, Mono Pac, NYBCO, The Paint Place, Panel Lock,
Perfect Touch, Pitegoff, Poly-Epoxy, Poly-Glo, Polystar,
Poxy-gard, Pro-Hide Plus, Ryno-Thane, Skylight, STAINShield,
Steel Wheels, Steeltec, SUPRIME, Today, Tonetic, Un-Rust!, Vapex,
Vitralon, Vitrasil, WithSTAND and Wood Song.
RAW MATERIALS:
The company's major raw materials include titanium dioxide,
solvents, epoxy resins, alkyd resins, polyester resins, vinyl
acetate resins and emulsions, acrylic resins and emulsions, color
and corrosion control pigments, nitrocellulose, neoprene, clay,
calcium carbonate, hydrocarbon resins, styrene butadiene rubber
and latex. The company's raw materials are generally available
on the open market and were in adequate supply during 1994.
In addition to outside sources, the company manufactures a
portion of its own polyurethane resins.
PATENTS:
The company's business is not materially dependent upon
franchises, licenses or similar rights, nor upon any single
patent or trademark or group of related patents or trademarks.
SEASONALITY AND WORKING CAPITAL:
Exterior painting and, to a lesser degree, interior
painting, are performed during favorable climatic conditions. As
a result, sales in the consumer sector are seasonal and
concentrated between March and September. Production, inventory
and short-term borrowing schedules are timed to coincide with the
foregoing variations in demand.
<PAGE>
Seasonal trends are minimized by the company's industrial
products sector for which demand is relatively stable throughout
the year.
CUSTOMERS:
A material part of the business of the company is dependent
upon a single customer, the loss of which would have a material
adverse effect on the business considered as a whole. Wal*Mart
Stores, Inc. is the largest customer and accounted for 17% of the
company's 1994 sales. There are no contractual or other
guarantees or assurances of future sales to Wal*Mart Stores, Inc.
There is no other individual customer to whom sales are made
which exceed 10% of consolidated net sales.
COMPETITION AND BACKLOG:
With approximately 1,000 national and regional producers in
the United States, the market for paint and industrial coatings
is highly competitive. It is estimated that the industry's 35
largest companies account for approximately 70% of the nation's
total sales. During the year ended December 31, 1994, Pratt &
Lambert United's domestic gallonage sales of paint and industrial
coatings on a pro forma basis were approximately 6% of the
architectural finishes (paint) industry and 4% of the total
coatings industry unit volume. The company believes that its
ranking is among the 10 largest producers. As is typical of the
industry, there was no significant backlog as of December 31,
1994, or in prior years.
Adhesives are subject to varying degrees of competition.
However, in the absence of reliable sales statistics, the company
is unable to make an accurate determination as to its standing or
market share in the field served. Products within this
classification are primarily of the elastomer and hot melt types,
incorporating technologies based on poly-chloroprene, urethane,
styrene butadiene rubber, acrylics and ethylene vinyl acetate,
including heat sealing adhesives for the sterile packaging of
disposable medical instruments and appliances, and water based
versions of elastomer adhesives. There was no significant order
backlog for adhesives as of December 31, 1994, or in previous
years.
RESEARCH AND DEVELOPMENT:
The company's cost of research and related technical
functions for 1994, 1993 and 1992 was approximately $7,827,000,
$7,240,000 and $7,092,000, respectively.
ENVIRONMENTAL REGULATIONS:
There has been no material effect on the company's capital
expenditures, earnings or competitive position due to compliance
with federal, state or local regulations pertaining to the
discharge of materials into the environment, or otherwise
relating to the protection of the environment.
<PAGE>
In 1976 the Resource Conservation and Recovery Act, in 1980
the Comprehensive Environmental Response, Compensation and
Liability Act and in 1990 the Clean Air Act Amendments of 1990
were enacted. Although it is clear that waste from the
manufacture of certain products may be classified as hazardous,
the statutes' long-term effect on the company's future operations
cannot be accurately measured. However, the actual cost of
disposal will undoubtedly increase along with certain
administrative overhead. To counteract these pressures, the
company continues to improve procedures to reduce the generation
of waste and to devise methods for recycling.
EMPLOYEES:
While employment varies somewhat due to the seasonal nature
of paint consumption, the company employed 2,039 at December 31,
1994, of which approximately 450 are subject to collective
bargaining agreements, the major portion of which are subject to
renegotiation in early 1995. Employee relations are considered
satisfactory.
FOREIGN OPERATIONS:
The company manufactures products in the United States,
Canada and Mexico. In addition, some domestic production is
exported. Certain consumer and industrial products are produced
and sold through license agreements or joint ventures in Japan,
Taiwan, China, Israel and Argentina. Products covered by these
agreements include paints, shoe adhesives, binders, pressure
sensitive hot melt adhesives, resins, microsphere expansion and
bowling lane finishes.
During 1994, the company's revenues derived outside the
United States, the major portion of which were from Canada,
totaled less than 10% of consolidated net sales.
ITEM 2. PROPERTIES
The following table shows the location of the company's
manufacturing plants as of December 31, 1994. All of the owned
properties are owned in fee, except the Sumter, SC, facility,
title to which is held pursuant to Industrial Revenue Bond
financing.
Owned Properties:
Approximate
Location Description Square Feet
Buffalo, NY Corporate and business
unit offices, central
research and development
laboratories (2) and
plants (2) 460,800
Sumter, SC Business unit office,
research and development
laboratories and plant 220,400
<PAGE>
Wichita, KS Business unit office,
research and development
laboratory and plant 113,400
Carol Stream, IL Plant 73,300
Fort Erie, ONT Plant 62,600
Memphis, TN Plant 58,000
Kimberton, PA Plant 54,400
New Philadelphia, OH Plant 46,400
Marysville, CA Plant 43,700
_________
Total 1,133,000
_________
Leased Properties:
Approximate
Location Description Square Feet
Kankakee, IL Business unit offices,
research and development
laboratories and plant 261,000
Indianapolis, IN Plant 254,000
Memphis, TN Plant 180,000
Charlotte, NC Plant 164,000
Ennis, TX Plant 146,000
Los Angeles, CA Plant 84,000
Buffalo, NY Plant and laboratory 63,400
Mexico City, Mexico Plant 13,200
_________
Total 1,165,600
_________
Grand Total 2,298,600
=========
The company believes that these plants and their equipment
are adequately utilized, well maintained and in good condition.
Additionally, the company operates 31 warehouses and service
centers in leased premises, except for owned facilities at Fort
Erie, Ont.; Memphis, TN; Milpitas, CA; Montreal, P.Q.; Myrtle
Beach, SC; Salt Lake City, UT; Slidell, LA and Sumter, SC.
ITEM 3. LEGAL PROCEEDINGS
The company knows of no legal proceedings, other than
routine litigation incidental to the business, to which it or any
of its subsidiaries is a party.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
(a) Price Range of Common Stock:
As verified by the New York Stock Exchange and the American
Stock Exchange, where Pratt & Lambert United shares were listed
during 1994, the price range applicable to the common shares for
the periods noted appears as follows:
1994 1993
High Low High Low
January 1- March 31 $20 1/8 $16 3/4 $16 7/8 $14 5/8
April 1 - June 30 18 3/8 15 16 7/8 15 1/4
July 1 - September 30 19 7/8 14 3/4 20 1/4 15 1/4
October 1 - December 31 20 3/8 17 5/8 20 3/8 16 3/4
On December 7, 1994, the company's common shares began
trading on the New York Stock Exchange and ceased to be traded on
the American Stock Exchange. On February 23, 1995, the closing
price of Pratt & Lambert United common shares was $17 3/4 per
share on the New York Stock Exchange.
(b) Approximate Number of Common Shareholders:
Title of Class Holders at December 12, 1994
Common Stock, $.01 par value 1,985*
*Included in the number of stockholders of record are shares held
for others in "Nominee" or "Street" name.
(c) Dividends:
For the year 1994, dividends on Pratt & Lambert United's
common stock were declared at a quarterly rate of $.15 per share.
For the year 1993, dividends on Pratt & Lambert's common stock
were declared at a quarterly rate of $.14 per share for the first
and second quarters and $.15 for the third and fourth quarters.
The company's loan agreements contain a restriction on the
payment of dividends which at December 31, 1994, limits future
dividend payments to $22,435,000 plus 75% of future net income
(Note D to financial statements). The dividend payment
restriction terminates upon the final payment of the loans, which
is required by December 31, 2003.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
(In thousands of dollars, except per share amounts)
<CAPTION>
Selected Income Statement Data:
Year Ended December 31 1994 1993 1992* 1991* 1990*
<S> <C> <C> <C> <C> <C>
Net Sales $328,901 $241,761 $235,628 $238,953 $243,098
Income from Operations** 13,612 11,165 10,223 10,203 12,003
Net Income** 6,241 6,211 5,163 4,756 5,619
Earnings per Share:
Earnings per Common
Share & Common
Equivalent Share .80 1.10 .92 .85 .98
Earnings per Common Share
Assuming Full Dilution** .80 1.09 .92 .85 .98
Cash Dividend per
Common Share .60 .58 .56 .54 .52
Selected Balance Sheet Data:
December 31 1994 1993 1992* 1991* 1990*
Working Capital $ 65,130 $ 42,730 $ 41,201 $ 41,663 $ 39,409
Total Assets 291,543 128,278 119,452 124,946 121,275
Long-Term Debt 71,103 20,069 21,363 21,427 22,236
* Restated for the effects of the adoption of FASB Statement No. 109,
Accounting for Income Taxes.
** 1994 amounts exclude charges for severance associated with the
adoption of Financial Accounting Standards Board Statement No. 112,
Employers' Accounting for Postemployment Benefits, as well as costs
related to the company's restructuring activities. These charges
lowered Income from Operations, Net Income, Earnings per Common Share
and Earnings per Common Share Assuming Full Dilution during 1994 by
$1,197,000, $724,000, $.09 and $.10, respectively.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1994 to 1993
RESULTS OF OPERATIONS:
On August 4, 1994, the company merged with United Coatings,
Inc., a leading producer of paint for the private label market.
Under the terms of the merger agreement, the company purchased
<PAGE>
all of United's outstanding stock for 5,000,000 shares of the
company's common stock, approximately $17,000,000 in cash and the
assumption of United's debt. United's sales in 1993 were
$176,719,000. As the merger has been recorded under the purchase
method of accounting, United's operations since August 4, 1994
have been included in the company's 1994 financial statements.
Consolidated net sales increased 36% to $328,901,000 in 1994
when compared to the $241,761,000 recorded in 1993. While sales
of Pratt & Lambert branded products were moderately higher during
1994, sales of paint products in the aggregate increased by
$69,891,000 primarily as the result of the merger with United
Coatings. Sales of specialty chemicals increased by nearly 11%
during 1994 as a result of strong demand for the company's
industrial coatings and construction adhesives. The increases in
cost of sales; selling, administrative and general; and interest
expense were primarily the result of the merger. Due to the
seasonality of the United Coatings business, the decline in
earnings per share was partially a result of the timing of the
merger and partially a result of the adoption of FASB Statement
No. 112, Employers' Accounting for Postemployment Benefits. In
addition, the company also incurred costs related to its
restructuring activities as described below and experienced
increased expenses from rising raw material costs and higher
interest rates in 1994.
Assuming that the merger with United Coatings had occurred
prior to January 1, 1993, pro forma consolidated sales were
$460,711,000 in 1994, an increase of $42,231,000 or 10.1% when
compared to 1993 pro forma sales. Paint and specialty chemical
sales both increased by approximately 10% when compared to the
prior year as a result of strong demand for most of the company's
product lines. Pro forma net income, which includes adjustments
for operating efficiencies, amortization of goodwill, interest
expense on increased debt levels and income taxes, was
$12,683,000 in 1994 versus $13,051,000 in 1993 while earnings per
share in the two years were $1.18 and $1.22, respectively. While
net income and earnings per share benefitted from increased sales
in the 1994 period, the effects of the restructuring charge as
described below and the expense related to the adoption of FASB
Statement No. 112 lowered net income by $397,000 and $327,000 and
earnings per share by $.04 and $.03, respectively. Due to the
impact on the computation of goodwill from the change in the
stock price on the date of the merger versus that used in the
1994 proxy statement, pro forma net income and earnings per share
for 1993 have been adjusted from $12,636,000 to $13,051,000 and
$1.19 to $1.22, respectively.
During the fourth quarter of 1994 the company elected to
discontinue a construction adhesive product line. As a result,
the company accrued solely for the write down to net realizable
value of related long term assets and inventory which are
expected to be disposed of in 1995. There are no future cash out
flows associated with the restructuring. In addition to the
product line discontinuance, the company has current initiatives
underway which are designed to reduce cost while simultaneously
<PAGE>
improving productivity and service to customers. Current
initiatives include a redesign of the company's management
information systems, implementation of a more cost effective
distribution network, industrial and process engineering
improvements and the adoption of activity cost management.
Management anticipates that the company will begin to benefit
from the lower manpower requirements produced by these
initiatives in 1995 and subsequent years.
LIQUIDITY AND CAPITAL RESOURCES:
During the three years ended December 31, 1994 the company
generated sufficient cash flow from operations to meet operating
requirements and fund capital spending. To effect the merger
with United Coatings and to refinance United's then existing
debt, in 1994 the company borrowed $50,000,000 under a new
revolving credit and term loan agreement. Cash flows from
operating activities were $4,838,000, $4,915,000, and $16,695,000
in 1994, 1993 and 1992, respectively. From those cash flows the
company invested $9,047,000, $4,975,000 and $5,425,000 in
property, plant and equipment in 1994, 1993 and 1992,
respectively.
The company continues to maintain a favorable financial
position with a current ratio of 1.9 to 1 at December 31, 1994.
In addition to internal sources, the company has $43,000,000 in
lines of credit to meet its short-term financing requirements.
At December 31, 1994, the company had available $26,400,000 in
unused credit under the above agreements. In addition, the
company has revolving credit and term loan agreements which
provide for borrowings of up to $70,000,000, all of which was
outstanding at December 31, 1994 (Note D to the financial
statements).
At December 31, 1994, the company had an authorization from
the Board of Directors to purchase up to 250,200 shares of the
company's common stock. The aggregate cost to purchase the
entire 250,200 authorized shares would be $4,441,000 assuming
that all shares were purchased at the closing price of Pratt &
Lambert United common stock on February 23, 1995, of $17 3/4.
Although the company did not use the authorization to purchase
any of its common stock during 1994, 1993 or 1992, the company
has made such purchases in prior years. Generally, the company
utilizes its bank arrangements to effect such transactions and,
based upon historical cash flow, management does not envision
that the authorized stock repurchase program will interfere with
the funding of future operational needs.
As is common in the chemical industry, the company has been
notified that it is a potentially responsible party with respect
to hazardous waste at several sites. The company has accrued for
the estimated cost of its participation in the clean-up and,
based upon current information, management believes that there
will not be a material future charge to earnings due to these
sites.
<PAGE>
Environmental regulations have limited in the past and will
likely further limit in the future the volatile organic content
of the company's products. Based upon the technologies that the
company has developed, management believes that in the aggregate
the movement to environmentally compliant products will have a
beneficial impact on the company's future operations.
There were no material commitments for capital expenditures
at December 31, 1994. It is anticipated that the majority of
1995 capital expenditure requirements will be financed from
internal sources. Management believes that the company is well
positioned financially, with ample cash flow to meet general
operating needs.
1993 to 1992
RESULTS OF OPERATIONS:
Consolidated net sales were $241,761,000 in 1993, an
increase of 2.6% when compared to the $235,628,000 recorded in
the previous year. Sales of paint products declined slightly
during 1993 while strong demand for the company's construction
adhesives and packaging and graphic arts products combined with
an increase in purchases by the U.S. General Services
Administration produced an increase in sales of the company's
specialty chemicals during 1993.
The increase in gross profit as a percentage of sales in
1993 was a result of lower per unit manufacturing expenses.
Selling, administrative and general expenses increased at
approximately the same rate as sales, as inflationary advances
were offset by the company's cost-containment program. Interest
expense decreased in the 1993 period as a result of lower average
borrowings at lower interest rates.
On January 1, 1993 the company adopted Financial Accounting
Standards Board (FASB) Statement No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions. Under the
statement, the company will account for postretirement medical
and group life plans under the accrual method rather than the
company's previous practice of accounting for such costs on the
cash basis. The company has elected to amortize the transition
obligation over a 20 year period. The impact in 1993 of
implementing this statement was to lower net income by $114,000
or $.02 per share (Note I to the financial statements).
During 1993, the company also adopted FASB Statement No.
109, Accounting for Income Taxes. FASB Statement No. 109
requires that deferred taxes be recorded for temporary
differences between the financial statement and tax bases of
assets and liabilities using the anticipated tax rate when the
taxes are expected to be paid or recovered. Previously the
company had recorded the tax effects of timing differences
between financial reporting and taxable income under the deferred
method in accordance with Accounting Principles Board Opinion No.
11. All prior financial statements have been retroactively
restated for the effects of the adoption of FASB Statement No.
109. The statement's adoption did not affect net income or
earnings per share in 1993 or 1992 (Note G to the financial
statements).
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(Continued on page 19)
<PAGE>
INDEPENDENT AUDITORS' REPORT
Pratt & Lambert United, Inc.:
We have audited the accompanying consolidated balance sheets of
Pratt & Lambert United, Inc. and its subsidiaries as of
December 31, 1994 and 1993, and the related consolidated
statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1994.
Our audits also included the financial statement schedules listed
in the Index at Item 14(a)2. These financial statements and
financial statement schedules are the responsibility of the
company's management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Pratt
& Lambert United, Inc. and subsidiaries as of December 31, 1994
and 1993, and the results of their operations and their cash
flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note A to the financial statements, the company
has changed its method of accounting for postemployment benefits
to conform with the Statement of Financial Accounting Standards
No. 112, Employers' Accounting For Postemployment Benefits.
DELOITTE & TOUCHE LLP
February 23, 1995
<PAGE>
<TABLE>
PRATT & LAMBERT UNITED, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1994 AND 1993 (IN THOUSANDS)
<CAPTION>
ASSETS 1994 1993 LIABILITIES 1994 1993
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash (Notes A and D) $ 3,370 $ 2,443 Dividends payable $ 1,590 $ 838
Receivables (less allow- Short-term debt (Note B) 16,600 7,700
ance for losses:
1994-$3,470;
1993-$3,673) 63,174 39,950 Current maturities of long-
Inventories (Notes A term debt (Notes D and H) 851 1,878
and C) 62,326 38,401 Accounts payable 36,483 19,084
Prepaid expenses 9,459 5,829 United States and Canadian
Total current assets 138,329 86,623 income taxes (Note G) 502 1,210
Accrued salaries, wages and
PROPERTY, PLANT AND EQUIPMENT - commissions 4,244 3,504
At cost: (Notes A, D and H) Accrued other taxes and
Land and improvements 2,870 2,909 expenses 12,929 9,679
Buildings and improve- Total current liabilities 73,199 43,893
ments 28,273 24,276
Machinery and equipment 71,598 49,438 OTHER LIABILITIES (current
Construction in progress 1,638 2,056 maturities included in
Total 104,379 78,679 current liabilities):
Less accumulated Long-term debt (Notes D
depreciation 58,021 43,872 and H) 71,103 20,069
Property, plant and equip- Deferred income taxes
ment - Net 46,358 34,807 (Notes A and G) 6,845 4,542
Total other liabilities 77,948 24,611
<PAGE>
OTHER ASSETS: SHAREHOLDERS' EQUITY:
Goodwill - net of amortiza- Capital stock:
tion (Note A) 95,395 247 Preferred stock - Par
Advertising materials and value $10:
supplies (Note A) 6,194 3,770 Shares: 1994 1993
Other 5,267 2,831 Authorized 1,500,000 1,500,000
Total other assets 106,856 6,848 Issued 0 0 0 0
Common stock - Par value
1994 - $.01; 1993 - $1
(Notes E and F):
Shares: 1994 1993
Authorized 100,000,000 30,000,000
Issued 13,420,014 8,398,025 134 8,398
Treasury 2,813,225 2,813,225
Outstanding 10,606,789 5,584,800
Additional paid-in capital (Note F) 98,261 9,075
Retained earnings (Note D) 69,205 68,543
Cumulative translation adjustments
(Note A) (1,372) (410)
Total 166,228 85,606
Less treasury shares - At cost 25,832 25,832
Total shareholders' equity 140,396 59,774
TOTAL $291,543 $128,278 TOTAL $291,543 $128,278
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PRATT & LAMBERT UNITED, INC. AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
1994 1993 1992*
<S> <C> <C> <C>
NET SALES (Notes A and K) $ 328,901 $ 241,761 $ 235,628
COST OF SALES 231,915 160,603 157,120
--------- --------- ---------
GROSS PROFIT 96,986 81,158 78,508
--------- --------- ---------
SELLING, ADMINISTRATIVE AND
GENERAL EXPENSES 84,571 69,993 68,285
--------- --------- ---------
INCOME FROM OPERATIONS 12,415 11,165 10,223
--------- --------- ---------
OTHER EXPENSE (INCOME):
Interest expense (Note A) 3,496 1,598 1,954
Gain on disposition of property,
plant and equipment (Note A) (202) (98) (29)
Interest income (129) (44) (97)
Miscellaneous - Net (562) (497) (329)
--------- --------- ---------
Total 2,603 959 1,499
--------- --------- ---------
INCOME BEFORE TAXES ON INCOME 9,812 10,206 8,724
TAXES ON INCOME (Notes A and G) 4,295 3,995 3,561
--------- --------- ---------
NET INCOME $ 5,517 $ 6,211 $ 5,163
========= ========= =========
Earnings per common share and common
equivalent share (Note A) $ 0.71 $ 1.10 $ 0.92
========= ========= =========
Earnings per common share - assuming
full dilution (Note A) $ 0.70 $ 1.09 $ 0.92
========= ========= =========
* - Restated for the effects of the adoption of FASB Statement No. 109,
Accounting For Income Taxes
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PRATT & LAMBERT UNITED, INC. AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
_____________________________________________________________________________________________________________________________
<CAPTION>
Additional Cumulative
Common Paid-in Retained Translation Treasury
Stock Capital Earnings Adjustments Shares
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991, AS REPORTED $ 8,334 $ 8,366 $ 64,300 $ 498 $ (25,632)
Restatement for change in accounting principle
for income taxes 0 0 (807) 0 0
-------- -------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1991, AS RESTATED 8,334 8,366 63,493 498 (25,632)
Net income 0 0 5,163 0 0
Cash dividends declared:
Common stock - $.56 0 0 (3,100) 0 0
Common stock issued:
8,000 shares upon the exercise of stock
options (Note F) 8 52 0 0 0
Current year translation adjustment (Note A) 0 0 0 (658) 0
-------- -------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1992, AS RESTATED 8,342 8,418 65,556 (160) (25,632)
Net income 0 0 6,211 0 0
Cash dividends declared:
Common stock - $.58 0 0 (3,224) 0 0
Common stock issued:
56,375 shares upon the exercise of stock
options (Note F) 56 613 0 0 0
Tax benefits arising from the exercise of
nonqualified stock options 0 44 0 0 0
Treasury shares acquired:
10,850 shares of common stock from related parties 0 0 0 0 (200)
Current year translation adjustment (Note A) 0 0 0 (250) 0
-------- -------- -------- --------- ---------
BALANCE AT DECEMBER 31, 1993 8,398 9,075 68,543 (410) (25,832)
<PAGE>
Net income 0 0 5,517 0 0
Cash dividends declared:
Common stock - $.60 0 0 (4,855) 0 0
Common stock issued:
5,000 shares upon the exercise of stock
options (Note F) 5 47 0 0 0
Change in stated par value of shares
from $1 to $.01 (Note E) (8,319) 8,319 0 0 0
4,999,989 shares in connection with the merger
with United Coatings, Inc. (Note L) 50 80,575 0 0 0
17,000 shares upon the exercise of stock
options (Note F) 0 245 0 0 0
Current year translation adjustment (Note A) 0 0 0 (962) 0
-------- -------- -------- --------- ---------
BALANCE AT DECEMBER 31, 1994 $ 134 $ 98,261 $ 69,205 $ (1,372) $ (25,832)
======== ======== ======== ======== =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PRATT & LAMBERT UNITED, INC. AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(THOUSANDS OF DOLLARS)
<CAPTION>
1994 1993 1992*
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,517 $ 6,211 $ 5,163
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation (Note A) 5,783 4,735 4,768
Amortization of goodwill and
other intangibles 1,082 39 150
Deferred income taxes (Notes A and G) 150 (66) (118)
Provision for losses on accounts
receivable (285) 445 (104)
Gain on disposition of property,
plant and equipment (Note A) (202) (98) (29)
Changes in operating assets and
liabilities:
(Increase) decrease in current assets:
Receivables 18,269 (4,372) 60
Inventories (2,059) (5,610) 8,411
Prepaid expenses (2,155) (937) (25)
Increase (decrease) in current
liabilities:
Accounts payable (13,536) 1,633 1,343
United States and Canadian
income taxes 1,199 813 (405)
Accrued salaries, wages and
commissions 748 669 (384)
Accrued other taxes and expenses (8,979) 1,259 (1,763)
Decrease (increase) in other assets (694) 194 (372)
-------- -------- --------
Net cash provided by operating
activities 4,838 4,915 16,695
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment (Note A) (9,047) (4,975) (5,425)
Proceeds from disposals of property,
plant and equipment (Note A) 815 663 306
Acquisitions, net of cash
acquired (Note L) (15,773) 0 0
-------- -------- --------
Net cash used for investing activities (24,005) (4,312) (5,119)
-------- -------- --------
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (4,103) (3,161) (3,099)
Borrowings (payments) of short-term
debt (Note B) 8,900 1,600 (5,200)
Borrowings of long-term debt
(Notes D and H) 50,000 0 0
(Payments) of long-term debt, including
capitalized leases (Notes D and H) (34,982) (1,428) (1,291)
Proceeds from exercise of stock
options (Note F) 298 713 60
Purchase of treasury stock from
related parties 0 (200) 0
-------- -------- --------
Net cash provided by (used for)
financing activities 20,113 (2,476) (9,530)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (19) (33) (78)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH 927 (1,906) 1,968
CASH, BEGINNING OF PERIOD (Note A) 2,443 4,349 2,381
-------- -------- --------
CASH, END OF PERIOD (Note A) $ 3,370 $ 2,443 $ 4,349
======== ======== ========
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the year for:
Interest, net of the portion
capitalized $ 3,093 $ 1,623 $ 2,072
Income taxes $ 5,544 $ 3,849 $ 4,431
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Leases capitalized $ 989 $ 1,039 $ 1,322
Fair value of merger and acquisition
transactions:
Assets acquired, net of cash $173,570 $ 0 $ 0
Liabilities assumed $ 77,172 $ 0 $ 0
Common stock issued $ 80,625 $ 0 $ 0
* - Restated for the effects of the adoption of FASB Statement No. 109,
Accounting For Income Taxes
See notes to consolidated financial statements.
</TABLE>
<PAGE>
PRATT & LAMBERT UNITED, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
_________________________________________________________________
A. ACCOUNTING POLICIES
The company operates in one dominant industry segment, which
consists of the development, production and sale of paint
and specialty chemicals. The following is a summary of
significant accounting policies followed by the company in
the preparation of the accompanying consolidated financial
statements. These policies conform to generally accepted
accounting principles and have been consistently applied
(except as described below with respect to income taxes,
postemployment and postretirement benefits).
Principles of Consolidation - All subsidiary companies are
wholly owned and are included in the accompanying
consolidated financial statements. Upon consolidation, all
intercompany balances and transactions are eliminated.
Translation of Foreign Currency - All balance sheet
accounts of foreign operations are translated to United
States dollars at current exchange rates. The income
statement is translated using the average exchange rate for
the period. Generally, adjustments for currency exchange
rate fluctuations are excluded from net income and reflected
as a separate component of shareholders' equity.
Inventories - Inventories are stated substantially at the
lower of cost or market. Cost is computed, primarily, on
the last-in, first-out (LIFO) method and generally includes
material, labor and applicable overhead.
Property, Plant and Equipment - The company capitalizes
interest cost as a part of the cost of constructing and
developing significant assets. Total 1994, 1993 and 1992
interest costs amounted to $3,506,000 , $1,598,000 and
$1,977,000, respectively, of which $ 10,000, $0 and $ 23,000
was capitalized in 1994, 1993 and 1992, respectively.
The company charges maintenance and repairs to income;
renewals and betterments are capitalized. Upon the sale or
retirement of property, appropriate adjustments are made to
the related asset and accumulated depreciation or
amortization accounts and any profit or loss is credited or
charged to income.
Depreciation is provided generally on the straight-line
method applied to individual property items. The estimated
service lives by asset classes used in the computation of
depreciation and amortization are as follows:
Land improvements 10 years
Buildings and improvements 10 to 50 years
Machinery and equipment 3 to 20 years
<PAGE>
Goodwill - The excess of the purchase cost over the fair
value of net assets acquired in acquisitions (goodwill) are
being amortized using the straight-line method over their
estimated useful lives not exceeding 40 years. The company
periodically evaluates the existence of goodwill impairment
on the basis of whether it is fully recoverable from
projected, undiscounted net cash flows of the related
business unit. At December 31, 1994 and 1993 goodwill
arising from business mergers and acquisitions was
$96,446,000 and $316,000, respectively and the related
accumulated amortization was $1,051,000 and $69,000,
respectively.
Advertising Materials and Supplies - Inventories of
advertising materials and supplies are charged to income
when consumed.
Income Taxes - During 1993, the company adopted the
Financial Accounting Standards Board (FASB) Statement No.
109, Accounting for Income Taxes. FASB Statement No. 109
requires that deferred taxes be recorded for temporary
differences between the financial statement and tax bases of
assets and liabilities using the anticipated tax rate when
the taxes are expected to be paid or recovered. Previously
the company had recorded the tax effects of timing
differences between financial reporting and taxable income
under the deferred method in accordance with Accounting
Principles Board Opinion No. 11. All prior financial
statements have been retroactively restated for the effects
of the adoption of FASB Statement No. 109. The restatement
reduced Retained Earnings as of January 1, 1992, by
$807,000.
Revenue Recognition - Revenue is recognized when products
are shipped.
Earnings Per Share - Earnings per common share and common
equivalent share are based upon the average number of such
shares outstanding for each period presented. Common
equivalent shares consist of stock options to the extent
they are dilutive.
Research and Development - Expenditures for product
research and development are charged to income as incurred.
The company's costs of research and related technical
functions were approximately $7,827,000, $7,240,000 and
$7,092,000 for the years 1994, 1993 and 1992, respectively.
Litigation and Environmental Expenditures - The company is
a party to various legal and environmental actions which
have arisen in the ordinary course of its business.
Environmental expenditures caused by current or past
operations are expensed while renewals and betterments to
property, plant and equipment are capitalized. The company
records liabilities and insurance recoveries when they are
probable and can be reasonably estimated.
<PAGE>
Postemployment Benefits - During 1994, the company adopted
FASB Statement No. 112, Employers' Accounting for Post
employment Benefits. The accounting standard requires the
accrual of the cost of postemployment benefits over the
employees' years of service rather than the company's
previous practice of accounting for such costs on the cash
basis. A one-time before tax expense for the adoption of
FASB Statement No. 112 of $540,000 (after tax $327,000 or
$.04 per share) was recognized as the effect of adopting the
accounting principle in 1994. The incremental costs from
adopting this statement are not expected to be significant
on an ongoing basis.
Pension Plans and Other Postretirement Benefits - On
January 1, 1993 the company adopted FASB Statement No. 106,
Employers' Accounting for Postretirement Benefits Other Than
Pensions. Under the statement, the company will account for
postretirement medical and group life plans under the
accrual method rather than the company's previous practice
of accounting for such costs on the cash basis. The company
has elected to amortize the transition obligation over a 20
year period. The impact in 1994 and 1993 of implementing
this statement was to lower net income by $190,000 or $.02
per share and $114,000 or $.02 per share, respectively.
Cash Equivalents - The company defines cash equivalents as
highly liquid, short-term investments with an original
maturity of three months or less. The company does not
consider that any of its assets meet this definition of a
cash equivalent.
Fair Value of Financial Instruments - The company's
financial instruments consist of cash, accounts receivable,
accounts payable and debt. The carrying amounts of these
financial instruments approximate their fair value.
B. SHORT-TERM BORROWING ARRANGEMENTS
During 1994, the company had available committed and
uncommitted lines of credit of $43,000,000 at varying rates
of interest which did not exceed the prevailing prime
lending rate. At December 31, 1994, the company had
available $26,400,000 in unused credit under the above
agreements. The weighted average interest rate of all
outstanding short-term debt at December 31, 1994 and 1993
was 7.1% and 4.2%, respectively.
C. INVENTORIES
The components of inventories are as follows (in thousands):
December 31,
1994 1993
Manufactured products $35,877 $22,638
Raw materials 24,958 14,415
Sundries 1,491 1,348
------- -------
Total $62,326 $38,401
======= =======
<PAGE>
Inventories at December 31, 1994 and 1993 included
$55,228,000 and $34,232,000, respectively, valued at LIFO
cost. If inventories were shown at current cost (determined
by the first-in, first-out method) rather than at LIFO
values, inventories would have been $10,331,000 and
$9,522,000 higher than reported at December 31, 1994 and
1993, respectively. During 1992, LIFO inventory quantities
were reduced, the results of which decreased cost of sales
by approximately $279,000 and increased net income by
$176,000 or $.03 per common share.
In accordance with Accounting Principles Board Opinion No.
16, the company revalued the inventories of certain
subsidiaries to fair value at the dates that the companies
were acquired. As a result, the LIFO inventory included in
the consolidated balance sheet at December 31, 1994 is
$1,270,000 in excess of the valuation reported for Federal
income tax purposes.
D. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
December 31,
1994 1993
Notes payable to banks (effective
interest rate of 7.3% and 4.1%
at December 31, 1994 and 1993,
respectively) $ 70,000 $ 20,000
Industrial revenue bond:
67% of the prime rate, due
serially through 1996 (effective
interest rate of 5.7% and
4.0% at December 31, 1994 and
1993, respectively) 280 420
Obligations under capital leases 1,674 1,527
-------- --------
Total 71,954 21,947
Less current maturities 851 1,878
-------- --------
Total long-term debt $ 71,103 $ 20,069
======== ========
Principal payments of $851,000, $2,742,000, $7,825,000,
$7,536,000 and $7,500,000 are due in 1995, 1996, 1997, 1998
and 1999, respectively.
In 1994 the company obtained a revolving credit/term loan
agreement whereby it may borrow up to $50,000,000 through
August 2, 1996. Interest under the 1994 agreement is, at
the company's option, at a rate of 1 1/2% in excess of the
London Interbank Offering Rate (LIBOR) or the prime lending
rate during the revolving credit period of the agreement and
at a rate of 2 1/10% in excess of LIBOR, the prime lending
rate or 2% in excess of U.S. Treasury obligations of
comparable terms during the term period of the agreement.
The company is subject to a commitment fee of 1/4 of 1
<PAGE>
percent of the unused available credit. The company is
required to make quarterly payments equal to one fortieth of
the balance outstanding on October 1, 1996 from that date
through July 1, 2004 when the then remaining outstanding
balance under the agreement is payable.
In 1982 the company obtained a revolving credit/term loan
agreement whereby it may borrow up to $7,000,000 through
December 31, 1996. Interest under the 1982 agreement is, at
the company's option, at a rate of 1% in excess of the
average secondary market Certificate of Deposit Rate, after
reserve requirements; the prime lending rate plus 1/4%; or a
rate quoted daily by the bank. The company is expected to
maintain an average compensating balance amounting to 5% of
the amount committed under the 1982 agreement. The balance
outstanding at December 31, 1996, will be payable serially
from 1997 through 2003. Compensating balance requirements,
after adjustment for estimated "float", did not materially
restrict the use of cash at December 31, 1994, or for the
year then ended.
In 1985 the company obtained another revolving credit
agreement whereby it may borrow up to $13,000,000 through
June of 1996 at which time the maximum amount borrowable
declines by $375,000 per quarter until June, 2003, when the
company is required to pay the entire amount then
outstanding. Interest under the 1985 agreement is equal to
the Federal funds rate plus 1% and the company is subject to
a commitment fee of 1/4 of a percent of the unused available
credit.
The industrial revenue bond was issued by an industrial
development authority for the construction of a production
and office facility. The company is to make payments
sufficient to pay the interest and debt retirement
requirements under the indenture covering the bond issue.
The company may purchase the facility for a nominal amount
after payment of an amount sufficient to retire the
outstanding bond in accordance with the provisions of the
indenture. The aggregate carrying value of the property,
which serves as collateral under the bond indenture, totaled
$4,102,000 and $3,936,000 at December 31, 1994 and 1993,
respectively.
The agreements contain, among other covenants, a restriction
on the payment of dividends, which at December 31, 1994
limits future dividend payments to $22,435,000 plus 75% of
future net income, a requirement to maintain a consolidated
working capital of at least $52,000,000 and a requirement to
maintain tangible net worth of $36,000,000 at December 31,
1994 plus $8,000,000 for every subsequent year .
Capital leases are those which in substance transfer all of
the benefits and risks equivalent to the ownership of
property and which are to be accounted for by the lessee as
the acquisition of an asset and the incurrence of an
obligation. All other leases are considered operating
leases.
<PAGE>
The company conducts a substantial portion of its operations
from leased facilities which include plants, service and
distribution centers. Most of the real estate leases are
for three to five year periods with equivalent optional
renewal terms. In addition, the company leases machinery
and equipment under short-term lease arrangements. All real
estate leases and substantially all office equipment leases
are classified as operating leases.
The company's motor vehicle and mobile equipment leases are
for three to seven year periods. These leases contain
purchase options at the lessors' depreciated cost and are
classified as capital leases.
In most cases, management anticipates that in the normal
course of business, leases will be renewed or replaced by
other leases.
Capital Leases - The following is a schedule of machinery
and equipment classified as capital leases and included in
Property, Plant and Equipment (in thousands):
December 31,
1994 1993
Original cost $ 2,770 $ 2,476
Less accumulated depreciation 1,096 949
-------- --------
Net $ 1,674 $ 1,527
======== ========
E. COMMON STOCK
In 1989, the company declared a dividend of one right for
each outstanding common share. Each right entitled the
holder to purchase one common share at an exercise price of
$50 per share. Unless extended by the company's Board of
Directors, the rights become exercisable and nonredeemable
on the earlier of 10 days following the acquisition by a
person or group of 20% or more of the company's outstanding
shares or 10 business days following commencement of a
tender offer of 20% or more of such outstanding common
shares. If the company is acquired in a business
combination, or more than 50% of its assets are sold, each
right holder, upon payment of the exercise price, shall
receive shares of the acquiring company having a market
value of twice the exercise price. If a person or group
becomes the owner of 25% or more of the company's
outstanding stock, and in certain other defined situations,
each right holder other than a 20% or greater shareholder
upon payment of the exercise price, shall receive common
shares of the company having a market value of twice the
exercise price. During 1994, the Board of Directors of the
company amended the rights to provide that the rights would
not become exercisable or nonredeemable due to a person or
group becoming a 20% or more shareholder as a result of the
merger with United Coatings, Inc. For as long as the rights
are redeemable, they may be amended by the company's Board
of Directors. The rights will expire on January 30, 1999,
unless redeemed earlier at a price of $.01 per right.
<PAGE>
In 1994 the stockholder's approved an amendment to the
company's Certificate of Incorporation increasing the number
of authorized common shares from 30,000,000 to 100,000,000
and a change in the par value from $1.00 to $.01 per common
share.
F. STOCK OPTION/STOCK APPRECIATION RIGHTS PLAN
The company has incentive and nonqualified stock option
plans for officers and key employees under which options may
be granted at prices not less than the fair market value on
the date of grant. Options under the plans become
exercisable at various dates and expire at the end of not
more than twenty years from the date of the grant. In
addition to providing for the granting of stock options, the
plans also allow for the granting of stock appreciation
rights, restricted stock and other stock awards. During
1994, 1993 and 1992 all grants under the plans were either
incentive or nonqualified stock options.
<TABLE>
<CAPTION> Shares
----------------------------
Stock/Option
Stock
Stock Appreciation Price
Options Rights Per Share
<S> <C> <C> <C>
Outstanding at December 31 1991 643,850 6,000 $ 6.17 - $ 18.44
Granted 72,000 0 13.81
Exercised (8,000) 0 7.44
Terminated (7,000) 0 12.44 - 16.31
------- ------ ------ -------
Outstanding at December 31, 1992 700,850 6,000 6.17 - 18.44
Granted 73,000 0 19.00
Exercised (50,375) (6,000) 6.17 - 16.31
Terminated (21,000) 0 12.44 - 16.31
------- ------ ------ ------
Outstanding at December 31, 1993 702,475 0 7.44 - 19.00
Granted 134,000 0 19.63
Exercised (22,000) 0 7.44 - 16.13
------- ------ ------ ------
Outstanding at December 31, 1994 814,475 0 $ 7.44 - $ 19.63
======= ====== ====== =======
Exercisable at December 31, 1994 567,325 $ 7.44 - $ 19.00
======= ====== =======
Reserved for future grants:
December 31, 1994 331,000
=======
December 31, 1993 165,000
=======
</TABLE>
<PAGE>
G. INCOME TAXES
In 1993 the company adopted FASB Statement No. 109,
Accounting for Income Taxes, which requires the use of the
asset and liability method of accounting for deferred income
taxes. All prior financial statements have been
retroactively restated for the effects of the accounting
change.
A comparative analysis of the provisions for income taxes is
as follows (in thousands):
1994 1993 1992
Current:
Federal $ 922 $ 3,346 $ 2,054
State 533 961 755
Foreign 643 753 659
-------- ------- -------
Total 2,098 5,060 3,468
-------- ------- -------
Deferred:
Federal 1,998 (812) 210
State 199 (253) (117)
Foreign 0 0 0
-------- ------- -------
Total 2,197 (1,065) 93
-------- ------- -------
Total provision $ 4,295 $ 3,995 $ 3,561
======== ======= =======
Total tax provisions for 1994, 1993 and 1992 are different
from amounts computed by applying the United States Federal
income tax rate to domestic and foreign income before taxes
on income in those years for the following reasons (in
thousands):
1994 1993 1992
Income before taxes on income:
Domestic $ 7,874 $ 8,422 $ 7,456
Foreign 1,938 1,784 1,268
-------- ------- -------
Total 9,812 10,206 8,724
-------- ------- -------
Summary rate 34% 35% 34%
Tax at U.S. Federal tax rate 3,336 3,572 2,966
State income taxes, net of
Federal income tax benefit 483 460 421
Surtax exemption on income
below $10,000,000 0 (100) 0
Goodwill amortization 344 8 8
Other 132 55 166
-------- ------- -------
Taxes on income $ 4,295 $ 3,995 $ 3,561
======== ======= ======
Effective tax rate 43.8% 39.1% 40.8%
======== ======= =======
<PAGE>
The tax effects of the significant temporary differences
which comprise the gross deferred tax assets and liabilities
at December 31 are as follows:
1994 1993
Deferred Tax Assets:
Bad Debts $ 1,494 $ 1,482
Employee benefits 2,825 1,598
Other 3,729 2,858
-------- -------
Total 8,048 5,938
-------- -------
Deferred Tax Liabilities:
Depreciation 3,574 3,088
Basis differentials arising
from acquisitions 4,198 1,861
Other 2,845 1,752
-------- -------
Total 10,617 6,701
-------- -------
Net deferred tax liability $ (2,569) $ (763)
======== =======
The net current deferred tax asset at December 31, 1994 and
1993 was $4,276,000 and $3,779,000, respectively, while the
net long-term deferred tax liability was $6,845,000 and
$4,542,000, respectively. These amounts include valuation
allowances of $433,000 and $409,000 in 1994 and 1993,
respectively, for foreign tax credit carryforwards that are
not expected to be realized.
H. LEASE COMMITMENTS AND OBLIGATIONS
Operating Leases - The following is a schedule by year of
future minimum rental payments required under operating
leases that have initial noncancelable lease terms in excess
of one year as of December 31, 1994 (in thousands):
Machinery
Real and
Estate Equipment
Year ending December 31:
1995 $ 2,790 $ 674
1996 1,785 549
1997 981 232
1998 758 0
1999 0 0
-------- -------
Total minimum lease payments: $ 6,314 $ 1,455
======== =======
Included above are future minimum lease payments to related
parties of $874,000, $746,000, $746,000, $735,000 and $0 due
in 1995, 1996, 1997, 1998 and 1999, respectively.
<PAGE>
The total rental expense for all operating leases amounted
to $2,520,000 , $1,684,000 and $1,778,000 in 1994, 1993 and
1992, respectively and includes $417,000 paid to related
parties in 1994.
Capital Leases - The following is a schedule by year of
future minimum lease payments under capital leases together
with the present value of the net minimum lease payments as
of December 31, 1994 (in thousands):
Machinery and
Equipment
Year ending December 31:
1995 $ 871
1996 741
1997 402
1998 42
1999 0
--------
Total minimum lease payments 2,056
Less estimated executory costs included
in total minimum lease payments 227
--------
Net minimum lease payments 1,829
Less amount representing interest 155
--------
Present value of net minimum lease payments $ 1,674
========
I. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The company administers numerous domestic and foreign
defined benefit pension, profit sharing and savings plans
for its employees. In addition, the company participates in
various multi-employer plans which provide defined benefits
to employees covered under certain collective bargaining
agreements. The total expense for these plans for 1994,
1993 and 1992 was $2,362,000, $2,012,000 and $1,853,000,
respectively.
The company has defined benefit plans covering the majority
of non-bargaining unit employees which provide for
retirement benefits based upon either a career average or
final pay compensation formula. In addition, the company
administers several single employer plans for bargaining
unit employees which provide for benefits based upon years
of service. The company's policy is to fund for normal
costs plus amounts required to amortize actuarial gains and
losses and prior service costs over a thirty-year period.
Plan assets are invested in a broadly diversified portfolio
which includes common stocks, fixed income securities and
assets held in the general funds of insurance companies,
whose values are subject to the fluctuations of the
securities market. Changes in these values attributable to
differences between actual and assumed returns on plan
assets are deferred as unrecognized gains or losses and
included in the determination of net pension expense over
time. In addition to the funded plans,
<PAGE>
the company has an unfunded supplemental benefit plan under
which it will pay employees retirement benefits which cannot
be paid from the qualified funded pension plans because of
Internal Revenue Code limitations.
Net pension expense for defined benefit pension plans
consisted of the following (in thousands):
1994 1993 1992
Service cost - benefits
earned during the year $ 1,357 $ 1,115 $ 1,065
Interest costs on projected
benefit obligation 1,855 1,752 1,653
Actual return on plan assets (745) (3,444) (1,921)
Net amortization and deferral (1,708) 1,223 (358)
-------- -------- --------
Net pension expense $ 759 $ 646 $ 439
======== ======== ========
The following table sets forth the plans' aggregate funded
status, and amounts recognized on the company's balance
sheet at December 31 for defined benefit pension plans (in
thousands):
1994 1993
Fair value of plan assets at
September 30 $ 26,839 $ 27,300
Actuarial present value of benefit
obligations:
Vested benefits (22,979) (22,527)
Non-vested benefits (694) (719)
-------- --------
Accumulated benefit obligation (23,673) (23,246)
Effect of projected future salary
increases (3,555) (3,897)
-------- --------
Projected benefit obligation (27,228) (27,143)
Plans assets (below) in excess of
projected benefit obligation (389) 157
Unrecognized net loss 1,252 1,568
Unrecognized prior service cost (466) (512)
Unrecognized net asset (1,324) (1,563)
-------- --------
Accrued pension cost $ (927) $ (350)
======== ========
The projected benefit obligation for 1994 and 1993 was
determined using an assumed discount rate of 7.5% and 7.0%,
respectively and a weighted average assumed rate of
compensation increase of 4.5%. The assumed long-term rate
of return on plan assets was 8.5%.
<PAGE>
Certain bargaining unit employees participate in multi-
employer retirement plans sponsored by their respective
unions. Generally, the company is required to contribute to
the plans based upon the hours the employees work and
retirement benefits are based upon years of service. The
1994, 1993 and 1992 pension costs for these plans was
$157,000, $133,000 and $159,000, respectively.
In addition to pension plans, most of the company's non-
bargaining unit employees are covered by a savings plan as
well as an employee stock ownership plan and some domestic
employees are covered by profit sharing plans. The company
contributes to the savings plan based on employee
contribution levels and contributes to the profit sharing
plans based upon the income level of the related operations.
The company's contributions to the plans amounted to
$1,446,000, $1,233,000 and $1,255,000 in 1994, 1993 and
1992, respectively.
In addition to providing pension benefits, the company also
has various medical and group life insurance benefits for
retired employees who met certain service requirements.
Effective January 1, 1993 the company has adopted FASB
Statement No. 106, Accounting for Postretirement Benefits
Other Than Pensions. Under the statement, the company will
account for postretirement medical and group life plans
under the accrual method of accounting. Prior to 1993,
postretirement benefit costs were charged to expense as paid
and amounted to $490,000 in 1992. The components of
postretirement benefit expense consisted of the following
(in thousands):
1994 1193
Service cost - benefits earned
during the year $ 136 $ 73
Interest costs on projected benefit
obligation 352 342
Amortization of transition obligation 242 228
------- -------
Total postretirement benefit expense $ 730 $ 643
======= =======
The following table sets forth the accumulated
postretirement benefit obligation and amounts recognized on
the company's balance sheet at December 31 for
postretirement benefits (in thousands):
<PAGE>
1994 1993
Retirees $ (3,111) $ (3,324)
Fully eligible participants (277) (294)
Other active plan participants (2,150) (1,328)
---------- ---------
Accumulated postretirement benefit
obligation (5,538) (4,946)
Fair market value of plan assets 0 0
---------- ---------
Accumulated postretirement benefit (5,538) (4,946)
in excess of plan assets
Unrecognized transition obligation 4,099 4,326
Unrecognized loss 72 432
---------- ---------
Accrued postretirement benefit cost $ (1,367) $ (188)
========== =========
The assumed health care cost trend rate used in measuring
the accumulated postretirement benefit obligation was 5% for
1994, decreasing until it reaches 4% in 1998, after which it
remains constant. A one percentage point increase in the
assumed health care cost trend rate for each year would
increase the accumulated postretirement benefit obligation
as of December 31, 1994 by $709,000 and net postretirement
health care cost for the year then ended by approximately
$74,000. The assumed discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% and
7.0% for 1994 and 1993, respectively.
J. QUARTERLY RESULTS (UNAUDITED)
Unaudited summarized results for each quarter in 1994 and
1993 are as follows (in thousands, except per share
amounts):
1994 Quarter
___________________________________
1st 2nd 3rd 4th
Net sales $57,370 $68,664 $102,633 $100,234
Gross profit 17,453 23,152 30,825 25,556
Income taxes 179 1,721 2,991 (596)
Net income (loss) 279 2,681 4,234 (1,677)
Earnings (loss) per common
share and common equivalent
share $ 0.05 $ 0.47 $ 0.48 $ (0.16)
======= ======= ======== =========
Earnings (loss) per common
share-assuming full
dilution $ 0.05 $ 0.47 $ 0.48 $ (0.16)
======= ======= ======== =========
<PAGE>
1993 Quarter
___________________________________
1st 2nd 3rd 4th
Net sales $54,294 $64,040 $63,990 $59,437
Gross profit 17,471 22,245 21,938 19,504
Income taxes 317 1,687 1,536 455
Net income 466 2,480 2,254 1,011
Earnings per common share
and common equivalent
share $ 0.08 $ 0.44 $ 0.40 $ 0.18
======= ======= ======= =======
Earnings per common
share-assuming full
dilution $ 0.08 $ 0.44 $ 0.39 $ 0.18
======= ======= ======= =======
Year end adjustments to inventories, taxes and expense accruals
made in the fourth quarter of 1994 and 1993 had the effect of
increasing net income for such quarters by approximately $7,000
or $.00 per common share and $147,000 or $.03 per common share,
respectively.
K. MAJOR CUSTOMER
Net sales to the company's largest customer amounted to
approximately $55,160,000 or 17% of sales in 1994. Amounts
due from this customer were $15,127,000 at December 31,
1994. No other customer accounted for 10% or more of
consolidated net sales. There are no other concentrations
of business.
L. MERGER
On August 4, 1994, the company acquired all of the
outstanding stock of United Coatings, Inc. for 5,000,000
shares of Pratt & Lambert, Inc. common stock, approximately
$17,000,000 in cash and the assumption of United's debt.
United Coatings, which is a leading producer of paint for
the private label market, had sales in 1993 of $176,719,000.
The cash portion of the consideration was financed through a
new revolving credit and term loan agreement (Note D). The
merger was recorded under the purchase method of accounting
and, accordingly, the company's operations for the period
subsequent to the merger are included in the accompanying
financial statements. The merger resulted in goodwill of
approximately $96,200,000 and is being amortized over 40
years (Note A). The following pro forma results are
unaudited and were prepared under the assumption that the
transaction was effective at the beginning of each year
presented (in thousands, except per share amounts):
<PAGE>
1994 1993 1992
Sales $460,711 $418,480 $405,768
Net income $ 12,683 $ 13,051 $ 11,241
Earnings per common share
and common equivalent
share $ 1.18 $ 1.22 $ 1.06
======== ======== ========
Earnings per common
share-assuming full
dilution $ 1.18 $ 1.22 $ 1.06
======== ======== ========
M. BUSINESS RESTRUCTURING CHARGES
Operating expenses in the year ended December 31, 1994
include the special charges of a restructuring program
designed to permanently reduce cost and improve operating
efficiencies. In conjunction with the program, the company
recorded special charges of $657,000 consisting principally
of a provision to adjust the carrying value of idle assets
and discontinued inventory to estimated realizable value
during the fourth quarter of 1994. The charge reduced 1994
net income by $497,000 or $.05 per share. The 1994
provision and accrual balance at December 31, 1994 was
comprised of the following:
1994
Impairment of:
Property, plant and equipment $580,000
Discontinued inventory (to salvage value) 77,000
--------
Total $657,000
========
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this item with respect to
Directors will be contained in Pratt & Lambert United, Inc.'s
Proxy Statement for the 1995 annual meeting of shareholders.
EXECUTIVE OFFICERS
The following table sets forth the names and ages of the
Registrant's Executive Officers, together with all positions and
offices held with the Registrant, and their business experience
during the last five years. Officers are appointed to serve
until the meeting of the Board of Directors following the next
annual meeting of shareholders and until their successors have
been elected and qualified.
Name Age Executive Offices
Joseph J. Castiglia 60 President and Chief Executive
Officer.
Jules F. Knapp 66 President and Chief Executive
Officer, United Coatings, Inc.
Randall L. Clark 51 Executive Vice President and
Chief Operating Officer. Prior
to July 20, 1992, Mr. Clark was a
consultant to Dunlop Tire
Corporation and a private
investor; and prior to August 23,
1991, he was Chairman and Chief
Executive Officer of Dunlop Tire
Corporation.
William F. Bensman 49 Vice President, Materials
Management.
James R. Boldt 43 Vice President, Finance,
Secretary and Chief Financial
Officer.
James M. Culligan 40 Treasurer; prior to January 1,
1991, Mr. Culligan was the
Corporate Manager of Financial
Services of Pratt & Lambert, Inc.
Franklin H. Fitch 61 President, Pierce & Stevens Corp.
Austin E. Floyd 52 President, Southern Coatings,
Inc.
Ewald H. Hoerster 53 President, Pratt & Lambert
Industrial Coatings Division;
prior to January 1, 1992, Mr.
Hoerster was Vice President of
Marketing of Industrial Coatings
Division; prior to July 1, 1991,
he was a consultant; prior to
November 1, 1990, he was the
General Manager of the Aerospace
and Paper Coatings Division of
DeSoto, Inc.
<PAGE>
Donald W. Smith 56 Vice President, Safety and
Environmental Affairs.
Information required with respect to compliance with section
16(a) of the Securities Exchange Act of 1934 will be contained in
Pratt & Lambert United, Inc.'s Proxy Statement for the 1995
annual meeting of shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this item will be contained in
Pratt & Lambert United, Inc.'s Proxy Statement for the 1995
annual meeting of shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required under this item will be contained in
Pratt & Lambert United, Inc.'s Proxy Statement for the 1995
annual meeting of shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this item will be contained in
Pratt & Lambert United, Inc.'s Proxy Statement for the 1995
annual meeting of shareholders.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES FILED AS
PART OF THIS REPORT AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Included under Item 8 of this report:
Opinion of Independent Public Accountants
Consolidated Balance Sheets, December 31, 1994 and
1993
Statements of Consolidated Income for the Years
Ended December 31, 1994, 1993 and 1992
Statements of Consolidated Shareholders' Equity
for the Years Ended December 31, 1994, 1993 and
1992
Statements of Consolidated Cash Flows for the
Years Ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
(a) 2. Supplemental Schedules
Included under Item 8 of this report:
Opinion of Independent Public Accountants
Included on page 42 of this report - For the years
ended December 31, 1994, 1993 and 1992:
<PAGE>
II - Valuation and Qualifying Accounts
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES OMITTED:
Other supplemental schedules are omitted because of the
absence of conditions under which they are required or because
the required information is given in the financial statements or
notes thereto.
Separate financial statements and supplemental schedules of
the company are omitted since the company is primarily an
operating company and all subsidiaries included in the
consolidated financial statements being filed are wholly-owned
subsidiaries.
(a) 3. Exhibits Required by Item 601 of Regulation S-K
(3)(a) Restated Certificate of Incorporation as
Amended.
(b) The By-laws of the Company, as amended as of
August 4, 1994.
(4)(a) The Rights Agreement between the company and
Mellon Securities Trust Company, dated as of
January 31, 1989, is incorporated herein by
reference from Exhibit 1 to the Form 8-A
Registration of the company, dated
February 10, 1989 (Commission File
No. 1-994).
(b) Amendment No. 1 to the Rights Agreement,
dated as of February 25, 1994, is
incorporated herein by reference from
Exhibit 4 to the Form 8-A/A Registration
Statement of the company, dated March 8, 1994
(Commission File No. 1-994).
(c) The Loan Agreement between the company and
Manufacturers and Traders Trust Company dated
August 3, 1994.
(d) The Loan Agreement between the company and
Manufacturers and Traders Trust Company and
Liberty Norstar Bank, N.A. dated May 10, 1985
is incorporated herein by reference from
Exhibit 4(a) to the Form 10-K Information
Statement of the company filed for the year
ended December 31, 1986 (Commission File No.
1-994).
(e) The registrant hereby agrees to furnish the
Commission, upon request, with the
instruments defining the rights of holders of
the issues of long-term debt of the
registrant and its consolidated subsidiaries
<PAGE>
which do not exceed 10 percent of the total
assets of the registrant and its consolidated
subsidiaries.
(f) The Shareholder Agreement dated February 24,
1994, by and among Pratt & Lambert, Inc.,
certain stockholders of United Coatings, Inc.
and certain shareholders of Pratt & Lambert,
Inc., is incorporated herein by reference
from Exhibit 2.2 to the Registration
Statement on Form S-4 of the company
(Commission File No. 33-78966).
(g) The Form of Registration Rights Agreement to
be dated as of the Effective Time, by and
among Pratt & Lambert, Inc. and certain
stockholders of United Coatings, Inc., is
incorporated herein by reference from Exhibit
2.4 to the Registration Statement on Form S-4
of the company (Commission File No. 33-
78966).
(h) The Form of Right of First Offer Agreement
dated February 25, 1994, between Pratt &
Lambert, Inc. and Jules F. Knapp, is
incorporated herein by reference from Exhibit
2.5 to the Registration Statement on Form S-4
of the company (Commission File No. 33-
78966).
(i) The Form of Intershareholder Agreement by and
among certain stockholders of United
Coatings, Inc., is incorporated herein by
reference from Appendix F of the Registration
Statement on Form S-4 of the company
(Commission File No. 33-78966).
(10) (a) Guidelines on Compensation of Senior
Executives, amended and restated as of
January 1, 1986, are incorporated herein by
reference from Exhibit 10(a) to the Form 10-K
Information Statement of the company filed
for the year ended December 31, 1985
(Commission File No. 1-994).
(b) The Pratt & Lambert United, Inc. 1980 Stock
Option/Stock Appreciation Rights Plan is
incorporated herein by reference from Exhibit
10(b) to the Form 10-K Information Statement
of the company filed for the year
December 31, 1989 (Commission File No.
1-994).
(c) The Pratt & Lambert United, Inc. 1990 Stock
Option/Stock Appreciation Rights Plan is
incorporated herein by reference from Exhibit
10(c) to the Form 10-K Information Statement
<PAGE>
of the company filed for the year
December 31, 1990 (Commission File No.
1-994).
(d) The Employment Agreement between the Company
and Randall L. Clark is incorporated herein
by reference from Exhibit 10(d) to the Form
10-K Information Statement of the company
filed for the year ended December 31, 1992
(Commission File No. 1-994).
(e) The Employment Agreement between the Company
and James R. Boldt is incorporated herein by
reference from Exhibit 10(d) to the Form 10-K
Information Statement of the company filed
for the year ended December 31, 1992
(Commission File No. 1-994).
(f) The Employment Agreement between United
Coatings, Inc. and Jules F. Knapp is
incorporated herein by reference from Exhibit
10.1 to the Registration Statement on Form S-
4 of the company (Commission File No. 33-
78966).
(g) The Pratt & Lambert United, Inc. 1994 Award
and Option Plan is incorporated herein by
reference from Appendix L to the Registration
Statement on Form S-4 of the company
(Commission File No. 33-78966).
(h) The Pratt & Lambert United, Inc. Minimum
Benefit Plan is incorporated herein by
reference from Exhibit 10.3 to the
Registration Statement on Form S-4 of the
company (Commission File No. 33-78966).
(11) Earnings per share computation.
(22) Subsidiaries of the company.
(27) Financial Data Schedule.
(b) REPORTS ON FORM 8-K
None.
<PAGE>
<TABLE>
PRATT & LAMBERT UNITED, INC. AND SUBSIDIARY COMPANIES SCHEDULE II
Valuation and Qualifying Accounts
(Thousands of Dollars)
____________________________________________________________________________________________________
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Balance at
Beginning Costs and (a) End of
Description of Year Expenses Deductions Year
<S> <C> <C> <C> <C>
Reserves Deducted From Assets To
Which They Apply:
Allowance for Losses (Bad Debt and
Cash Discounts):
For the Year Ended December 31, 1994: $ 3,673 $ 2,215 $ 2,418 $ 3,470
======== ======== ======== ========
For the Year Ended December 31, 1993: $ 3,236 $ 2,437 $ 2,000 $ 3,673
======== ======== ======== ========
For the Year Ended December 31, 1992: $ 3,355 $ 2,295 $ 2,414 $ 3,236
======== ======== ======== ========
NOTE: (a) Doubtful accounts written off against the allowance provided therefore, net of
recoveries.
</TABLE>
<PAGE>
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.
PRATT & LAMBERT UNITED, INC.
February 23, 1995 By: JOSEPH J. CASTIGLIA
Vice Chairman, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report signed below by the following persons on
behalf of the Registrant and in the capacities and on the date
indicated.
Chairman of the Board
RAYMOND D. STEVENS, JR. and Director
Raymond D. Stevens, Jr. February 23, 1995
Vice Chairman, President,
Chief Executive Officer
and Director
JOSEPH J. CASTIGLIA (Principal Executive Officer) February 23, 1995
Joseph J. Castiglia
ANDREW M. BOAS Director February 23, 1995
Andrew M. Boas
MARK L. CLASTER Director February 23, 1995
Mark L. Claster
JEFFREY L. KENNER Director February 23, 1995
Jeffrey L. Kenner
JOY F. KNAPP Director February 23, 1995
Joy F. Knapp
JULES F. KNAPP Vice Chairman and Director February 23, 1995
Jules F. Knapp
SEYMOUR H. KNOX, III Director February 23, 1995
Seymour H. Knox, III
WILFRED J. LARSON Director February 23, 1995
Wilfred J. Larson
RANDOLPH A. MARKS Director February 23, 1995
Randolph A. Marks
DAVID R. NEWCOMB Director February 23, 1995
David R. Newcomb
<PAGE>
ROBERT O. SWADOS Director February 23, 1995
Robert O. Swados
Vice President, Finance,
Secretary and Chief
Financial Officer
(Principal Financial and
JAMES R. BOLDT Accounting Officer) February 23, 1995
James R. Boldt
<PAGE>
EXHIBIT INDEX
Page Numbers
In Sequential
Assigned Numbering System
Exhibit Where Exhibits
Number Description of Exhibit May be Found
3(a) Restated Certificate of
Incorporation, as amended.
(b) The By-laws of the Company, as
amended as of August 4, 1994.
4(c) The Loan Agreement between the
Company and Manufacturers and
Traders Trust Company dated
August 3, 1994.
(11) Earnings per share computation.
(22) Subsidiaries of the Company.
(27) Financial Data Schedule.
The company will furnish any Exhibit without charge upon request.
<PAGE>
Exhibit 3(a)
RESTATED CERTIFICATE OF INCORPORATION
OF
PRATT & LAMBERT UNITED, INC.
Under Section 807 of the Business Corporation Law
The undersigned, being respectively the President and
Secretary of Pratt & Lambert United, Inc., hereby certify:
1. The name of the corporation is Pratt & Lambert
United, Inc. The name under which the corporation was formed is
Pratt and Lambert.
2. The Certificate of Incorporation was filed by the
Department of State on May 3, 1897.
3. The Certificate of Incorporation, as amended
heretofore, is hereby further amended to enlarge the purpose
clause, to strike out the provisions regarding (a) Series A
Preferred Shares, (b) the city location of the corporation,
(c) the names and addresses of initial directors and
stockholders, to change the forwarding address for service of
process, to clarify the numbering and lettering of the provisions
relating to the regulation of certain transactions, to clarify
the effective date of the provisions relating to limitation of
liability of directors, and to renumber the remaining provisions
accordingly.
4. The text of the Certificate of Incorporation is
hereby restated, as amended hereby, to read as herein set forth
in full:
FIRST: Name. The name of the Corporation is Pratt &
Lambert United, Inc.
SECOND: Purpose. The purpose of the Corporation is to
engage in any lawful act or activity for which corporations may
be organized under the New York Business Corporation Law,
provided that it is not formed to engage in any act or activity
requiring the consent or approval of any state official,
department, board or agency or other body without such consent or
approval first being obtained.
THIRD: Capital Stock. (a) The aggregate number of
shares of stock which the Corporation shall have authority to
issue is one hundred one million five hundred thousand
(101,500,000) shares, divided into two classes, namely, Preferred
Shares and Common Shares. The number of shares of Preferred
authorized is one million five hundred thousand (1,500,000)
shares of the par value of ten dollars ($10) per share. The
number of shares of Common authorized is one hundred million
(100,000,000) shares of the par value of one cent ($.01) per
share.
<PAGE>
(b) Authority is hereby expressly granted to the Board
of Directors at any time and from time to time to issue the
Preferred Shares in one or more series and for such
consideration, not less than the par value thereof, as may be
fixed from time to time by the Board of Directors, and to fix
(subject to provisions hereinafter set forth before the issuance
of any shares of a particular series, the designation of such
series, the number of shares to comprise such series, the
dividend rate or rates payable with respect to the shares of such
series, the redemption price, the voting rights, and any other
rights, preferences and limitations pertaining to such series.
Without limiting the foregoing the Board of Directors may, in
lieu of issuing a new series, increase the number of shares to
comprise a series already outstanding. Such designations,
relative rights, preferences and limitations of any or all such
series of preferred shares may be fixed by the Board of Directors
by adopting resolutions from time to time for the issue of
preferred shares of any such series and by causing to be
delivered to the Department of State the necessary certificate of
amendment under the Business Corporation Law of the State of New
York as now in effect or hereafter amended.
Notwithstanding the foregoing, the relative rights and
preferences of each such series as may be fixed by the Board of
Directors shall be subject to the limitation that if the stated
dividends and amounts payable on liquidation are not paid in
full, the shares of all series of such class of preferred stock
shall share ratably in the payment of dividends including
accumulations, if any, in accordance with the sums which would be
payable on such shares if all dividends were declared and paid in
full, and in any distribution of assets other than by way of
dividends in accordance with the sums which would be payable on
such distribution if all sums payable were discharged in full.
FOURTH: Office. The principal office of the
Corporation is in the County of Erie and State of New York.
FIFTH: Duration. The duration of the Corporation
shall be perpetual.
SIXTH: Agent. The Secretary of State of the State of
New York is hereby designated as the agent of the Corporation
upon whom process in any action or proceeding against it may be
served. The address to which the Secretary of State shall mail a
copy of any process against the Corporation which may be served
upon him pursuant to law is:
Pratt & Lambert United, Inc.
73-97 Tonawanda Street
Buffalo, New York 14207
SEVENTH: Voting by Directors. The proportion of votes
of directors that shall be necessary for the transaction of any
item of business by the board of directors shall be a majority of
the entire board, except that the proportion of votes of
directors that shall be necessary for any amendment to the By-
Laws which (a) reduces the number of directors of the Corporation
<PAGE>
below the number authorized thereby or (b) alters, amends or
repeals the provisions contained in Section 7 of Article IV or
Sections 1, 2(d) or 4 of Article V of the By-Laws of the
Corporation as existing on the date hereof or hereafter amended
pursuant to this Article SEVENTH, shall be at least three-fourths
of the entire board. "Entire board" means the total number of
directors which the Corporation would have under the By-Laws
currently in effect if there were no vacancies.
EIGHTH: No Preemptive Rights. No shareholder or
holder of any Common Shares, Preferred Shares or other security
of the Corporation shall have any pre-emptive or other right to
purchase or subscribe for any of the said shares or securities,
or with respect to any option to purchase any of such shares or
securities or any shares, notes, debentures, bonds, warrants or
other securities convertible into or carrying options or warrants
to purchase any of such shares or securities (all of which
options and securities convertible into or carrying options or
warrants to purchase any of such shares or securities are
hereinafter referred to in this Article as "securities conferring
rights with respect to" shares of or securities of the
Corporation), nor shall they have any such pre-emptive right to
purchase shares or securities into which such shares or
securities may from time to time be split or subdivided; and the
Corporation, pursuant to action of its Board of Directors, may at
any time and from time to time issue, grant, sell or dispose of
any or all of such shares or securities conferring rights with
respect to such shares or securities upon such terms as the Board
of Directors may from time to time deem advisable, without
offering them to the holders of shares of stock of any class or
to the holders of any other securities of the Corporation.
NINTH: Regulation of Certain Transactions.
(a) In addition to any affirmative vote required by law
or this Restated Certificate of Incorporation:
(i) any merger or consolidation of the Corporation or
any Subsidiary with (A) any Interested Shareholder or (B) any
other corporation (whether or not itself an Interested
Shareholder) which is, or after such merger or consolidation
would be, an Affiliate of an Interested Shareholder; or
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of
transactions) to or with any Interested Shareholder or any
Affiliate of any Interested Shareholder of any assets of the
Corporation or any Subsidiary; or
(iii) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of
any securities of the Corporation or any Subsidiary to any
Interested Shareholder or any Affiliate of any Interested
Shareholder in exchange for cash, securities or other property
(or a combination thereof); or
<PAGE>
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation or of any
Subsidiary proposed by or on behalf of an Interested Shareholder
or any Affiliate of any Interested Shareholder; or
(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or
any merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or
into or otherwise involving an Interested Shareholder) which has
the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Shareholder or any Affiliate of any Interested
Shareholder;
shall require either (a) the approval of a majority of
the Disinterested Directors or (b) the affirmative vote of the
holders of that amount of the voting power of the Voting Stock
equal to the sum of (1) the voting power of the shares of Voting
Stock of which the Interested Shareholder is the beneficial owner
and (2) two-thirds (2/3) of the voting power of the remaining
outstanding shares of Voting Stock, voting together as a single
class; provided, however, that no such vote shall be required for
the purchase by the Corporation of shares of Voting Stock from an
Interested Shareholder.
(b) It shall be the duty of any Interested
Shareholder:
(i) to give or cause to be given written notice to the
Corporation, immediately upon becoming an Interested Shareholder,
of such person's status as an Interested Shareholder and of such
other information as the Corporation may reasonably require with
respect to identifying all owners and amount of ownership of the
outstanding Voting Stock of which such Interested Shareholder is
a beneficial owner as defined herein, and
(ii) to notify the Corporation promptly in writing of
any change in the information provided in subparagraph (i) of
this Paragraph (b); provided, however, that the failure of an
Interested Shareholder to comply with the provisions of this
Paragraph (b) shall not in any way be construed to prevent the
Corporation from enforcing the provisions of Paragraphs (a)
through (c) of this Article NINTH.
(c) For the purposes of this Article NINTH:
(i) A "person" shall mean any individual, firm,
corporation or other entity.
(ii) "Voting Stock" shall mean the outstanding shares
of capital stock of the Corporation entitled to vote generally in
the election of directors.
<PAGE>
(iii) "Interested Shareholder" shall mean any person
(other than the Corporation or any Subsidiary) who or which:
(A) is the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the outstanding Voting
Stock; or
(B) is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of 10%
or more of the voting power of the then outstanding Voting Stock;
or
(C) is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time within the two-
year period immediately prior to the date in question
beneficially owned by any Interested Shareholder, if such
assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(iv) A person shall be a "beneficial owner" of any
Voting Stock:
(A) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns, directly
or indirectly; or
(B) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (b) the right to vote pursuant to any
agreement, arrangement or understanding; or
(C) which are beneficially owned, directly or
indirectly, by any other person with which such person or any of
its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Voting Stock.
(v) For the purposes of determining whether a person
is an Interested Shareholder pursuant to subparagraph (iii) of
this paragraph, the number of shares of Voting Stock deemed to be
outstanding shall include shares deemed owned through application
of subparagraph (iv) of this paragraph but shall not include any
other shares of Voting Stock which may be issuable pursuant to
any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(vi) "Affiliate" or "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act
of 1934, as in effect on May 1, 1985.
<PAGE>
(vii) "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Interested Shareholder set forth in
subparagraphs (iii) and (iv) of this paragraph, the term
"Subsidiary" shall mean a corporation of which a majority of the
voting power of the capital stock entitled to vote generally in
the election of directors is owned, directly or indirectly, by
the Corporation.
(viii) "Disinterested Director" means any member of the
Board of Directors of the Corporation (the "Board") who is
unaffiliated with any Interested Shareholder and was a member of
the Board prior to the time that any Interested Shareholder
became an Interested Shareholder and any successor of a
Disinterested Director who is unaffiliated with any Interested
Shareholder and is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then on the
Board.
(d) A majority of the Disinterested Directors of the
Corporation shall have the power and duty to determine for the
purposes of this Article NINTH, on the basis of information known
to them after reasonable inquiry, (i) whether a person is an
Interested Shareholder, (ii) the number of shares of Voting Stock
beneficially owned by any person, (iii) whether a person is an
Affiliate or an Associate of another person and (iv) whether a
transaction or a series of transactions constitutes one of the
transactions specified in Paragraph (a) hereof. The good faith
determination of a majority of the Disinterested Directors shall
be conclusive and binding for all purposes of this Article NINTH.
(e) Notwithstanding any other provisions of this
Restated Certificate of Incorporation or the By-laws of the
Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Restated Certificate of
Incorporation or the By-laws of the Corporation), the affirmative
vote of the holders of that amount of the voting power of the
Voting Stock equal to the sum of (1) the voting power of the
shares of Voting Stock of which Interested Shareholders are the
beneficial owners and (2) two thirds of the voting power of the
remaining outstanding shares of Voting Stock, voting together as
a single class, shall be required to alter, amend, or adopt any
provisions inconsistent with, this Article NINTH.
TENTH: Certain By-law provisions. Notwithstanding the
provision of any By-law of the Corporation or anything contained
in this Restated Certificate of Incorporation to the contrary,
Section 4 and Section 5 of Article III of the By-laws, as
existing on the date hereof or hereafter amended pursuant to this
Article TENTH, shall not be altered, amended, or repealed, and no
provision inconsistent therewith shall be adopted, without the
affirmative vote of the holders of at least 80% of the voting
power of all the shares of the Corporation entitled to vote
generally in the election of directors, voting together as a
single class. Notwithstanding anything contained in this
Restated Certificate of Incorporation to the contrary, the
<PAGE>
affirmative vote of the holders of at least 80% of the voting
power of all shares of the Corporation entitled to vote generally
in the election of directors, voting together as a single class,
shall be required to alter, amend or adopt any provision
inconsistent with or repeal of this Article TENTH.
ELEVENTH: Limited Liability of Directors. To the
fullest extent permitted by the New York Business Corporation
Law, as the same presently exists or may hereafter be amended, a
director of the Corporation shall not be liable to the
Corporation or its shareholders for damages for breach of duty in
his capacity as a director, except for liability (i) for acts or
omissions in bad faith, or involving intentional misconduct or a
knowing violation of law, or (ii) for any transaction from which
he personally gained a financial profit or other advantage to
which he was not legally entitled, or (iii) for his acts in
violation of Section 719 of the New York Business Corporation Law
(relating to the illegal payment of dividends, improper corporate
distributions and loans), or (iv) for acts or omissions which
occur prior to the adoption of this Article on May 27, 1988.
Any repeal or modification of the foregoing paragraph
by the shareholders of the Corporation shall not affect any right
or protection of the director of the Corporation existing at the
time of such repeal or modification.
5. The foregoing amendments and restatement of the
Restated Certificate of Incorporation were authorized by the vote
of at least a majority of directors at a meeting duly held,
followed by the vote of the holders of at least a majority of all
outstanding common shares entitled to vote thereon at a meeting
duly held.
IN WITNESS WHEREOF, this Certificate has been signed on
the ____ day of August, 1994 and the statements contained herein
are affirmed under penalties of perjury.
PRATT & LAMBERT UNITED, INC.
By __________________________________
Joseph J. Castiglia, President
By __________________________________
James R. Boldt, Secretary
<PAGE>
Exhibit 3(b)
Effective 8/4/94 (2)
BY-LAWS
- of -
PRATT & LAMBERT UNITED, INC.
ARTICLE I
Offices
Section 1. The principal office of the Corporation
shall be in the city of Buffalo, County of Erie and State of New
York.
Section 2. The Corporation may also, from time to time
have offices at such other places as, in the opinion of the Board
of Directors, the business of the Corporation may require.
ARTICLE II
Meeting of Shareholders
Section 1. (a) Annual Meetings. The annual meeting of
the shareholders of the Corporation, for the election of
directors and for the transaction of such other business as may
properly come before the meeting, shall be held at the principal
executive offices of the Corporation on the first Thursday in May
in each year or such other date, time and place as the Board of
Directors shall, from time to time, determine and as stated in
the notice of the meeting. If in any year that day is a legal
holiday, the meeting shall be held on the next day following that
is not a legal holiday.
Section 1. (b) Advance Notice. At an annual meeting
of the shareholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be
properly brought before an annual meeting business must be
(i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors,
(ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (iii) otherwise properly
brought before the meeting by a shareholder. For business to be
properly brought before an annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than
60 days nor more than 90 days prior to the meeting; provided,
however, that in the event that less than 70 days notice or prior
public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so
<PAGE>
received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A
shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (ii) the name and address,
as they appear on the Corporation's books, of the shareholder
proposing such business, (iii) the class and number of shares of
the Corporation which are beneficially owned by the shareholder,
and (iv) any material interest of the shareholder in such
business. Notwithstanding anything in these by-laws to the
contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this
subsection (b). The Chairman of the annual meeting shall, if the
facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting and in accordance
with the provisions of this subsection (b), and if he should so
determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be
transacted.
Section 2. Notice of Annual Meeting. Notice of the
annual meeting of shareholders shall be given in the manner
required by law and by mailing, postage prepaid, not less than
ten (10) nor more than fifty (50) days before the meeting, a copy
of the notice of the meeting stating the time and place of the
meeting and the purpose or purposes for which it is called, to
each shareholder of record entitled to vote at the meeting, and
to any shareholder, who, by reason of any action proposed at the
meeting, would be entitled to have his shares appraised if such
action were taken, at his address as it appears on the share book
of the Corporation, unless he shall have filed with the Secretary
of the Corporation a written request that notices intended for
him to mailed to some other address, in which case it shall be
mailed to the address designated in such request.
Section 3. Special Meetings. Special meetings of the
shareholders, except where otherwise provided by law, may be
called to be held at the principal executive offices of the
Corporation or elsewhere at any time by the Board of Directors or
the Chairman of the Board, and shall be called by the President,
Secretary or Assistant Secretary at the request in writing of any
seven (7) directors or at the request in writing of the holders
of record of a majority of the outstanding shares of the
Corporation entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting. Business transacted
at a special meeting shall be confined to the objects stated in
the call and matters germane thereto.
Section 4. Notice of Special Meeting. Notice of each
special meeting of the shareholders shall be given in the manner
required by law and by mailing, postage prepaid, not less than
ten (10) nor more than fifty (50) days before such meeting a copy
of the notice of such meeting, stating the time and place of the
meeting and the purpose or purposes for which it is called, to
<PAGE>
each shareholder of record entitled to vote at the meeting, and
to any shareholder, who, by reason of any action proposed at such
meeting, would be entitled to have his shares appraised if such
action were taken, at his address as it appears on the share book
of the Corporation, unless he shall have filed with the Secretary
of the Corporation a written request that notices intended for
him be mailed to some other address, in which case it shall be
mailed to the address designated in such request.
Section 5. Procedure. The order of business and all
other matters of procedure at every meeting of shareholders may
be determined by the presiding officer.
Section 6. Quorum. At all meetings of the
shareholders of the Corporation, except where otherwise provided
by law or these by-laws, a quorum shall consist of the holders of
record of not less than a majority of the outstanding shares of
the Corporation entitled to vote, present either in person or by
proxy, and a majority of such quorum shall decide any question
that may come before the meeting. Where a quorum is once present
to organize a meeting, it is not broken by the subsequent
withdrawal of shareholders. If, however, such majority of the
outstanding voting shares shall not be present or represented at
any meeting of the shareholders, the shareholders entitled to
vote who are present in person or by proxy shall have power to
adjourn the meeting from time to time, without further notice
other than announcement at the meeting, until the requisite
amount of voting shares shall be present. At any such adjourned
meeting at which the requisite amount of voting shares shall be
present in person or by proxy any business may be transacted
which might have been transacted at the meeting as originally
called.
Section 7. Record Date. The Board of Directors may
fix a day and hour not less than ten (10) nor more than fifty
(50) days prior to the day of holding any meeting of
shareholders, as the time as of which shareholders entitled to
notice of and to vote at such meeting shall be determined; and
all persons who were holders of record of voting shares at such
time and no others shall be entitled to notice of and to vote at
such meeting. If a record date shall not be fixed by the Board
of Directors, shareholders of record at the close of business on
the fourteenth day preceding each meeting of shareholders, and no
others, shall be entitled to notice of and to vote at such
meeting.
Section 8. Voting - Proxies. Subject to the
provisions of the Certificate of Incorporation as amended from
time to time, each holder of record of Common Shares entitled to
vote shall be entitled at every annual or special meeting of
shareholders of the Corporation to one vote for each Common Share
having voting power standing in the name of such shareholder on
the books of the Corporation on the record date.
A shareholder may vote either in person or by proxy
appointed by an instrument executed in writing by such
shareholder or his attorney-in-fact and delivered to the
<PAGE>
Secretary of the meeting. No proxy shall be valid after the
expiration of eleven (11) months from the date of its execution
unless it shall have specified therein its duration. Every proxy
shall be revocable at the pleasure of the person executing it or
his personal representatives, unless it is entitled "irrevocable
proxy", in which event its revocability shall be determined by
the law of the State of New York in effect at the time.
Section 9. Inspectors of Election. Two (2) inspectors
of election, neither of whom shall be a candidate for the office
of director of the Corporation, shall, except as otherwise
provided by law, be appointed by the presiding officer at each
meeting of shareholders, at which an election of directors is
held, such inspectors to serve at such meeting and any
adjournments thereof. The inspectors appointed to act at any
meeting of the shareholders before entering upon the discharge of
their duties, shall be sworn faithfully to execute the duties of
inspectors at such meeting with strict impartiality, and
according to the best of their ability, and the oath so taken
shall be subscribed by them.
Section 10. Shareholders' List. A list of
shareholders as of the record date, certified by the corporate
officer responsible for its preparation or by the transfer agent,
shall be produced at any meeting of shareholders upon the request
thereat or prior thereto of any shareholder. If the right to
vote at any meeting is challenged, the inspectors of election, or
person presiding thereat shall require such list of shareholders
to be produced as evidence of the right of the persons challenged
to vote at such meeting, and all persons who appear from such
list to be shareholders entitled to vote thereat may vote at such
meeting.
ARTICLE III
Directors
Section 1. (a) Number and Qualifications. The Board
of Directors of the Corporation shall be composed of thirteen
(13) directors; provided, however, to the extent the number of
Designees as defined in a certain Shareholder Agreement dated as
of February 25, 1994, by and among the Corporation and the
Shareholders and the P&L Shareholders as defined therein
("Shareholder Agreement") is to be reduced by reason of the
provisions of Article V of the Shareholder Agreement, then the
number of directors shall, to that extent, be reduced. Each
director shall be at least 21 years of age. A director need not
be a shareholder.
Section 1. (b) Nominations. Only persons who are
nominated in accordance with the procedures set forth in this
subsection (b) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of
the Corporation may be made at a meeting of shareholders by and
at the direction of the Board of Directors or by any shareholder
of the Corporation entitled to vote for the election of directors
<PAGE>
at the meeting who complies with the notice procedures set forth
in this subsection (b). Such nominations, other than those made
by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely a shareholder's notice shall be
delivered to or mailed and received at the principal executive
offices of the Corporation not less than 60 days nor more than
90 days prior to the meeting; provided, however, that in the
event that less than 70 days notice or prior to public disclosure
of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the
day on which such notice of the date of the meeting was mailed or
such public disclosure was made. A shareholder's notice to the
Secretary shall set forth (i) as to each person whom the
shareholder proposes to nominate for election or re-election as a
director, (A) the name, age, business address and residence
address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of
the Corporation which are beneficially owned by such person and
(D) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended (including, without limitation, such persons' written
consent to being named in the proxy statement as a nominee and to
serving as a director if elected); and (ii) as to the shareholder
giving the notice (A) the name and address, as they appear on the
Corporation's books, of the shareholder and (B) the class and
number of shares of the Corporation which are beneficially owned
by the shareholder. At the request of the Board of Directors any
person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that
information which pertains to the nominee. No person shall be
eligible for election as a director of the Corporation unless
nominated in accordance with the procedures set forth in this
subsection (b). The Chairman of the annual meeting shall, if the
facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the provisions of this
subsection (b), and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be
disregarded. The foregoing advance nomination requirements do
not apply to a nomination of a person for election as a director
made as permitted by the terms of the last sentence of the first
paragraph of Section 5.01(b) of the Shareholder Agreement.
Section 2. Election and Tenure of Office. The
directors of the corporation, except as otherwise provided by
these by-laws, shall be elected at the annual meeting of the
shareholders or at any meeting of the shareholders held in lieu
of such annual meeting, and shall hold office until the next
annual meeting of shareholders, and until their successors are
elected and have qualified. The election of directors shall be
conducted by two Inspectors of Election appointed as hereinbefore
provided. The election shall be by ballot and shall be decided
by plurality vote.
<PAGE>
Section 3. Resignation. Any director of the
Corporation may resign at any time by giving his written
resignation to any elected officer of the Corporation. Unless
otherwise specified therein, such resignation shall take effect
at the time of its delivery to said elected officer and the
acceptance of a resignation shall not be necessary to make it
effective.
Section 4. Removal. Any or all of the directors may
be removed, for cause alone, at any meeting of shareholders,
notice of which shall have referred to the proposed action by a
vote of the holders of record of the majority of the outstanding
shares of the Corporation entitled to vote.
Section 5. Newly Created Directorships and Vacancies.
Newly created directorships resulting from an increase in the
number of directors, and vacancies occurring in the Board for any
reason, may be filled only by a vote of a majority of the
directors then in office, although less than a quorum exists.
Any newly created directorship not so filled prior to the next
annual meeting of the shareholders shall be filled by a vote of
the shareholders at that meeting. A director elected to fill a
vacancy shall be elected to hold office for the unexpired term of
his predecessor.
Section 6. Compensation. The directors, excluding
full-time employees of the Corporation, shall, by resolution of
the board, be compensated for their services in an amount and
manner established by the board from time to time. Such
compensation shall include payments for attendance at regular and
special board meetings as well as committee meetings. Out-of-
pocket expenses will be reimbursed by the Corporation for all
directors (including full-time employee directors) located beyond
50 miles from a meeting site. Nothing herein contained shall
preclude any directors from serving the Corporation in any other
capacity and receiving compensation for such services.
Section 7. Meetings. Meetings of the Board of
Directors shall be held annually, and whenever called by the
Chairman of the Board, the President, or any three (3) directors.
The annual meeting shall be held immediately following the annual
meeting of the shareholders. Any one or more members of the
Board of Directors may participate in a meeting of the Board by
means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to
hear each other at the same time, and participation by such means
shall constitute presence in person at such meeting.
Section 8. Notice of Meetings of Directors. Notice of
annual meetings of the Board of Directors shall not be required.
Notice of each other meeting of the Board of Directors, stating
the time and place thereof, shall be given by the President, the
Secretary or an Assistant Secretary or by the member of the Board
to each member of the Board not less than ten (10) business days
by mail or three (3) business days by telecopier, overnight
courier, telegraph or telephone or delivering the same
personally, before any such meeting. The notice of any meeting
<PAGE>
of the Board of Directors need not specify the purpose or
purposes for which the meeting is called.
Notice of a meeting need not be given to any director
who submits a signed waiver of notice whether before or after the
meeting, or who attends the meeting without protesting, prior
thereto or at its commencement, the lack of notice to him.
Section 9. Quorum. At any meeting of the Board of
Directors a majority of the entire Board shall constitute a
quorum, and, except as otherwise provided by law or the
provisions of these by-laws or the Certification of Incorporation
of the Corporation, a majority of such quorum shall decide any
question that may come before the meeting. A majority of the
directors present at any regular or special meeting of the Board,
although less than a quorum, may adjourn the same from time to
time, without notice other than announcement at the meeting,
until a quorum is present.
Section 10. Procedure. The order of business and all
other matters of procedure at every meeting of directors may be
determined by the presiding officer.
ARTICLE IV
Committees of the Board
Section 1. Members of the Executive Committee and
Their Term of Office. The Board of Directors by vote of a
majority of the entire Board may appoint six persons who,
together with the Chairman of the Board, or if no Chairman of the
Board shall have been elected, the President, shall constitute an
Executive Committee. The Chairman of the Board, or if no
Chairman of the Board shall have been elected, the President,
shall be Chairman of the Executive Committee, unless the Board
designates some other member of the Executive Committee to be its
Chairman.
Section 2. Removal of Members and Filling Vacancies.
Either one or all of the members of the Executive Committee so
appointed may be removed at any time by the Board of Directors by
a like vote, and by a like vote, the Board may fill vacancies in
the Executive Committee.
Section 3. Power of the Executive Committee. During
the interval between meetings of the Board, the Executive
Committee shall possess and may exercise all of the authority of
the Board of Directors except where said possession and exercise
is prohibited by law or precluded by prior action of the Board.
Section 4. Report of Action to Board of Directors.
Any action of the Executive Committee shall, when required by the
Board of Directors, be reported to the Board. All action of such
Committee should be subject to revision or alteration by the
Board, provided that no rights of third parties shall be affected
by such revision or alteration.
<PAGE>
Section 5. Additional Committees of the Board. The
Board of Directors, by resolution or resolutions adopted by a
majority of the entire Board, may designate from among its
members one or more committees, each consisting of three or more
directors, and each of which, to the extent provided in the
applicable resolution, shall have all the authority of the Board,
except insofar as its exercise of such authority may be
inconsistent with any provision of law, the certificate of
incorporation or these by-laws. The Board may designate one or
more directors as alternate members of a committee, who may
replace any absent member or members at any meeting of such
committee. The committees shall keep regular minutes of their
proceedings and make the same available to the Board upon
request.
Section 6. Rules of Procedure. Subject to any
regulations prescribed by the Board, the Executive Committee and
other committees shall fix their own rules of procedure. The
presence of a majority of the Executive Committee or other
committees shall be necessary to constitute a quorum thereof.
Any one or more members of the Executive Committee or any other
committee may participate in a meeting of such committee by means
of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each
other at the same time, and participation by such means shall
constitute presence in person at such meeting.
Section 7. Designee Members. So long as the
Shareholder Agreement (as defined in Article III, Section 1(a) of
these by-laws) is in effect, Designees as defined in the
Shareholder Agreement shall be represented on every committee of
the Board of Directors which representation will be approximately
proportionate to their representation on the Board of Directors,
subject to each of the following limitations: (a) the number of
Designees on a committee shall be at least one less than the
number of members of such committee who are not Designees; (b)
the percentage of members of a committee who are Designees shall
not exceed the percentage of members of the Board of Directors
who are Designees as required by the Shareholder Agreement; and
(c) no Designee may serve on a committee of the Board of
Directors unless such Designee meets the requirements for
eligibility on such committee because such committee is comprised
solely of outside or disinterested directors in order to comply
with state or federal laws, rules and regulations (including
Section 162(m) of the Internal Revenue Code of 1986, as amended)
or stock exchange rules in which case only Designees who are
"outside" or "disinterested" shall serve.
Section 8. Notice of Meetings of Committees. Notice
of each meeting of committees, stating the time and place
thereof, shall be given by the Chairman of the committee or by
any member of the committee to each member of the committee not
less than ten (10) business days by mail or less than three (3)
business days by telecopier, overnight courier, telegraph or
telephone or delivering the same personally, before such meeting.
<PAGE>
Notice of a meeting need not be given to any member of
the committee who signs a waiver of notice whether before or
after the meeting, or who attends the meeting without protesting,
prior thereto or at its commencement, the lack of notice to him.
ARTICLE V
Officers
Section 1. Officers. The Board of Directors, at their
first meeting after the Annual Meeting of shareholders, may elect
a Chairman of the Board and one or more Vice Chairmen and shall
elect a President and such Vice Presidents as deemed appropriate
as well as a Secretary and Treasurer. The Board of Directors may
also appoint such additional officers and agents as they may from
time to time consider advisable to hold office during their
pleasure, who shall have such authority and perform such duties
as from time to time may be prescribed by the Board.
Section 2. Tenure of Office - Removal - Resignation
(a) The officers of the Corporation specified above
shall, unless otherwise determined by the directors, be elected
or appointed for the term of one year and shall hold office until
their successors are elected and have qualified.
(b) Any officer of the Corporation may be removed at
any time with or without cause by action of the Board of
Directors.
(c) Any officer of the Corporation may resign at any
time by giving his written resignation to any elected officer of
the Corporation. Unless otherwise specified therein, such
resignation shall take effect at the time of its delivery to said
elected officer and the acceptance of a resignation shall not be
necessary to make it effective.
(d) Notwithstanding subsections (a) through (c) above,
the Vice Chairman shall be elected or appointed to hold office
until he is no longer a director.
Section 3. The Chairman of the Board. The Chairman of
the Board shall preside at all meetings of the shareholders and
of the Board of Directors. He shall preside at all meetings of
the Executive Committee unless the Board shall have designated
another member of such committee to chair its meetings. He shall
be an ex officio member of every other committee of which he is
not a designated member, and as an ex officio member he shall be
entitled to notice of, and to attend, the meetings of such
committees but shall not be entitled to vote thereat. He shall
procure and at all times be possessed of full information
concerning the affairs of the Corporation. He shall be the chief
executive officer of the Corporation unless the Board shall have
specifically designated the President as chief executive officer.
In case of the absence or incapacity of the Chairman of
the Board, or if no Chairman of the Board shall have been
<PAGE>
elected, the President shall perform the duties and exercise the
powers of the Chairman.
Section 4. The Vice Chairman. The Vice Chairman shall
perform such duties as are prescribed from time to time by the
Board of Directors. The Vice Chairman shall be a member of every
committee of the Board of Directors other than those committees
with respect to which such Vice Chairman does not meet the
requirements for eligibility of being an outside or disinterested
director in order to comply with state or federal laws, rules and
regulations (including Section 162(m) of the Internal Revenue
Code of 1986, as amended) or stock exchange rules and his
presence on a committee shall be counted in determining the
number of directors on such committee.
Section 5. The President. The President shall have
the general care, supervision and direction of the affairs of the
Corporation, subject to the control of the Board of Directors and
the Executive Committee; and unless the President shall have been
designated chief executive officer, he shall also be subject to
the supervision and direction of the Chairman of the Board. The
President shall at all times keep the Chairman of the Board fully
informed concerning the affairs of the Corporation.
Section 6. The Vice Presidents. The Vice Presidents
may be designated by such title or titles as the Board of
Directors may determine, and each Vice President in such order of
seniority as may be determined by the Board, shall, in the
absence or disability of the President, perform the duties and
exercise the powers of the President. The Vice Presidents shall
also have such powers and perform such duties as usually pertain
to their office or as are properly required of them by the Board
of Directors, the Chairman of the Board and the President.
Section 7. The Secretary and Assistant Secretaries.
It shall be the duty of the Secretary to give proper notice of
all meetings of the shareholders and directors; to attend such
meetings when practicable; to keep true records of the votes of
elections and all other proceedings; to attest such records after
every meeting by his signature; to safely keep the seal of the
Corporation and all documents and papers which shall come into
his possession and control; and to keep the books and accounts of
the Corporation pertaining to his office. He shall perform such
other duties as the directors may from time to time direct.
The Assistant Secretaries shall in the absence or
disability of the Secretary, or at his request, perform the
duties and exercise the powers of the Secretary, and shall
perform such other duties as the Chairman of the Board, the
President or the Board of Directors may assign them.
Section 8. The Treasurer and Assistant Treasurer. It
shall be the duty of the Treasurer to keep an account of all
moneys, funds and property of the Corporation that shall come
into his hands, truly keep the books and accounts of the
Corporation so as at all times to show the real condition of its
affairs, and to render at all times such accounts and present
<PAGE>
such statements to the directors as may be required of him. He
shall give such bonds for the faithful discharge of his duties as
may be required by the Board of Directors. He shall perform such
other duties as usually pertain to his office or as are required
of him by the Board of Directors.
The Assistant Treasurers may, in the absence or
disability of the Treasurer, or at his request, perform the
duties and exercise the powers of the Treasurer and shall perform
such other duties as the Chairman of the Board, the President or
the Board of Directors may assign them.
Section 9. Officers Holding Two Offices. One person
may at the same time hold any two offices in the Corporation,
except that no person shall at the same time be President and
Vice President, or President and Secretary. No officer, however,
shall execute or verify any instrument in more than one capacity,
if such instrument be required by law or otherwise to be executed
or verified by any two or more officers.
Section 10. Duties of Officers May be Delegated. In
case of the absence of any officer of the Corporation, or for any
other reason that the Board may deem sufficient, the Board of
Directors may delegate for the time being the powers and duties
of such officer, or any of them, to any other officer or to any
director.
ARTICLE VI
Shares
Section 1. Share Certificates. The share certificates
of the Corporation shall be numbered and shall be entered in the
books of the Corporation as they are issued. The certificates
shall contain the holder's name and number of shares and all
other statements required by law, and shall be signed by the
Chairman of the Board, the President or a Vice President and the
Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, and shall bear the corporate seal. Such
seal may be a facsimile, engraved or printed. Where any such
certificate is signed by a transfer agent or a transfer clerk and
by a registrar, the signatures of any such Chairman of the Board,
President, Vice President, Secretary, Assistant Secretary,
Treasurer or Assistant Treasurer upon such certificate may be
facsimile, engraved or printed. In case any such officer who has
signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such before such certificate
is issued, it may be issued by the Corporation with the same
effect as if such officer had not ceased to be such at the date
of its issue.
Section 2. Transfers of Shares. Transfers of shares,
except where otherwise provided by law or these by-laws, shall be
made on the books of the Corporation by the person named in the
certificate or by his attorney lawfully constituted, upon
surrender of the certificate or certificates for such shares.
The Corporation shall be entitled to treat the holder of record
of any share or shares as the holder in fact thereof and
<PAGE>
accordingly shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of
any other person whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of the
State of New York.
Section 3. Transfer Agent and Registrar. The Board of
Directors may at any time appoint one or more transfer agents
and/or registrars for the transfer and/or registration of shares,
and may from time to time by resolution fix and determine the
manner in which shares of stock of the Corporation shall be
transferred and/or registered by such transfer agent and
registrar, respectively.
Section 4. Record Dates. For the purpose of
determining shareholders entitled to receive payment of any
dividend or the allotment of any rights, or for the purpose of
any other action, the Board of Directors may fix, in advance, a
date as the record date for any such determination of
shareholders. Such date shall not be less then ten (10) nor more
than fifty (50) days before the date of such meeting, nor more
than fifty (50) days prior to any such action.
ARTICLE VII
Dividends and Finances
Section 1. Dividends. Dividends may be declared and
paid out of the surplus of the Corporation as often, in such
amounts and at such times, as the Board of Directors may
determine. Before payment of any dividend or making any
distribution of profits there may be set aside out of the net
profits of the Corporation such sum or sums as the directors from
time to time, in their absolute discretion, think proper as a
reserved fund to meet contingencies or for equalizing dividends
or for repairing or maintaining any property of the Corporation,
or for such other purpose as the directors shall think conducive
to the interest of the Corporation.
Section 2. Finances. The directors shall from time to
time, by resolution, determine, or by resolution may authorize
any two officers consisting of any two of the Chairman of the
Board, the President and the Treasurer to determine, in what bank
or banks the funds of the Corporation shall be kept and in what
manner and by what officers or agents checks, notes, bills,
drafts or other like instruments shall be signed or endorsed but
no such check, note, bill, draft or other instrument of like
character or endorsement thereof, shall be valid unless signed by
either facsimile manual signature, by at least two of the
officers or agents of the Corporation.
<PAGE>
ARTICLE VIII
Corporate Seal
Section 1. The seal of the Corporation shall be
circular in form with the words "Pratt & Lambert United, Inc."
around the margin and the words and figures "founded 1849" in the
center, in the form heretofore used by the Corporation. The seal
may be attached or attested on any document or paper by any
officer of the Corporation elected or appointed by the Board of
Directors. The Board of Directors may authorize counterparts of
the corporate seal to be kept by such officer or officers, in
addition to the Secretary, or in such place or places as the
Board may by resolution determine.
ARTICLE IX
Fiscal Year
Section 1. The fiscal year of the Corporation shall be
the calendar year.
ARTICLE X
Indemnification
Section 1. Indemnification. The Corporation shall
indemnify each person made or threatened to be made a party to
any action or proceeding, whether civil or criminal, by reason of
the fact that such person or such person's testator or intestate
is or was a director or officer of the Corporation, or, while a
director or officer, serves or served, at the request of the
Corporation, any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, penalties, amounts paid in settlement
and reasonable expenses, including attorneys' fees, incurred in
connection with such action or proceeding, or any appeal therein,
provided that no such indemnification shall be made if a judgment
or other final adjudication adverse to such person establishes
that his acts were committed in bad faith or were the result of
active and deliberate dishonesty and were material to the cause
of action so adjudicated, or that he personally gained in fact a
financial profit or other advantage to which he was not legally
entitled, and provided further that no such indemnification shall
be required with respect to any settlement or other
nonadjudicated disposition of any threatened or pending action or
proceeding unless the Corporation has given its prior consent to
such settlement or other disposition, such consent not to be
unreasonably withheld.
The Corporation shall advance or promptly reimburse
upon request any director or officer seeking indemnification
hereunder for all expenses, including attorneys' fees, reasonably
incurred in defending any action or proceeding in advance of the
final disposition thereof upon receipt of an undertaking by or on
<PAGE>
behalf of such person to repay such amount if such person is
ultimately found not to be entitled to indemnification or, where
indemnification is granted, to the extent the expenses so
advanced or reimbursed exceed the amount to which such person in
entitled.
Nothing herein shall limit or affect any right of any
person otherwise than hereunder to indemnification or to
advancement of expenses, including attorneys' fees, under any
statute, rule, regulation, certificate of incorporation, by-law,
insurance policy, contract or otherwise.
Anything in these by-laws to the contrary
notwithstanding, no elimination or amendment of this by-law
adversely affecting the right of any person to indemnification or
to advancement of expenses hereunder shall be effective until the
60th day following notice to such person of such action, and no
elimination of or amendment to this by-law shall deprive any
person of his or her rights under this by-law arising out of
alleged or actual occurrences, acts or failures to act prior to
such 60th day. This by-law shall be given retroactive effect and
the full benefits hereof shall be available in respect of any
alleged or actual occurrences, acts or failures to act prior to
the date of the adoption of this by-law.
The Corporation shall not, except by elimination or
amendment of this by-law in a manner consistent with the
preceding paragraph, take any action or enter into any agreement
which prohibits, or otherwise limits the rights of any person to,
indemnification in accordance with the provisions of this by-law.
The indemnification of any person provided by this by-law shall
continue after such person has ceased to be a director or officer
of the Corporation and shall inure to the benefit of such
person's heirs, executors, administrators and legal
representatives. The right to indemnification or advancement of
expenses under this by-law shall be a contract right.
The Corporation is authorized to enter into agreements
with any of its directors or officers to reflect or confirm the
rights and benefits contained in this by-law and to extend other
additional rights to indemnification and to advancement of
expenses to any such person to the fullest extent permitted by
applicable law, and to set forth procedures for any such person
to obtain advancement of expenses and indemnification and,
pending determination of entitlement to indemnification, interim
protection, but the existence of any such agreement or the
failure to enter into any such agreement shall not adversely
affect or limit the rights of any such person pursuant to this
by-law, it being expressly recognized hereby that all directors
and officers of the Corporation, by serving as such are acting in
reliance on the Corporation indemnifying them to the maximum
extent permitted by law and authorized by this by-law, and that
the Corporation is estopped to contend otherwise.
In case any provision in this by-law shall be
determined at any time to be unenforceable in any respect, the
other provisions shall not in any way be affected or impaired
<PAGE>
thereby, and the affected provision shall be given the fullest
possible enforcements in the circumstances, it being the
intention of the Corporation to afford advancement of expenses
and indemnification to its directors and officers, acting in such
capacities or in the other capacities referred to herein, to the
fullest extent permitted by law.
To the extent a person has been successful, on the
merits or otherwise, in the defense of a civil or criminal action
or proceeding of the character described in the first paragraph
of this by-law or in any claim, issue or matter thereon shall be
entitled as a matter of right to indemnification as authorized in
such paragraph without any determination of entitlement to
indemnification by the Corporation. Except as provided in the
preceding sentence or in an agreement or as ordered by a court,
any indemnification under this by-law shall be made by the
Corporation if, authorized in the specific case:
(1) By the Board of Directors acting by a quorum
consisting of Directors who are not parties to such
action or proceeding upon a finding that the director
or officer has met the standard of conduct set forth in
the first paragraph of this by-law, or,
(2) If such a quorum is not obtainable or, even
if obtainable, a quorum of disinterested directors so
directs:
(a) By the Board of Directors upon the
opinion in writing of independent legal counsel
that indemnification is proper in the
circumstances because the standard of conduct set
forth in the first paragraph of this by-law has
been met by such director or officer, or
(b) By the shareholders upon a finding that
the director or officer has met the applicable
standard of conduct set forth in such paragraph.
For the purposes of this by-law, the Corporation shall
be deemed to have requested a person to serve an employee benefit
plan where the performance by such person of his duties to the
Corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or
beneficiaries of the plan, and excise taxes assessed on a person
with respect to an employee benefit plan pursuant to applicable
law shall be considered indemnifiable expenses. For purposes of
this by-law, the term "Corporation" shall include any legal
successor to the Corporation, including any corporation which
acquires all of substantially all of the assets of the
Corporation in one or more transactions.
Any indemnification under this by-law shall also
include reasonable expenses, including attorneys fees, incurred
by any person to enforce such persons rights to indemnification
and advancement of expenses.
<PAGE>
Nothing in this by-law shall restrict and the
Corporation shall retain the power and the authority to indemnify
or advance expenses to, make indemnification agreements and
arrangements with, or maintain insurance on behalf of any
employee or agent of the Corporation or any person (whether or
not a director, officer, employee or agent of the Corporation)
who serves at the request of the Corporation in any capacity with
any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
ARTICLE XI
Amendments
Section 1. Subject to the provisions of the Certificate of
Incorporation, these By-laws may be added to, amended or repealed
either by vote of the holders of record of a majority of the
outstanding shares of the Corporation entitled to vote, or at any
meeting of the Board of Directors by the vote of the majority of
the entire Board. Any By-law adopted by the Board may be amended
or repealed by the shareholders. If any By-law regulating an
impending election of Directors is adopted, amended or repealed,
by the Board, there shall be set forth in the notice of the next
meeting of shareholders for the election of directors the By-law
so adopted, amended or repealed, together with a concise
statement of the changes made.
<PAGE>
Exhibit 4(c)
CORPORATE REVOLVING AND TERM LOAN AGREEMENT
BETWEEN
MANUFACTURERS AND TRADERS TRUST COMPANY
AND
PRATT & LAMBERT, INC.
DATED AUGUST 3, 1994
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS...............................................1
a. Accumulated Funding Deficiency.......................1
b. Affiliate............................................1
c. Bankruptcy Law.......................................2
d. Bank's Prime Rate....................................2
e. CERCLA...............................................2
f. Control..............................................2
g. Distribution.........................................3
h. Environmental Law....................................3
i. ERISA................................................3
j. Event of Default.....................................3
k. Hazardous Material...................................6
l. Internal Revenue Code................................7
m. Law..................................................7
n. Libor Rate...........................................7
o. Libor Rate Election..................................7
p. Libor Rate Period....................................8
q. Libor Rate Period Commencement Date..................8
r. Libor Rate Portion...................................8
s. Loan.................................................8
t. Loan Document........................................8
u. Material Adverse Effect..............................9
v. Participant..........................................9
w. Pension Plan.........................................9
x. Permitted Investment.................................10
y. Permitted Lien.......................................11
z. Permitted Loan.......................................13
aa. Person...............................................14
bb. Potential Event of Default...........................14
cc. Prohibited Transaction...............................14
dd. Release..............................................15
ee. Reportable Event.....................................15
ff. Revolving Loan.......................................15
gg. Subsidiary...........................................15
hh. Term Loan............................................16
2. REVOLVING LOANS...........................................16
a. Making and Obtaining Revolving Loans.................16
b. Revolving Loan Note..................................17
c. Repayment............................................18
d. Optional Repayment in Advance........................18
e. Interest.............................................19
f. Late Charge..........................................21
g. Non-Usage Fee........................................21
h. General Provisions as to Repayment and Payment.......23
i. Libor Rate Election..................................23
3. TERM LOAN ................................................25
a. Making and Obtaining Term Loan.......................25
b. Term Note............................................26
c. Repayment............................................27
- i -
<PAGE>
d. Optional Repayment in Advance........................27
e. Interest.............................................29
f. Late Charge..........................................32
g. General Provisions as to Repayment and Payment.......32
h. Bond Rate Election...................................33
i. Libor Rate Election..................................34
4. PREREQUISITES TO LOAN.....................................36
a. No Default...........................................36
b. Representations and Warranties.......................36
c. Proceedings..........................................37
d. Receipt by Bank......................................37
5. REPRESENTATIONS AND WARRANTIES............................41
a. Use of Proceeds......................................41
b. Subsidiaries; Affiliates.............................41
c. Good Standing; Qualification; Authority..............41
d. Control..............................................42
e. Compliance...........................................42
f. Environmental Matters................................43
g. Legality.............................................45
h. Fiscal Year..........................................47
i. Financial Statements.................................47
j. Material Adverse Effects; Distributions..............49
k. Tax Returns and Payments.............................49
l. Certain Indebtedness.................................49
m. Pension Obligations..................................50
n. Leases...............................................51
o. Assets; Liens and Encumbrances.......................52
p. Investments..........................................52
q. Loans................................................52
r. Judgments and Litigation.............................52
s. Transactions with Affiliates.........................53
t. Default..............................................53
u. Full Disclosure......................................53
6. AFFIRMATIVE COVENANTS.....................................54
a. Good Standing; Qualification.........................54
b. Compliance...........................................54
c. Working Capital; Current Ratio.......................55
d. Net Worth; Liabilities...............................56
e. Debt Service Coverage................................58
f. Funded Debt Ratio....................................59
g. Net Loss.............................................60
h. Accounting; Reserves; Tax Returns....................60
i. Financial and Other Information; Certificates of
No Default...........................................60
j. Payment of Certain Indebtedness......................64
k. Maintenance of Title and Assets; Insurance...........65
l. Inspections..........................................66
m. Pension Obligations..................................66
n. Changes in Management, Ownership and Control.........68
o. Judgments............................................68
p. Litigation...........................................69
- ii -
<PAGE>
q. Liens and Encumbrances...............................70
r. Defaults and Material Adverse Effects................70
s. Additional Guaranties................................71
t. Further Actions......................................71
7. NEGATIVE COVENANTS........................................72
a. Fiscal Year..........................................72
b. Certain Indebtedness.................................72
c. Pension Obligations..................................73
d. Liens and Encumbrances...............................74
e. Capital Expenditures.................................74
f. Operating Leases.....................................74
g. Investments..........................................74
h. Loans................................................74
i. Transactions with Affiliates.........................75
j. Corporate Changes....................................75
k. Sale of Receivables..................................77
l. Stock of Subsidiary..................................77
m. Full Disclosure......................................77
8. INDEBTEDNESS IMMEDIATELY DUE..............................77
9. EXPENSES; INDEMNIFICATION.................................78
a. Expenses.............................................78
b. Indemnification......................................80
10. NOTICES...................................................81
11. MISCELLANEOUS.............................................83
a. Term; Survival.......................................83
b. Survival; Reliance...................................84
c. Right of Setoff......................................84
d. Assignment or Grant of Participation.................85
e. Binding Effect.......................................86
f. Entire Agreement, Modifications and Waivers..........86
g. Rights and Remedies Cumulative.......................87
h. Requests.............................................87
i. Extent of Consents and Waivers.......................88
j. Directly or Indirectly...............................88
k. Accounting Terms and Computations....................88
l. Reference to Law.....................................88
m. Reference to Governmental Authority..................89
n. Severability.........................................89
o. Governing Law........................................89
p. Headings.............................................90
12. CONSENTS AND WAIVERS RELATING TO LEGAL PROCEEDINGS........90
a. JURISDICTIONAL CONSENTS AND WAIVERS..................90
b. WAIVER OF TRIAL BY JURY AND CLAIMS TO CERTAIN
DAMAGES..............................................91
- iii -
<PAGE>
CORPORATE REVOLVING AND TERM LOAN AGREEMENT
This Agreement is made this 3rd day of August 1994
between Manufacturers and Traders Trust Company, a New York
banking corporation having its chief executive office at One M&T
Plaza, Buffalo, New York 14240, (the "Bank") and Pratt & Lambert,
Inc., a New York business corporation having its chief executive
office at 75 Tonawanda Street, Buffalo, New York 14207, (the
"Borrower").
The Bank and the Borrower agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
a. Accumulated Funding Deficiency. "Accumulated
Funding Deficiency" has the meaning given to such term in Section
412(a) of the Internal Revenue Code.
b. Affiliate. "Affiliate" means, other than all
Subsidiaries, (i) any Person who or that now or hereafter has
Control of or is now or hereafter under common Control with the
Borrower or any Subsidiary or over whom or which the Borrower or
any Subsidiary now or hereafter has Control, (ii) any Person who
is now or hereafter related by blood, adoption or marriage to any
Person referred to in clause (i) of this sentence, (iii) any
Person who is now or hereafter a director or officer of the
Borrower or any Subsidiary or (iv) any Person who is now or
hereafter related by blood, adoption or marriage to any Person
referred to in clause (iii) of this sentence or over whom or
which any such Person now or hereafter has Control.
c. Bankruptcy Law. "Bankruptcy Law" means any bank-
ruptcy or insolvency Law or any other Law relating to the relief
of debtors, the readjustment, composition or extension of indebt-
edness, liquidation or reorganization.
d. Bank's Prime Rate. "Bank's Prime Rate" means the
rate announced by the Bank as its prime rate of interest.
e. CERCLA. "CERCLA" means the Comprehensive Environ-
mental Response, Compensation, and Liability Act of 1980, as
amended.
f. Control. "Control" means, with respect to any
Person, whether direct or indirect, (i) the power to vote 5% or
more of the outstanding shares of any class of stock of such
Person ordinarily having the power to vote for the election of
directors of such Person, (ii) the beneficial ownership of 5% or
more of the outstanding shares of any class of stock of such
Person or 5% or more of any other ownership interest in such
Person or (iii) the power to direct or cause the direction of the
management and policies of such Person, whether by ownership of
any stock or other ownership interest, by agreement or otherwise.
g. Distribution. "Distribution" means, with respect
to any corporation, (i) any dividend or other distribution,
whether in cash or in the form of any other asset, on account of
any of its stock or (ii) any payment on account of the purchase,
redemption, retirement or other acquisition of any of its stock.
<PAGE>
h. Environmental Law. "Environmental Law" means any
Law relating to public health or safety or protection of the
environment, including, but not limited to, (i) CERCLA and
(ii) the Resource Conservation and Recovery Act, as amended.
i. ERISA. "ERISA" means the Employee Retirement
Income Security Act of 1974, as amended.
j. Event of Default. An "Event of Default" occurs or
exists if (i) the Borrower (A) defaults for more than 20 days in
the repayment when due of any of the principal amount of any Loan
or the payment when due of any interest owing pursuant to this
Agreement or any other amount owing by the Borrower to the Bank
pursuant to this Agreement, (B) defaults for more than 30 days in
the performance when due of any obligation owing by the Borrower
to the Bank pursuant to Section 6 of this Agreement or (C)
defaults for more than ten days in the performance when due of
any other obligation owing by the Borrower to the Bank pursuant
to this Agreement, (ii) the Borrower or any Subsidiary defaults
for more than ten days in the payment when due, whether by
acceleration or otherwise, of any obligation, whether now exist-
ing or hereafter arising or accruing, to pay any sum of money in
excess of $1,000,000, whether for any principal, interest, fee,
charge, cost or expense or otherwise, to the Bank other than
pursuant to this Agreement or to any other Person, (iii) the
Borrower or any Subsidiary is dissolved, ceases to exist, assigns
or otherwise transfers or disposes of all or substantially all of
its assets, makes or permits what might be a fraudulent transfer
or fraudulent conveyance of any of its assets, makes any bulk
sale, sends any notice of any intended bulk sale, becomes
insolvent (however such insolvency is evidenced), generally fails
to pay its debts as they become due, fails to pay, withhold or
collect any tax as required by any Law, suspends or ceases its
business or has served, filed or recorded against it or any of
its assets any judgment, order or award of any court, agency or
other governmental authority or any arbitrator or any lien other
than a Permitted Lien, (iv) the Borrower or any Subsidiary has
any receiver, trustee, custodian or similar Person for it or any
of its assets appointed (whether with or without its consent),
makes any assignment for the benefit of creditors or commences or
has commenced against it any case or other proceeding pursuant to
any Bankruptcy Law or any formal or informal proceeding for the
dissolution, liquidation or winding up of the affairs of or the
settlement of claims against it and, if such case or other
proceeding or formal or informal proceeding is commenced against
it, such case or other proceeding or formal or informal proceed-
ing is not dismissed within 60 days after the date of such
commencement, (v) any representation or warranty made in this
Agreement proves, as of the date of this Agreement, to have been
incorrect or misleading in any material respect, (vi) any written
representation or warranty heretofore or hereafter made, or any
financial statement heretofore or hereafter provided, to the Bank
by or on behalf of the Borrower or any Subsidiary proves, as of
the date thereof, to have been incorrect or misleading in any
material respect or before the execution and delivery to the Bank
by the Borrower of this Agreement there occurred and was not dis-
closed to the Bank any material adverse change in any information
<PAGE>
disclosed in any such representation or warranty heretofore so
made or any financial statement heretofore so provided or (vii)
there occurs or exists with respect to any Pension Plan any
Prohibited Transaction, Reportable Event or other event or
condition that, in the opinion of the Bank, (A) constitutes or
will or might constitute grounds for the institution by the
Pension Benefit Guaranty Corporation of any proceeding under
ERISA seeking the termination of such Pension Plan or the
appointment of a trustee to administer such Pension Plan and (B)
will or might have any Material Adverse Effect, the Pension
Benefit Guaranty Corporation institutes any proceeding under
ERISA seeking the termination of any Pension Plan or the appoint-
ment of a trustee to administer any Pension Plan, any Person
other than the Pension Benefit Guaranty Corporation institutes
any proceeding under ERISA seeking the termination of any Pension
Plan or the appointment of a trustee to administer any Pension
Plan that, in the opinion of the Bank, (A) is likely to result in
the termination of such Pension Plan and (B) will or might have
any Material Adverse Effect, any trustee is appointed by a United
States District Court to administer any Pension Plan, any Pension
Plan is terminated or there are vested unfunded liabilities under
any Pension Plan that, in the opinion of the Bank, have or will
or might have any Material Adverse Effect.
k. Hazardous Material. "Hazardous Material" means
(i) any "hazardous substance" as such term is defined in 42
U.S.C. Section 9601(14), (ii) any "hazardous waste" as such term is
defined in 42 U.S.C. Section 6903(5), (iii) any pollutant, contaminant
or hazardous, dangerous or toxic chemical, material, waste or
other substance for purposes of any other Environmental Law
relating to or imposing any liability or standard of conduct with
respect to any pollutant, contaminant or hazardous, dangerous or
toxic chemical, material, waste or other substance or (iv) any
petroleum product.
l. Internal Revenue Code. "Internal Revenue Code"
means the Internal Revenue Code of 1986, as amended.
m. Law. "Law" means any statute, ordinance, regula-
tion, rule, interpretation, decision, guideline or other require-
ment enacted or issued by any court, agency or other governmental
authority.
n. Libor Rate. "Libor Rate" means, for any period,
the rate, as determined by the Bank from any broker, quoting
service or commonly available source utilized by the Bank, at
which United States dollar deposits in immediately available
funds are offered in the London interbank eurodollar market at
approximately 11:00 a.m. London time (or as soon thereafter as
practicable) on the date that is two business days of the Bank
before the first day of such period for delivery on the first day
of such period for a period equal to such period.
o. Libor Rate Election. "Libor Rate Election" means
any election by the Borrower to have the interest charged for any
period on a portion of the outstanding principal amount of any
Loan determined by reference to the Libor Rate.
<PAGE>
p. Libor Rate Period. "Libor Rate Period" means any
period for which interest is to be charged on any Libor Rate
Portion for any Loan at a rate determined by reference to the
Libor Rate for such period pursuant to a Libor Rate Election.
q. Libor Rate Period Commencement Date. "Libor Rate
Period Commencement Date" means the date on which begins any
period for which interest is to be charged on any Libor Rate
Portion for any Loan at a rate determined by reference to the
Libor Rate for such period pursuant to a Libor Rate Election.
r. Libor Rate Portion. "Libor Rate Portion" means,
for any Loan, any portion of the outstanding principal amount of
such Loan on which interest is to be charged for any period at a
rate determined by reference to the Libor Rate for such period
pursuant to a Libor Rate Election.
s. Loan. "Loan" means any Revolving Loan or the Term
Loan.
t. Loan Document. "Loan Document" means this Agree-
ment or any other agreement or instrument referred to in Section
4d of this Agreement.
u. Material Adverse Effect. "Material Adverse
Effect" means any material adverse effect on (i) the ability of
the Borrower to repay when due any of the principal amount of any
Loan or to pay when due any interest owing to the Bank pursuant
to this Agreement or any other amount owing by the Borrower to
the Bank pursuant to this Agreement, (ii) the ability of the
Borrower or any Subsidiary to perform when due any material
obligation pursuant to any Loan Document or (iii) the Borrower
and all Subsidiaries taken as a whole or the business,
operations, assets, affairs or condition (financial or other) of
the Borrower and all Subsidiaries taken as a whole.
v. Participant. "Participant" means, at any time,
Chemical Bank, a New York banking corporation, if at such time it
is the holder of any participation in any unpaid indebtedness of
the Borrower to the Bank pursuant to this Agreement.
w. Pension Plan. "Pension Plan" means (i) any
pension plan, as such term is defined in Section 3(2) of ERISA,
(A) that has heretofore been or is hereafter established or
maintained by the Borrower, any Subsidiary or any other Person
that is, together with the Borrower or any Subsidiary, a member
of a controlled group of corporations for purposes of Section
414(b) of the Internal Revenue Code or is under common control
with the Borrower or any Subsidiary for purposes of Section
414(c) of the Internal Revenue Code, (B) to which contributions
have heretofore been or are hereafter made by the Borrower, any
Subsidiary or any such other Person or (C) to which the Borrower,
any Subsidiary or any such other Person has heretofore agreed or
hereafter agrees or otherwise has heretofore incurred or hereaf-
ter incurs any obligation to make contributions or (ii) any trust
heretofore or hereafter created under any such pension plan.
<PAGE>
x. Permitted Investment. "Permitted Investment"
means any investment by the Borrower or any Subsidiary in (i) any
readily marketable direct obligation of the United States matur-
ing within one year after the date of its acquisition thereof,
(ii) any time deposit maturing within one year after the date of
its acquisition thereof and issued by any banking institution
that is incorporated under any statute of the United States or
any state of the United States and has a combined capital and
surplus of not less than $500,000,000, (iii) any demand or
savings deposit with any such banking institution, (iv) any
security of any Subsidiary if (A) such security is owned by it on
the date of this Agreement or (B) any asset of the Borrower or
any other Subsidiary is assigned, sold, leased as a lessor or
otherwise transferred or disposed of to such Subsidiary and such
Subsidiary executes and delivers to the Bank a guaranty agreement
in form and substance satisfactory to the Bank guaranteeing,
without any limitation as to amount, the payment of all
indebtedness and other obligations of the Borrower to the Bank,
whether then existing or thereafter arising, (v) investments the
total of which does not exceed $4,000,000 in the aggregate for
the Borrower and all Subsidiaries during any fiscal year of the
Borrower provided that immediately after any such investment
there has not occurred or existed and does not exist any Event of
Default or Potential Event of Default or (vi) any security fully
and accurately described in Exhibit A attached to and made a part
of this Agreement.
y. Permitted Lien. "Permitted Lien" means (i) any
lease of any asset by the Borrower or any Subsidiary as a lessor
in the ordinary course of its business and without interference
with the conduct of its business or operations, (ii) any pledge
or deposit made by the Borrower or any Subsidiary in the ordinary
course of its business (A) in connection with any workers'
compensation, unemployment insurance, social security or similar
Law or (B) to secure the payment of any indebtedness or other
obligation in connection with any letter of credit, bid, tender,
trade or government contract, lease, surety, appeal or perfor-
mance bond or Law, or any similar indebtedness or other obliga-
tion, not incurred in connection with the borrowing of any money
or the deferral of the payment of the purchase price of any
asset, (iii) any attachment, levy or similar lien with respect to
the Borrower or any Subsidiary arising in connection with any
action or other legal proceeding so long as (A) the validity of
the claim or judgment secured thereby is being contested in good
faith by appropriate proceedings promptly instituted and dili-
gently conducted, (B) adequate reserves have been appropriately
established for such claim or judgment, (C) the execution or
other enforcement of such attachment, levy or similar lien is
effectively stayed and (D) neither such claim or judgment nor
such attachment, levy or similar lien has any Material Adverse
Effect, (iv) any statutory lien in favor of the United States for
any amount paid to the Borrower or any Subsidiary as a progress
payment pursuant to any government contract, (v) any statutory
lien securing the payment of any tax, assessment, fee, charge,
fine or penalty imposed by any government or political subdivi-
sion upon the Borrower, any Subsidiary or any of the assets,
income and franchises of the Borrower or any Subsidiary but not
<PAGE>
yet required by Section 6j of this Agreement to be paid, (vi) any
statutory lien securing the payment of any claim or demand of any
materialman, mechanic, carrier, warehouseman, garageman or
landlord against the Borrower or any Subsidiary but not yet
required by such Section 6j to be paid, (vii) any reservation,
exception, encroachment, easement, right-of-way, covenant,
condition, restriction, lease or similar title exception or
encumbrance affecting the title to any real property of the
Borrower or any Subsidiary but not interfering with the conduct
of its business or operations, (viii) any security interest,
mortgage or other lien or encumbrance in favor of the Bank or the
Participant or (ix) any security interest, mortgage or other lien
or encumbrance existing on the date of this Agreement and fully
and accurately described in Exhibit A attached to and made a part
of this Agreement.
z. Permitted Loan. "Permitted Loan" means (i) any
loan, advance or other extension of credit made by any Subsidiary
to the Borrower or by the Borrower or any Subsidiary to any
Subsidiary that is a guarantor, without any limitation as to
amount, of the payment of all indebtedness and other obligations
of the Borrower to the Bank, whether now existing or hereafter
arising or accruing, pursuant to a guaranty agreement in form and
substance satisfactory to the Bank, (ii) any deferral of the pur-
chase price of any inventory sold by the Borrower or any Subsid-
iary in the ordinary course of its business, (iii) any advance
made by the Borrower or any Subsidiary in the ordinary course of
its business to any of its officers and employees for out-of-
pocket expenses incurred by such officer or employee on its
behalf in the conduct of its business or operations, (iv) loans,
advances and other extensions of credit the total of the
outstanding principal amounts of which does not at any time
exceed $2,500,000 in the aggregate for the Borrower and all
Subsidiaries, (v) loans, advances and other extensions of credit
made by the Borrower or any Subsidiary in the ordinary course of
its business to any purchaser of any of its inventory sold or to
be sold by it in the ordinary course of its business and the
total of which does not at any time exceed $5,000,000 in the
aggregate for the Borrower and all Subsidiaries or (vi) any loan,
advance or other extension of credit fully and accurately de-
scribed in Exhibit A attached to and made a part of this Agree-
ment.
aa. Person. "Person" means (i) any individual, corpo-
ration, partnership, joint venture, trust, unincorporated associ-
ation, government or political subdivision, (ii) any court,
agency or other governmental authority or (iii) any other entity,
body, organization or group.
bb. Potential Event of Default. "Potential Event of
Default" means any event or condition that, after notice, lapse
of time or both notice and lapse of time, would constitute an
Event of Default.
cc. Prohibited Transaction. "Prohibited Transaction"
(i) has the meaning given to such term in Section 4975(c) of the
Internal Revenue Code and (ii) means any transaction prohibited
by Section 406(a) of ERISA.
<PAGE>
dd. Release. "Release" means any "release" as such
term is defined in 42 U.S.C. Section 9601(22).
ee. Reportable Event. "Reportable Event" means any
event described in Section 4043(b) of ERISA with respect to which
no waiver has been given pursuant to Section 2615.3 of Title 29
of the Code of Federal Regulations.
ff. Revolving Loan. "Revolving Loan" means any loan
by the Bank to the Borrower pursuant to Section 2a of this Agree-
ment.
gg. Subsidiary. "Subsidiary" means any corporation of
which the Borrower now or hereafter has beneficial ownership,
whether direct or indirect, of (i) 50% or more of the outstanding
shares of any class of stock ordinarily having the power to vote
for the election of directors of such corporation or (ii) such
lower percentage of the outstanding shares of any class of such
stock as is sufficient to render such corporation a subsidiary of
the Borrower for purposes of generally accepted accounting
principles as in effect at the time of determination of the
status of such corporation for purposes of this definition,
except for any of (A) Southside Paint & Decorating, Inc., a
Florida business corporation, (B) The P&L Subsidiary, Inc., an
Ohio business corporation, (C) Eastern Coatings, Inc., a New York
business corporation, (D) Adamson Johnson Paint Co., an Illinois
business corporation, (E) St. Cloud Paint, Inc., a Minnesota
business corporation, (F) Heritage Paint, Inc., a West Virginia
business corporation, (G) John's Color Wheel and Decorating,
Inc., a Georgia business corporation and (H) Kayney Paints, Inc.,
a California business corporation, until its gross assets, as
determined without taking depreciation or amortization into
account, total $1,000,000 or more.
hh. Term Loan. "Term Loan" means the loan by the Bank
to the Borrower pursuant to Section 3a of this Agreement.
2. REVOLVING LOANS.
a. Making and Obtaining Revolving Loans. Upon and
subject to each term and condition of this Agreement, at any time
and from time to time during the period beginning on the date of
this Agreement and ending on August 2, 1996, the Borrower may
obtain Revolving Loans from the Bank. The principal amount of
each Revolving Loan shall be an integral multiple of $500,000,
and the total of the outstanding principal amounts of all Revolv-
ing Loans shall not at any time exceed $50,000,000 minus the
amount applied to such outstanding principal amounts pursuant to
clause (iv) of Section 7l of this Agreement. The Bank may make
any Revolving Loan in reliance upon, and the Borrower shall be
bound by, any oral (including, but not limited to, telephonic),
written (including, but not limited to, facsimile) or other
request for such Revolving Loan that the Bank believes in good
faith to be valid and to have been made by any officer of the
Borrower, and the Bank shall not incur any liability to the
Borrower or any other Person as a direct or indirect result of
making such Revolving Loan. Each request for a Revolving Loan
<PAGE>
shall state the principal amount of such Revolving Loan and the
business day of the Bank upon which such Revolving Loan is
requested to be made; provided, however, that, if such business
day is the day such request is received by the Bank and such
request is so received after 10:00 A.M. on such day, the Bank
may, but shall not be obligated to, treat such request as stating
the next business day of the Bank as the date upon which such
Revolving Loan is requested to be made.
b. Revolving Loan Note. The Bank shall set forth on
the schedule attached to and made a part of the Revolving Loan
Note referred to in clause (i) of Section 4d of this Agreement or
any similar schedule (including, but not limited to, any similar
schedule maintained in computerized records) annotations evidenc-
ing (i) the date and principal amount of each Revolving Loan,
(ii) the date and amount of each payment applied to the
outstanding principal amount of such Revolving Loan Note, (iii)
such outstanding principal amount after each Revolving Loan and
each such payment, (iv) each Libor Rate Portion for any Revolving
Loan, (v) the Libor Rate Period, Libor Rate Period Commencement
Date, Libor Rate and rate of interest for each Libor Rate Portion
for any Revolving Loan and (vi) the date and amount of each
payment applied to any Libor Rate Portion for any Revolving Loan.
Each such annotation shall, in the absence of manifest error, be
conclusive and binding upon the Borrower. No failure of the Bank
to make and no error by the Bank in making any annotation on such
attached schedule or any such similar schedule shall affect the
obligation of the Borrower to repay the principal amount of each
Revolving Loan, the obligation of the Borrower to pay interest on
the outstanding principal amount of each Revolving Loan or any
other obligation of the Borrower to the Bank pursuant to this
Agreement.
c. Repayment. The Borrower shall repay the principal
amounts of all Revolving Loans to the Bank on August 3, 1996,
when the Borrower shall pay to the Bank all interest owing
pursuant to this Agreement in connection with any Revolving Loan
and remaining unpaid and all other amounts owing by the Borrower
to the Bank pursuant to this Agreement in connection with any
Revolving Loan and remaining unpaid.
d. Optional Repayment in Advance. Except for any
Libor Rate Portion for any Revolving Loan, the Borrower shall
have the option of repaying the principal amount of any Revolving
Loan to the Bank in advance in full or in part at any time and
from time to time without any premium or penalty.
e. Interest. From and including the date the first
Revolving Loan is made to but not including the date the out-
standing principal amount of each Revolving Loan is repaid in
full, the Borrower shall pay to the Bank interest, calculated on
the basis of a 360-day year for the actual number of days of each
year (365 or 366, as applicable), on such outstanding principal
amount at a rate per year that shall (i) on each day beginning
before the maturity, whether by acceleration or otherwise, of
such outstanding principal amount be (A) except for any Libor
Rate Portion for such Revolving Loan on which interest is being
<PAGE>
charged pursuant to clause (i)(B) of this sentence for such day,
the rate per year, expressed as a percentage, that is the rate in
effect such day as the Bank's Prime Rate or (B) for any Libor
Rate Portion for such Revolving Loan if such day falls within the
Libor Rate Period for such Libor Rate Portion, the rate per year,
expressed as a percentage and rounded, if necessary, to the next
higher .0625%, that is the rate obtained by dividing (I) 1 1/2%
above the Libor Rate for such Libor Rate Period by (II) expressed
as a decimal, the difference between 100% and the maximum per-
centage of reserve requirement (including any emergency, supple-
mental or other marginal percentage of reserve requirement) for
such day specified by Regulation D of the Board of Governors of
the Federal Reserve System for the Bank with respect to
Eurocurrency liabilities and (ii) on each day subsequent to the
last day described in clause (i) of this sentence be 2% above the
rate in effect such subsequent day as the Bank's Prime Rate;
provided, however, that (1) such interest shall not be charged as
provided in clause (i)(B) of this sentence with respect to any
Libor Rate Portion for such Revolving Loan if (a) before the
Libor Rate Period Commencement Date on which the Libor Rate
Period for such Libor Rate Portion begins any court, agency or
other governmental authority asserts that it is unlawful, or the
Bank determines that it is unlawful, for the Bank to charge
interest on any portion of the outstanding principal amount of
any Revolving Loan at a rate determined by reference to the Libor
Rate, (b) the Bank determines that United States dollar deposits
in immediately available funds are not available for such Libor
Rate Period to the Bank or any participant in such Libor Rate
Portion to the extent of its interest in such Libor Rate Portion
or (c) before such Libor Rate Period Commencement Date the Bank
determines that information necessary to determine the rate to be
charged pursuant to such clause (i)(B) is unavailable, (2) in no
event shall such interest be payable at a rate in excess of the
maximum rate permitted by applicable law and (3) solely to the
extent necessary to result in such interest not being payable at
a rate in excess of such maximum rate, any amount that would be
treated as part of such interest under a final judicial
interpretation of applicable law shall be deemed to have been a
mistake and automatically canceled and, if received by the Bank,
shall be refunded to the Borrower, it being the intention of the
Bank and the Borrower that such interest not be payable at a rate
in excess of such maximum rate. Except as otherwise provided in
Section 2c of this Agreement, (i) a payment of such interest
shall become due on the first day of each calendar month, begin-
ning on the first day of the first calendar month following the
calendar month in which the first Revolving Loan is made, except
for any of such interest payable with respect to any Libor Rate
Portion for any Revolving Loan, and (ii) all of such interest
payable with respect to any Libor Rate Portion for any Revolving
Loan shall become due on the day after the last day in the Libor
Rate Period for such Libor Rate Portion.
f. Late Charge. If any of the principal amount of
any Revolving Loan is not repaid, or any interest owing pursuant
to this Agreement in connection with any Revolving Loan is not
paid, by the date it becomes due, whether by acceleration or
otherwise, the Borrower shall pay to the Bank on demand a late
charge of $100.
<PAGE>
g. Non-Usage Fee. For each period (i) beginning on
the date of this Agreement and ending on the last day of the
calendar quarter containing such date, (ii) consisting of a
calendar quarter beginning after the calendar quarter containing
the date of this Agreement and ending before the calendar quarter
containing the date set forth in the first sentence of Section 2a
of this Agreement or (iii) beginning on the first day of the
calendar quarter containing the date set forth in the first
sentence of such Section 2a and ending on such date, the Borrower
shall pay to the Bank on demand a non-usage fee equal to the
product obtained by multiplying (A) the difference between
$50,000,000 and the daily average during such period of the
outstanding principal amounts of all Revolving Loans first by (B)
1/4% and then by (C) the fraction obtained by dividing the number
of days in such period by 360; provided, however, that (I) in no
event shall there be payable any such non-usage fee that would
result in interest being payable on any such outstanding princi-
pal amount at a rate in excess of the maximum rate permitted by
applicable law and (II) solely to the extent necessary to result
in such interest not being payable at a rate in excess of such
maximum rate, any amount that would be treated as part of such
interest under a final judicial interpretation of applicable law
shall be deemed to have been a mistake and automatically canceled
and, if received by the Bank, shall be refunded to the Borrower,
it being the intention of the Bank and the Borrower that such
interest not be payable at a rate in excess of such maximum rate.
h. General Provisions as to Repayment and Payment.
Repayment of the principal amount of each Revolving Loan, payment
of all interest owing pursuant to this Agreement in connection
with any Revolving Loan and payment of all other amounts owing by
the Borrower to the Bank pursuant to this Agreement in connection
with any Revolving Loan shall be made in lawful money of the
United States and immediately available funds at the banking
office of the Bank located at One Fountain Plaza, Buffalo, New
York, or at such other office of the Bank as may at any time and
from time to time be specified in any notice given to the Borrow-
er by the Bank. No such repayment or payment shall be deemed to
have been received by the Bank until received by the Bank at the
office of the Bank determined in accordance with the preceding
sentence, and any such repayment or payment received by the Bank
at such office after 2:00 P.M. on any day shall be deemed to have
been received by the Bank at the time such office opens for
business on the next business day of the Bank. If the time by
which any of the principal amount of any Revolving Loan is to be
repaid is extended by operation of law or otherwise, the Borrower
shall pay interest on the outstanding portion thereof during such
period of extension as provided in Section 2e of this Agreement.
i. Libor Rate Election. At any time and from time to
time, the Borrower may irrevocably make a Libor Rate Election
relating to any Revolving Loan that specifies (i) expressed as a
dollar amount, the portion of the outstanding principal amount of
any Revolving Loan to which such Libor Rate Election relates,
(ii) a business day of the Bank that is to be the Libor Rate
Period Commencement Date for the Libor Rate Period elected
<PAGE>
pursuant to such Libor Rate Election and (iii) whether a one-
month, two-month or three-month option is elected as to the
length of such Libor Rate Period; provided, however, that (A) su-
ch Libor Rate Period may not extend beyond August 2, 1996 and
(B) such Libor Rate Election need not be honored by the Bank if
(I) such Libor Rate Election is received by the Bank less than
three business days of the Bank before such Libor Rate Period
Commencement Date, (II) any Event of Default occurs or exists
before the time such Libor Rate Election is received by the Bank
or exists at such time, (III) such portion of such outstanding
principal amount is not at least $1,250,000 or (IV) such Libor
Rate Period would overlap more than two other Libor Rate Periods.
If such Libor Rate Election elects a one-month option as to the
length of such Libor Rate Period, such Libor Rate Period shall
end on the day before the one-month anniversary of such Libor
Rate Period Commencement Date or, if such one-month anniversary
is not a business day of the Bank, on the day before the first
day following such one-month anniversary that is such a business
day. If such Libor Rate Election elects a two-month option as to
the length of such Libor Rate Period, such Libor Rate Period
shall end on the day before the two-month anniversary of such
Libor Rate Period Commencement Date or, if such two-month anni-
versary is not a business day of the Bank, on the day before the
first day following such two-month anniversary that is such a
business day. If such Libor Rate Election elects a three-month
option as to the length of such Libor Rate Period, such Libor
Rate Period shall end on the day before the three-month anniver-
sary of such Libor Rate Period Commencement Date or, if such
three-month anniversary is not a business day of the Bank, on the
day before the first day following such three-month anniversary
that is such a business day. The Bank may rely upon, and the
Borrower shall be bound by, any oral (including, but not limited
to, telephonic), written (including, but not limited to, facsimi-
le) or other Libor Rate Election relating to any Revolving Loan
that the Bank believes in good faith to be valid and to have been
made by any officer of the Borrower, and the Bank shall not incur
any liability to the Borrower or any other Person as a direct or
indirect result of such Libor Rate Election.
3. TERM LOAN.
a. Making and Obtaining Term Loan. Upon and subject
to each term and condition of this Agreement, on August 3, 1996,
the Bank shall make the Term Loan to the Borrower, and the
Borrower shall obtain the Term Loan from the Bank. The principal
amount of the Term Loan shall be equal to the lesser of (i) the
total of the outstanding principal amounts of all Revolving Loans
or (ii) $50,000,000.
b. Term Note. The Bank shall set forth on the
schedule attached to and made a part of the Term Note referred to
in clause (ii) of Section 4d of this Agreement or any similar
schedule (including, but not limited to, any similar schedule
maintained in computerized records) annotations evidencing (i)
each portion of the outstanding principal amount of the Term Loan
to which an election by the Borrower pursuant to Section 3h of
this Agreement is applicable and the date on which interest
<PAGE>
begins to be charged on such portion of such outstanding
principal amount pursuant to such election, (ii) each Libor Rate
Portion for the Term Loan, (iii) the Libor Rate Period, Libor
Rate Period Commencement Date, Libor Rate and rate of interest
for each Libor Rate Portion for the Term Loan and (iv) the date
and amount of each payment applied to any Libor Rate Portion for
the Term Loan. Each such annotation shall, in the absence of
manifest error, be conclusive and binding upon the Borrower. No
failure of the Bank to make and no error by the Bank in making
any annotation on such attached schedule or any such similar
schedule shall affect the obligation of the Borrower to repay the
principal amount of the Term Loan, the obligation of the Borrower
to pay interest on the outstanding principal amount of the Term
Loan or any other obligation of the Borrower to the Bank pursuant
to this Agreement.
c. Repayment. The Borrower shall repay the principal
amount of the Term Loan to the Bank in 32 installments, with the
first of such installments to become due on October 1, 1996 and
one of such installments to become due on the first day of each
succeeding January, April, July and October through July 1, 2004,
when the Borrower shall repay the outstanding principal amount of
the Term Loan to the Bank and pay to the Bank all interest owing
pursuant to this Agreement and remaining unpaid and all other
amounts owing by the Borrower to the Bank pursuant to this
Agreement and remaining unpaid. Each of the first 31 of such
installments shall be equal to 1/40 of the principal amount of
the Term Loan, and the last of such installments shall be equal
to the remainder of such principal amount.
d. Optional Repayment in Advance. Except for any
Libor Rate Portion for the Term Loan, the Borrower shall have the
option of repaying the principal amount of the Term Loan to the
Bank in advance in full or in part at any time and from time to
time; provided, however, that (i) any such repayment made when
interest is being charged on any portion of the outstanding
principal amount of the Term Loan pursuant to clause (i)(A) of
the first sentence of Section 3e of this Agreement shall be
applied first to such portion of such outstanding principal
amount and, after such portion of such outstanding principal
amount is repaid in full, then to the portion of such outstanding
principal amount on which interest is being charged pursuant to
clause (i)(B) of such sentence, (ii) upon making any such
repayment before the second anniversary of the date the Term Loan
is made, the Borrower shall pay to the Bank a premium of 5% of
the portion thereof applied to the portion of such outstanding
principal amount on which interest is being charged pursuant to
such clause (i)(B), (iii) upon making any such repayment on or
after such second anniversary and before the fourth anniversary
of such date, the Borrower shall pay to the Bank a premium of 4%
of the portion thereof applied to the portion of such outstanding
principal amount on which interest is being charged pursuant to
such clause (i)(B), (iv) upon making any such repayment on or
after such fourth anniversary, the Borrower shall pay to the Bank
a premium of 3% of the portion thereof applied to the portion of
such outstanding principal amount on which interest is being
charged pursuant to such clause (i)(B), (v) the amount of any
<PAGE>
such repayment in part shall be an integral multiple of $500,000
and (vi) upon making any such repayment in full, the Borrower
shall pay to the Bank all interest owing pursuant to this
Agreement and remaining unpaid and all other amounts owing by the
Borrower to the Bank pursuant to this Agreement and remaining
unpaid. Each such repayment in part shall be applied to the
installments of the principal amount of the Term Loan in the
inverse order of such installments becoming due. No application
of any amount to the outstanding principal amount of the Term
Loan pursuant to clause (iv) of Section 7l of this Agreement
shall require payment of any premium pursuant to the first
sentence of this Section 3d.
e. Interest. From and including the date the Term
Loan is made to but not including the date the outstanding
principal amount of the Term Loan is repaid in full, the Borrower
shall pay to the Bank interest, calculated on the basis of a 360-
day year for the actual number of days of each year (365 or 366,
as applicable), on such outstanding principal amount at a rate
per year that shall (i) on each day beginning before the maturi-
ty, whether by acceleration or otherwise, of such outstanding
principal amount be (A) except for any portion of such
outstanding principal amount on which interest is being charged
pursuant to clause (i)(B) of this sentence for such day and any
Libor Rate Portion for the Term Loan on which interest is being
charged pursuant to clause (i)(C) of this sentence for such day,
the rate per year, expressed as a percentage, that is the rate in
effect such day as the Bank's Prime Rate, (B) for any portion of
the Term Loan to which for such day an election by the Borrower
pursuant to Section 3h of this Agreement is applicable, the rate
per year, expressed as a percentage, that is 2% above the United
States Treasury bond rate for such day, as determined pursuant to
the last sentence of such Section 3h, or (C) for any Libor Rate
Portion for the Term Loan if such day falls within the Libor Rate
Period for such Libor Rate Portion, the rate per year, expressed
as a percentage and rounded, if necessary, to the next higher
.0625%, that is the rate obtained by dividing (I) 2 1/10% above
the Libor Rate for such Libor Rate Period by (II) expressed as a
decimal, the difference between 100% and the maximum percentage
of reserve requirement (including any emergency, supplemental or
other marginal percentage of reserve requirement) for such day
specified by Regulation D of the Board of Governors of the
Federal Reserve System for the Bank with respect to Eurocurrency
liabilities and (ii) on each day subsequent to the last day de-
scribed in clause (i) of this sentence be 2% above the rate in
effect such subsequent day as the Bank's Prime Rate; provided,
however, that (1) such interest shall not be charged as provided
in clause (i)(C) of this sentence with respect to any Libor Rate
Portion for the Term Loan if (a) before the Libor Rate Period
Commencement Date on which the Libor Rate Period for such Libor
Rate Portion begins any court, agency or other governmental
authority asserts that it is unlawful, or the Bank determines
that it is unlawful, for the Bank to charge interest on any
portion of such outstanding principal amount at a rate determined
by reference to the Libor Rate, (b) the Bank determines that
United States dollar deposits in immediately available funds are
not available for such Libor Rate Period to the Bank or any
<PAGE>
participant in such Libor Rate Portion to the extent of its
interest in such Libor Rate Portion or (c) before such Libor Rate
Period Commencement Date the Bank determines that information
necessary to determine the rate to be charged pursuant to such
clause (i)(C) is unavailable, (2) in no event shall such interest
be payable at a rate in excess of the maximum rate permitted by
applicable law and (3) solely to the extent necessary to result
in such interest not being payable at a rate in excess of such
maximum rate, any amount that would be treated as part of such
interest under a final judicial interpretation of applicable law
shall be deemed to have been a mistake and automatically canceled
and, if received by the Bank, shall be refunded to the Borrower,
it being the intention of the Bank and the Borrower that such
interest not be payable at a rate in excess of such maximum rate.
Except as otherwise provided in Section 3d of this Agreement, a
payment of such interest shall become due on the first day of
each calendar month, beginning on September 1, 1996, except for
any of such interest payable with respect to any Libor Rate
Portion for the Term Loan, and (ii) all of such interest payable
with respect to any Libor Rate Portion for the Term Loan shall
become due on the day after the last day in the Libor Rate Period
for such Libor Rate Portion.
f. Late Charge. If any of the principal amount of
the Term Loan is not repaid, or any interest owing pursuant to
this Agreement in connection with the Term Loan is not paid, by
the date it becomes due, whether by acceleration or otherwise,
the Borrower shall pay to the Bank on demand a late charge of
$100.
g. General Provisions as to Repayment and Payment.
Repayment of the principal amount of the Term Loan, payment of
all interest owing pursuant to this Agreement in connection with
the Term Loan and payment of all other amounts owing by the
Borrower to the Bank pursuant to this Agreement in connection
with the Term Loan shall be made in lawful money of the United
States and immediately available funds at the banking office of
the Bank located at One Fountain Plaza, Buffalo, New York, or at
such other office of the Bank as may at any time and from time to
time be specified in any notice given to the Borrower by the
Bank. No such repayment or payment shall be deemed to have been
received by the Bank until received by the Bank at the office of
the Bank determined in accordance with the preceding sentence,
and any such repayment or payment received by the Bank at such
office after 2:00 P.M. on any day shall be deemed to have been
received by the Bank at the time such office opens for business
on the next business day of the Bank. If the time by which any
of the principal amount of the Term Loan is to be repaid is
extended by operation of law or otherwise, the Borrower shall pay
interest on the outstanding portion thereof during such period of
extension as provided in Section 3e of this Agreement.
h. Bond Rate Election. At any time and from time to
time, the Borrower may irrevocably make an election relating to
the Term Loan that specifies (i) expressed as a dollar amount,
the portion of the outstanding principal amount of the Term Loan
to which such election relates and (ii) a business day of the
<PAGE>
Bank that is to be the date on which interest is to begin to be
charged on such portion of such outstanding principal amount
pursuant to such election; provided, however, such election need
not be honored by the Bank if (A) such election is received by
the Bank less than three business days of the Bank before such
date, (B) any Event of Default occurs or exists before the time
such election is received by the Bank or exists at such time or
(C) such portion of such outstanding principal amount is not at
least $500,000. For each day in the period beginning on the date
referred to in clause (ii) of the preceding sentence and ending
on June 30, 2004, the United States Treasury bond rate shall be
the most recent rate, as published by The Wall Street Journal or,
if not so published, as determined by the Bank at the sole option
of the Bank, available on the last business day of the Bank
before the date such election is received by the Bank of the
yield on United States Treasury obligations adjusted to a
constant maturity with the term equal to, rounded to the next
higher full year, the period beginning on the date such election
is received by the Bank and ending on June 30, 2004.
i. Libor Rate Election. At any time and from time to
time, the Borrower may irrevocably make a Libor Rate Election
relating to the Term Loan that specifies (i) expressed as a
dollar amount, the portion of the outstanding principal amount of
the Term Loan to which such Libor Rate Election relates, (ii) a
business day of the Bank that is to be the Libor Rate Period
Commencement Date for the Libor Rate Period elected pursuant to
such Libor Rate Election and (iii) whether a one-month, two-month
or three-month option is elected as to the length of such Libor
Rate Period; provided, however, that (A) such Libor Rate Period
may not extend beyond August 2, 2004 and (B) such Libor Rate
Election need not be honored by the Bank if (I) such Libor Rate
Election is received by the Bank less than three business days of
the Bank before such Libor Rate Period Commencement Date, (II)
any Event of Default occurs or exists before the time such Libor
Rate Election is received by the Bank or exists at such time,
(III) such portion of such outstanding principal amount is not at
least $1,250,000 or (IV) such Libor Rate Period would overlap
more than two other Libor Rate Periods. If such Libor Rate
Election elects a one-month option as to the length of such Libor
Rate Period, such Libor Rate Period shall end on the day before
the one-month anniversary of such Libor Rate Period Commencement
Date or, if such one-month anniversary is not a business day of
the Bank, on the day before the first day following such one-
month anniversary that is such a business day. If such Libor
Rate Election elects a two-month option as to the length of such
Libor Rate Period, such Libor Rate Period shall end on the day
before the two-month anniversary of such Libor Rate Period
Commencement Date or, if such two-month anniversary is not a
business day of the Bank, on the day before the first day follow-
ing such two-month anniversary that is such a business day. If
such Libor Rate Election elects a three-month option as to the
length of such Libor Rate Period, such Libor Rate Period shall
end on the day before the three-month anniversary of such Libor
Rate Period Commencement Date or, if such three-month anniversary
is not a business day of the Bank, on the day before the first
<PAGE>
day following such three-month anniversary that is such a busi-
ness day. The Bank may rely upon, and the Borrower shall be
bound by, any oral (including, but not limited to, telephonic),
written (including, but not limited to, facsimile) or other Libor
Rate Election relating to the Term Loan that the Bank believes in
good faith to be valid and to have been made by any officer of
the Borrower, and the Bank shall not incur any liability to the
Borrower or any other Person as a direct or indirect result of
such Libor Rate Election.
4. PREREQUISITES TO LOAN. The obligation of the Bank
to make any Loan shall be conditioned upon the following:
a. No Default. (i) There not having occurred or
existed at any time during the period beginning on the date of
this Agreement and ending at the time such Loan is to be made and
there not existing at the time such Loan is to be made any Event
of Default or Potential Event of Default that is uncured and has
not been waived by the Bank in writing and (ii) the Bank not
believing in good faith that any Event of Default or Potential
Event of Default that is uncured or has not been so waived has so
occurred or existed or so exists;
b. Representations and Warranties. (i) Each repre-
sentation and warranty made in this Agreement being true and
correct in each material respect as of the date of this
Agreement, (ii) each other written representation and warranty
made to the Bank by or on behalf of the Borrower or any Subsid-
iary before the time such Loan is to be made being true and
correct in each material respect as of the date thereof,
(iii) each financial statement provided to the Bank by or on
behalf of the Borrower or any Subsidiary before the time such
Loan is to be made being true and correct in each material
respect as of the date thereof and (iv) the Bank not believing in
good faith that (A) any such representation or warranty was or is
other than true and correct in each material respect as of the
date of determination of the truth and correctness thereof or
(B) any such financial statement was other than true and correct
in each material respect as of the date thereof;
c. Proceedings. The Bank being satisfied as to each
corporate or other proceeding in connection with any transaction
contemplated by this Agreement; and
d. Receipt by Bank. The receipt by the Bank at or
before the time such Loan is to be made of the following, in form
and substance satisfactory to the Bank:
i. If such Loan is the first Revolving Loan, a
Revolving Loan Note, appropriately completed and duly executed by
the Borrower;
ii. If such Loan is the Term Loan, a Term Loan Note,
appropriately completed and duly executed by the Borrower;
<PAGE>
iii. If such Loan is the first Revolving Loan, Continu-
ing, Absolute and Unconditional Guaranty Agreements, appropriate-
ly completed and duly executed by (A) Miracle Adhesives Corpora-
tion, a New York business corporation, (B) Pierce & Stevens
Corp., a New York business corporation, (C) Pierce & Stevens
Canada, Inc., an Ontario business corporation, (D) Southern
Coatings, Inc., a South Carolina business corporation, (E) P&L
Merger Subsidiary, Inc., a Delaware business corporation the name
of which after the merger of United Coatings, Inc., a Delaware
business corporation, into the Borrower will be changed to United
Coatings, Inc., (F) United Paint Company, a Tennessee business
corporation, (G) UP Coatings, Inc., a California business corpo-
ration, and (H) Weather-Flex, Incorporated, a New York business
corporation, unlimited as to amount;
iv. If such Loan is the first Revolving Loan or the
Term Loan, an opinion of Cohen Swados Wright Hanifin Bradford &
Brett, counsel to the Borrower, addressed to the Bank and the
Participant;
v. If such Loan is the first Revolving Loan or the
Term Loan, a certificate executed by the Chairman or President or
a Vice President of the Borrower and the chief financial officer
of the Borrower and stating that there did not occur or exist at
any time during the period beginning on the date of this Agree-
ment and ending at the time such Loan is to be made and there
does not exist at the time such Loan is to be made any Event of
Default or Potential Event of Default that is uncured or has not
been waived by the Bank in writing;
vi. If such Loan is the first Revolving Loan, a certif-
icate executed by the Secretary of each of the Borrower and all
Subsidiaries and stating that each of the Borrower and all
Subsidiaries is at the time such Loan is to be made (A) in good
standing under the law of the jurisdiction in which it is incor-
porated and (B) duly qualified and in good standing as a foreign
corporation authorized to do business in each jurisdiction in
which such qualification is necessary, except for any
jurisdiction in which the failure so to qualify will not have any
Material Adverse Effect;
vii. If such Loan is the first Revolving Loan, a copy of
the certificate or articles of incorporation or other charter
document of each of the Borrower and all Subsidiaries certified
by its Secretary to be complete and accurate at the time such
Loan is to be made;
viii. If such Loan is the first Revolving Loan, a copy of
the by-laws or other organizational document of each of the
Borrower and all Subsidiaries certified by its Secretary to be
complete and accurate at the time such Loan is to be made;
ix. If such Loan is the first Revolving Loan, evidence
of the taking and the continuation in full force and effect at
the time such Loan is to be made of each corporate or other
action of the Borrower or any other Person necessary to authorize
the obtaining of all Loans by the Borrower and the execution,
delivery to the Bank and performance of Loan Document;
<PAGE>
x. If such Loan is the first Revolving Loan, evidence
that each requirement contained in any Loan Document with respect
to insurance is being met at the time such Loan is to be made;
xi. If such Loan is the first Loan, a Participation
Certificate and Agreement, appropriately completed and duly
executed by the Participant;
xii. Each additional agreement, instrument and other
writing (including, but not limited to, if such Loan is not the
first Loan, each item referred to in this Section 4d) required by
any Loan Document or reasonably deemed necessary or desirable by
the Bank in connection with any transaction contemplated by this
Agreement;
xiii. Payment of a commitment fee of $125,000; and
xiv. Payment of all costs and expenses payable pursuant
to the first sentence of Section 9a of this Agreement at or
before the time such Loan is to be made.
5. REPRESENTATIONS AND WARRANTIES. Except as fully
and accurately described in Exhibit A attached to and made a part
of this Agreement, the Borrower represents and warrants to the
Bank as follows:
a. Use of Proceeds. The proceeds of each Revolving
Loan will be used only to finance the merger into the Borrower of
United Coatings, Inc., a Delaware business corporation. The
proceeds of the Term Loan will be used only to pay the outstand-
ing principal amounts of all Revolving Loans.
b. Subsidiaries; Affiliates. The Borrower has (i) no
Subsidiary and (ii) no Affiliate that is not an individual.
c. Good Standing; Qualification; Authority. Each of
the Borrower and all Subsidiaries (i) is a corporation duly
incorporated and organized, validly existing and in good standing
under the law of the jurisdiction in which it is incorporated,
(ii) is duly qualified and in good standing as a foreign corpora-
tion authorized to do business in each jurisdiction in which such
qualification is necessary, except for any jurisdiction in which
the failure so to qualify will not have any Material Adverse
Effect, and (iii) has the power and authority to conduct its
business and operations as now and as anticipated that its
business and operations will hereafter be conducted, own each of
its assets and use each of its assets as now and as anticipated
that such asset will hereafter be used.
d. Control. There is no Person other than the
Borrower and all Subsidiaries who or that, insofar as the Borrow-
er or any Subsidiary has knowledge, has (i) Control over the
Borrower or any Subsidiary or (ii) the right pursuant to any
agreement with any Person having such Control to acquire such
Control.
<PAGE>
e. Compliance. The present and anticipated conduct
of the business and operations of the Borrower and each Subsid-
iary, the present and anticipated ownership and use of each asset
of the Borrower and each Subsidiary, the present and anticipated
use of each asset leased by the Borrower or any Subsidiary as a
lessee and the generation, treatment, storage, recycling, trans-
portation and disposal by the Borrower or any Subsidiary of any
Hazardous Material are in compliance in each material respect
with each applicable Law (including, but not limited to, each
applicable Environmental Law). Each authorization, certifica-
tion, certificate, approval, permit, consent, franchise and
license from, registration and filing with, declaration, report
and notice to and other act by or relating to any Person neces-
sary for the present or anticipated conduct of the business or
operations of the Borrower or any Subsidiary, the present or
anticipated ownership or use of any asset of the Borrower or any
Subsidiary, the present or anticipated use of any asset leased by
the Borrower or any Subsidiary as a lessee or the generation,
treatment, storage, recycling, transportation or disposal by the
Borrower or any Subsidiary of any Hazardous Material has been
duly obtained, made, given or done and is in full force and
effect. Each of the Borrower and all Subsidiaries is in compli-
ance in each material respect with (i) each such authorization,
certification, certificate, approval, permit, consent, franchise
and license with respect to it, (ii) its certificate or articles
of incorporation or other charter document, (iii) its by-laws or
other organizational document and (iv) each material agreement
and instrument to which it is a party or by which it or any of
its assets is bound.
f. Environmental Matters. There is no pending or
threatened claim, audit, investigation or action or other legal
proceeding by or before any court, agency or other governmental
authority that is pending or has been threatened in a written
communication received by the Borrower or any Subsidiary and that
involves any allegation as to:
i. Any Release or threatened Release of any Hazardous
Material at, in, on or under any property now or previously
owned, leased as a lessee or used by the Borrower or any Subsid-
iary;
ii. Any property now or previously owned, leased as a
lessee or used by the Borrower or any Subsidiary, or any property
to or from which the Borrower or any Subsidiary has transported
or arranged for the transportation of any Hazardous Material,
that has been listed or proposed for listing on the National
Priorities List pursuant to CERCLA, the Comprehensive Environmen-
tal Response, Compensation and Liability Information System or
any other list of sites requiring investigation or clean-up that
is maintained by any court, agency or other governmental authori-
ty;
iii. Any active or abandoned underground storage tank
at, in, on or under property now or previously owned, leased as a
lessee or used by the Borrower or any Subsidiary;
<PAGE>
iv. Any polychlorinated biphenyl or friable asbestos
present at, in, on or under any property now or previously owned,
leased as a lessee or used by the Borrower or any Subsidiary; or
v. Any condition at, in, on or under any property now
or previously owned, leased as a lessee or used by the Borrower
or any Subsidiary that would give or might rise to any material
liability under any Environmental Law.
g. Legality. The obtaining of each Loan by the
Borrower (i) is and will be in furtherance of the purposes of the
Borrower and within the power and authority of the Borrower, (ii)
does not and will not (A) violate or result in any violation of
any Law or any judgment, order or award of any court, agency or
other governmental authority or arbitrator or (B) violate, result
in any violation of, constitute (whether immediately or after
notice, lapse of time or both notice and lapse of time) any
default under or result in or require the imposition or creation
of any security interest in or mortgage or other lien or encum-
brance upon any asset of the Borrower pursuant to (I) the certif-
icate or articles of incorporation or other charter document of
the Borrower, (II) the by-laws or other organizational document
of the Borrower, (III) any shareholder agreement, voting trust or
similar arrangement applicable to any of the outstanding shares
of any class of stock of the Borrower, (IV) any resolution or
other action of record of the shareholders or board of directors
of the Borrower or (V) any material agreement or instrument to
which the Borrower is a party or by which the Borrower or any
asset of the Borrower is bound and (iii) have been duly
authorized by each necessary action of the shareholders or board
of directors of the Borrower. The execution, delivery to the
Bank and performance of each Loan Document by each Person other
than the Bank who or that is contemplated by such Loan Document
as a party thereto (i) are and will be in furtherance of the
purposes of such Person and within the power and authority of
such Person, (ii) do not and will not (A) violate or result in
any violation of any Law or any judgment, order or award of any
court, agency or other governmental authority or arbitrator or
(B) violate, result in any violation of, constitute (whether
immediately or after notice, lapse of time or both notice and
lapse of time) any default under or result in or require the
imposition or creation of any security interest in or mortgage or
other lien or encumbrance upon any asset of such Person pursuant
to (I) the certificate of articles of incorporation or other
charter document of such Person, (II) the by-laws or other
organizational document of such Person, (III) any shareholder
agreement, voting trust or similar arrangement applicable to any
of the outstanding shares of any class of stock of such Person,
(IV) any resolution or other action of record of the shareholders
or board of directors of such Person or (V) any material
agreement or instrument to which such Person is a party or by
which such Person or any asset of such Person is bound and (iii)
have been duly authorized by each necessary action of the share-
holders or board of directors of such Person. Each autho-
rization, certification, certificate, approval, permit, consent,
franchise and license from, registration and filing with,
declaration, report and notice to and other act by or relating to
<PAGE>
any Person required as a condition of the obtaining of any Loan
by the Borrower or the execution, delivery to the Bank or
performance of any Loan Document by any Person other than the
Bank has been duly obtained, made, given or done and is in full
force and effect. Each Loan Document has been duly executed and
delivered to the Bank by each Person other than the Bank who or
that is contemplated by such Loan Document as a party thereto.
h. Fiscal Year. The fiscal year of the Borrower and
of each Subsidiary is the year ending December 31.
i. Financial Statements. The Borrower has heretofore
delivered to the Bank a copy of each of the following financial
statements:
i. Audited consolidated statements of income and cash
flows of the Borrower for its fiscal year ended December 31,
1993;
ii. An audited consolidated balance sheet of the
Borrower dated as of December 31, 1993;
iii. Unaudited consolidated statements of income and
cash flows of the Borrower for its fiscal period ended March 31,
1994; and
iv. An unaudited consolidated balance sheet of the
Borrower dated as of March 31, 1994.
Each such financial statement (i) is correct and complete in each
material respect, (ii) is in accordance with the records of the
Borrower and each Subsidiary, (iii) presents fairly (subject to
normal and nonmaterial year-end adjustments if the fiscal period
covered thereby is not a fiscal year of the Borrower or the date
thereof is not the last day of such a fiscal year) the results of
the consolidated operations and consolidated cash flows of the
Borrower for the fiscal period covered thereby, or the consoli-
dated financial position of the Borrower as of the date thereof,
in conformity with generally accepted accounting principles
applied consistently with the application of such principles with
respect to the preceding fiscal period of the Borrower and (iv)
if a balance sheet, reflects each indebtedness and other obliga-
tion of the Borrower or any Subsidiary as of the date thereof
that has had or (so far as the Borrower or any Subsidiary can
foresee) will or might have any Material Adverse Effect.
j. Material Adverse Effects; Distributions. Since
March 31, 1994, (i) there has not occurred or existed any event
or condition that has had or (so far as the Borrower or any
Subsidiary can foresee) will or might have any Material Adverse
Effect, and (ii) neither the Borrower nor any Subsidiary has
declared, paid, made or agreed or otherwise incurred any obliga-
tion to declare, pay or make any Distribution.
k. Tax Returns and Payments. Each of the Borrower
and all Subsidiaries has duly (i) filed each tax return required
to be filed by it and (ii) paid or caused to be paid each tax,
<PAGE>
assessment, fee, charge, fine and penalty that has been imposed
by any government or political subdivision upon it or any of its
assets, income and franchises and has become due, except for any
such tax, assessment, fee, charge, fine or penalty (A) the
validity of which is being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted, (B) for
which adequate reserves have been appropriately established, (C)
the execution or other enforcement of any lien resulting from
which is effectively stayed and (D) the nonpayment of which does
not have any Material Adverse Effect.
l. Certain Indebtedness. Neither the Borrower nor
any Subsidiary has any indebtedness or other obligation (i)
arising from the borrowing of any money or the deferral of the
payment of the purchase price of any asset or (ii) pursuant to
any guaranty or other contingent obligation (including, but not
limited to, any obligation to (A) maintain the net worth of any
other Person, (B) purchase or otherwise acquire or assume any
indebtedness or other obligation or (C) provide funds for or
otherwise assure the payment of any indebtedness or other obliga-
tion, whether by means of any investment, by means of any pur-
chase, sale or other acquisition or disposition of any asset or
service or otherwise), except for indebtedness and other obliga-
tions (I) to the Bank, (II) constituting unsecured normal trade
debt incurred upon customary terms in the ordinary course of its
business or (III) resulting from the endorsement in the ordinary
course of its business of any check or other negotiable instru-
ment for deposit or collection.
m. Pension Obligations. No Pension Plan was or is a
multiemployer plan, as such term is defined in Section 3(37) of
ERISA. The present value of all benefits vested under any
Pension Plan does not exceed the value of the assets of such
Pension Plan allocable to such vested benefits. Since Septem-
ber 2, 1974, (i) no Prohibited Transaction that could subject any
Pension Plan to any tax or penalty imposed pursuant to the
Internal Revenue Code or ERISA has been engaged in by any Pension
Plan, (ii) there has not occurred or existed with respect to any
Pension Plan any Reportable Event or Accumulated Funding Defi-
ciency or any event or condition that (A) but for a waiver by the
Internal Revenue Service would constitute an Accumulated Funding
Deficiency, (B) after notice, lapse of time or both notice and
lapse of time will or might constitute a Reportable Event or (C)
constituted or will or might constitute grounds for the institu-
tion by the Pension Benefit Guaranty Corporation of any proceed-
ing under ERISA seeking the termination of such Pension Plan or
the appointment of a trustee to administer such Pension Plan,
(iii) no Pension Plan has been terminated, (iv) no trustee has
been appointed by a United States District Court to administer
any Pension Plan, (v) no proceeding seeking the termination of
any Pension Plan or the appointment of a trustee to administer
any Pension Plan has been instituted, and (vi) neither the
Borrower nor any Subsidiary has made any complete or partial
withdrawal from any Pension Plan.
n. Leases. Each capital Lease and operating Lease
pursuant to which the Borrower or any Subsidiary is obligated
<PAGE>
(whether a lessee or otherwise) (i) is a legal, valid and binding
obligation of each lessor thereunder, (ii) is enforceable by each
lessee thereunder in each material respect, (iii) entitles each
lessee thereunder to undisturbed possession of each asset leased
thereby during the full term thereof and (iv) is not materially
in default.
o. Assets; Liens and Encumbrances. Each of the
Borrower and all Subsidiaries has good and marketable or
insurable title to each asset it purports to own, and no such
asset is subject to any security interest, mortgage or other lien
or encumbrance, except for Permitted Liens.
p. Investments. Neither the Borrower nor any Subsid-
iary has any investment (whether by means of any purchase or
other acquisition of any security or interest, by means of any
capital contribution or otherwise) in any other Person, except
for Permitted Investments.
q. Loans. Neither the Borrower nor any Subsidiary
has made any loan, advance or other extension of credit with
respect to which any sum is owing to it, except for Permitted
Loans.
r. Judgments and Litigation. There is no outstanding
judgment, order or award of any court, agency or other governmen-
tal authority or arbitrator, and no audit, investigation or
action or other legal proceeding by or before any court, agency
or other governmental authority or before any arbitrator pending
or threatened in a written communication received by the Borrower
or any Subsidiary, that (i) is against or otherwise involves the
Borrower, any Subsidiary or any asset of the Borrower or any
Subsidiary, (ii) has had or (so far as the Borrower or any
Subsidiary can foresee) will or might have any Material Adverse
Effect and is not fully covered by insurance, except for any
reasonable deductible amount, or (iii) renders invalid or ques-
tions the validity of any Loan Document or any action taken or to
be taken pursuant to any Loan Document.
s. Transactions with Affiliates. There exists no
agreement, arrangement, transaction or other dealing (including,
but not limited to, the purchase, sale, lease, exchange or other
acquisition or disposition of any asset and the rendering of any
service) between the Borrower or any Subsidiary and any Affili-
ate, except for agreements, arrangements, transactions and other
dealings in the ordinary course of business of the Borrower or
any Subsidiary upon fair and reasonable terms no less favorable
to it than would apply in a comparable arm's length agreement,
arrangement, transaction or other dealing with a Person who or
that is not an Affiliate.
t. Default. There does not exist any Event of
Default or Potential Event of Default.
u. Full Disclosure. Neither any Loan Document nor
any certificate, financial statement or other writing heretofore
provided to the Bank by or on behalf of the Borrower or any
<PAGE>
Subsidiary contains any statement of fact that is incorrect or
misleading in any material respect or omits to state any fact
necessary to make any statement of fact contained therein not
incorrect or misleading in any material respect. Neither the
Borrower nor any Subsidiary has failed to disclose to the Bank
any fact that has had or (so far as the Borrower or any Subsid-
iary can foresee) will or might have any Material Adverse Effect.
6. AFFIRMATIVE COVENANTS. During the term of this
Agreement, the Borrower shall do the following unless the prior
written consent of the Bank to not doing so shall have been
obtained by the Borrower:
a. Good Standing; Qualification. Cause each of the
Borrower and all Subsidiaries at all times to (i) maintain its
corporate existence in good standing and (ii) remain or become
and remain duly qualified and in good standing as a foreign
corporation authorized to do business in each jurisdiction in
which such qualification is or becomes necessary, except for any
jurisdiction in which the failure so to qualify will not have any
Material Adverse Effect;
b. Compliance. Cause each of the Borrower and all
Subsidiaries at all times to (i) conduct its business and opera-
tions, own and use each of its assets, use each asset leased by
it as a lessee, and generate, treat, store, recycle, transport
and dispose of all Hazardous Material in its possession or
control, in compliance in each material respect with each appli-
cable Law (including, but not limited to, each applicable Envi-
ronmental Law), (ii) obtain, make, give or do and maintain in
full force and effect each authorization, certification, certifi-
cate, approval, permit, consent, franchise and license from,
registration and filing with, declaration, report and notice to
and other act by or relating to any Person necessary for the
conduct of its business or operations, the ownership or use of
any of its assets, the use of any asset leased by it as a lessee
or the generation, treatment, storage, recycling, transportation
or disposal of any Hazardous Material in its possession or
control and (iii) remain in compliance in each material respect
with each (A) such authorization, certification, certificate,
approval, permit, consent, franchise and license, (B) its certif-
icate or articles of incorporation or other charter document, (C)
its by-laws or other organizational document and (D) each agree-
ment and instrument to which it is a party or by which it or any
of its assets is bound;
c. Working Capital; Current Ratio. Assure that at
the end of the day on September 30, 1994 and at all times there-
after (i) the consolidated net working capital of the Borrower is
at least $52,000,000 and (ii) all consolidated current assets of
the Borrower other than indebtedness and other obligations of any
Affiliate are not less than 150% of all consolidated current
liabilities of the Borrower;
d. Net Worth; Liabilities. Assure that (i) at the
end of the day on December 31, 1994 and at all times thereafter
<PAGE>
prior to the end of the day on December 31, 1995 the consolidated
tangible net worth of the Borrower is at least $36,000,000,
(ii) at the end of the day on each December 31 subsequent to
December 31, 1994 and at all times thereafter prior to the end of
the day on the immediately following December 31 such consolidat-
ed tangible net worth is at least $8,000,000 higher than it was
required to be at the end of the day on the immediately preceding
December 31, (iii) at the end of the day on December 31, 1994 all
consolidated liabilities of the Borrower other than indebtedness
and other obligations of the Borrower that are fully subordinated
pursuant to a subordination agreement in form and substance
satisfactory to the Bank to all indebtedness and other obliga-
tions of the Borrower to the Bank, whether now existing or
hereafter arising or accruing, do not exceed 360% of such consol-
idated tangible net worth, (iv) at all times on or after January
1, 1995 and prior to the end of the day on December 31, 1995 all
such consolidated liabilities other than such subordinated
indebtedness and other obligations do not exceed 450% of such
consolidated tangible net worth, (v) at the end of the day on
December 31, 1995 all such consolidated liabilities other than
such subordinated indebtedness and other obligations do not
exceed 290% of such consolidated tangible net worth, (vi) at all
times on or after January 1, 1996 and prior to the end of the day
on December 31, 1996 all such consolidated liabilities other than
such subordinated indebtedness and other obligations do not
exceed 380% of such consolidated tangible net worth, (vii) at the
end of the day on December 31, 1996 all such consolidated
liabilities other than such subordinated indebtedness and other
obligations do not exceed 250% of such consolidated tangible net
worth, (viii) at all times on or after January 1, 1997 and prior
to the end of the day on December 31, 1997 all such consolidated
liabilities other than such subordinated indebtedness and other
obligations do not exceed 320% of such consolidated tangible net
worth, (ix) at the end of the day on December 31, 1997 all such
consolidated liabilities other than such subordinated
indebtedness and other obligations do not exceed 200% of such
consolidated tangible net worth, (x) at all times on or after
January 1, 1998 and prior to the end of the day on December 31,
1998 all such consolidated liabilities other than such
subordinated indebtedness and other obligations do not exceed
250% of such consolidated tangible net worth, (xi) at the end of
the day on each December 31 subsequent to December 31, 1997 all
such consolidated liabilities other than such subordinated
indebtedness and other obligations do not exceed 120% of such
consolidated tangible net worth and (xii) at all times on or
after January 1, 1999 other than at the end of the day on any
December 31 all such consolidated liabilities other than such
subordinated indebtedness and other obligations do not exceed
200% of such consolidated tangible net worth;
e. Debt Service Coverage. Assure that for each
period consisting of four fiscal quarters of the Borrower,
beginning with the period consisting of the four such fiscal
quarters ending on December 31, 1994, (i) the total of (A)
consolidated earnings of the Borrower before interest expense and
taxes, excluding all income not derived from operations, and (B)
consolidated depreciation and amortization of the Borrower less
<PAGE>
(ii) the total of (A) consolidated capital expenditures of the
Borrower, (B) consolidated taxes of the Borrower and (C) Distri-
butions paid by the Borrower are greater than 130% of the total
of (I) all principal payable by the Borrower or any Subsidiary in
connection with any indebtedness or other obligation maturing
more than one year after the end of such period and arising from
the borrowing of any money or the deferral of the purchase price
of any asset other than principal payable in connection with
capital leases in connection with which the principal payable
during the term thereof does not exceed $2,000,000 in the
aggregate for the Borrower and all Subsidiaries and (II) all
interest payable by the Borrower or any Subsidiary in connection
with any indebtedness or other obligation arising from the
borrowing of any money or the deferral of the purchase price of
any asset other than interest payable in connection with such
capital leases, with, for such fiscal quarters ending on March
31, 1994, June 30, 1994 and September 30, 1994, the items
referred to in clauses (i)(A), (i)(B), (ii)(A) and (ii)(B) of
this Section 6e to be assumed to be equal to the amounts of such
items shown in the pro forma financial statements of the Borrower
most recently filed by the Borrower with the Securities and
Exchange Commission before the date of this Agreement and showing
the projected effect of the merger into the Borrower of United
Coatings, Inc., a Delaware business corporation or in similar pro
forma financial statements of the Borrower hereafter provided to
the Bank;
f. Funded Debt Ratio. Assure that (i) at the end of
the day on December 31, 1994 and at all times thereafter prior to
the end of the day on December 31, 1995 the total of all princi-
pal scheduled to be paid thereafter by the Borrower or any
Subsidiary in connection with any indebtedness or other obliga-
tion maturing more than one year later and arising from the
borrowing of any money or the deferral of the purchase price of
any asset does not exceed 70% of the total of (A) the consolidat-
ed tangible net worth of the Borrower and (B) the total of all
such principal, (ii) at the end of the day on December 31, 1995
and at all times thereafter prior to the end of the day on
December 31, 1996, the total of all such principal does not
exceed 65% of the total of (A) such consolidated tangible net
worth and (B) the total of all such principal and (iii) at the
end of the day on December 31, 1996 and at all times thereafter
the total of all such principal does not exceed 60% of the total
of (A) such consolidated tangible net worth and (B) the total of
all such principal;
g. Net Loss. Assure that for any fiscal quarter of
the Borrower ending on or after December 31, 1994 the consolidat-
ed net loss of the Borrower does not exceed $7,500,000;
h. Accounting; Reserves; Tax Returns. Cause each of
the Borrower and all Subsidiaries at all times to (i) maintain a
system of accounting established and administered in accordance
with generally accepted accounting principles, (ii) establish
each reserve it is required by generally accepted accounting
principles to establish and (iii) file each tax return it is
required to file;
<PAGE>
i. Financial and Other Information; Certificates of
No Default. (i) Provide to the Bank and the Participant, in form
satisfactory to the Bank, (A) within 60 days after the end of
each fiscal quarter of each fiscal year of the Borrower,
consolidating and consolidated statements of income and cash
flows of the Borrower for such fiscal quarter and the period from
the beginning of such fiscal year to the end of such fiscal
quarter and a consolidating and consolidated balance sheet of the
Borrower as of the end of such fiscal quarter, each to be in
reasonable detail, to set forth comparative consolidated figures
for the corresponding period in the preceding fiscal year of the
Borrower and to be certified by the chief financial officer of
the Borrower to be correct and complete, to be in accordance with
the records of the Borrower and each Subsidiary and to present
fairly, subject to normal year-end adjustments, the results of
the operations and cash flows of the Borrower for such fiscal
quarter and the period from the beginning of such fiscal year to
the end of such fiscal quarter, and the financial position of the
Borrower as of the end of such fiscal quarter, in conformity with
generally accepted accounting principles applied consistently
with the application of such principles with respect to the
preceding fiscal quarter of the Borrower, except for the omission
of footnote disclosures and normal year-end audit adjustments,
(B) within 90 days after the end of each fiscal year of the
Borrower, consolidating and consolidated statements of income and
cash flows of the Borrower for such fiscal year and a consolidat-
ing and consolidated balance sheet of the Borrower as of the end
of such fiscal year, each to be in reasonable detail, to set
forth comparative consolidated figures for the preceding fiscal
year of the Borrower and to be certified without any
qualification by Deloitte & Touche or another independent
certified public accountant acceptable to the Bank to present
fairly the results of the operations and cash flows of the
Borrower for such fiscal year, and the financial position of the
Borrower as of the end of such fiscal year, in conformity with
generally accepted accounting principles applied consistently
with the application of such principles with respect to the
preceding fiscal year of the Borrower and to have been based upon
an audit by such accountant that was made in accordance with
generally accepted auditing standards and accordingly included
such tests of accounting records and such other accounting
procedures as such accountant deemed necessary in the circum-
stances, (C) together with each statement of income and balance
sheet required to be delivered by the Borrower to the Bank
pursuant to clause (i)(A) or (i)(B) of this Section 6i, a certif-
icate (I) executed by the Chairman or President or a Vice Presi-
dent of the Borrower and the chief financial officer of the
Borrower, (II) setting forth whatever computations are required
to establish whether the Borrower was in compliance with (1) each
of the covenants contained in Sections 6c, 6d, 6e, 6f and 6g of
this Agreement during the period covered by such statement of
income and (2) if the period covered by such statement of income
is a fiscal year of the Borrower, each of the covenants contained
in Sections 7e and 7f of this Agreement during such fiscal year,
(III) if the period covered by such statement of income is a
fiscal quarter of the Borrower, setting forth computations for
the period from the beginning of such fiscal year to the end of
<PAGE>
such fiscal quarter as to matters subject to Sections 7e and 7f
of this Agreement, (IV) stating that the signers of such
certificate have reviewed the relevant provisions of this
Agreement and have made or have caused to be made under their
supervision a review of the business, operations, assets, affairs
and condition (financial or other) of each of the Borrower and
all Subsidiaries during the period beginning on the first date
covered by such statement of income and ending on the date of
such certificate and (V) if during the period described in clause
(i)(C)(IV) of this Section 6i there did not occur or exist and
there does not then exist any Event of Default or Potential Event
of Default, so stating or, if during such period any Event of
Default or Potential Event of Default occurred or existed or any
Event of Default or Potential Event of Default then exists,
stating the nature thereof, the date of occurrence or period of
existence thereof and what action the Borrower has taken, is
taking or proposes to take with respect thereto, (D) as soon as
available, (I) each financial statement, report, notice and proxy
statement sent or made available by the Borrower or any
Subsidiary to holders of its securities generally and (II) each
publicly available periodic or special report, registration
statement, prospectus and other written communication other than
a transmittal letter filed by the Borrower or any Subsidiary with
and each publicly available written communication received by the
Borrower or any Subsidiary from any securities exchange or the
Securities and Exchange Commission, (E) no later than the end of
the first month of each fiscal year of the Borrower, subject to
the receipt by the Borrower of a confidentiality agreement
executed by the Bank and the Participant, a business plan of the
Borrower for such fiscal year that includes statements of income
and cash flows, a balance sheet and a discussion as to underlying
assumptions and (F) promptly upon the request of the Bank, all
additional information relating to the Borrower, any Subsidiary
or the financial condition of the Borrower or any Subsidiary that
is so requested and (ii) provide to the Participant all
information provided to the Bank by the Borrower or any
Subsidiary;
j. Payment of Certain Indebtedness. Cause each of
the Borrower and all Subsidiaries to pay, before the end of any
applicable grace period, each tax, assessment, fee, charge, fine
and penalty imposed by any government or political subdivision
upon it or any of its assets, income and franchises and each
claim and demand of any materialman, mechanic, carrier, ware-
houseman, garageman or landlord against it; provided, however,
that no such tax, assessment, fee, charge, fine, penalty, claim
or demand shall be required to be so paid so long as (i) the
validity thereof is being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted, (ii)
adequate reserves have been appropriately established therefor,
(iii) the execution or other enforcement of any lien resulting
therefrom is effectively stayed and (iv) the nonpayment thereof
does not have any Material Adverse Effect;
k. Maintenance of Title and Assets; Insurance. Cause
each of the Borrower and all Subsidiaries to (i) at all times
maintain good and marketable or insurable title to each material
<PAGE>
asset it purports to own, (ii) at all times maintain each of its
material tangible assets in good working order and condition,
(iii) at any time and from time to time make each replacement of
any of its material tangible assets necessary or desirable for
the conduct of its business or operations, (iv) at all times keep
each of its insurable material tangible assets insured with
financially sound and reputable insurance carriers against fire
and other hazards to which extended coverage applies in such
manner and to the extent that the amount of insurance carried on
such asset shall not be less than the greater of (A) the
replacement value of such asset and (B) the percentage of the
actual cash value of such asset required by the policy providing
such insurance in order that it shall not become its own insurer
for any part of an otherwise recoverable loss with respect to
such asset and (v) at all times keep adequately insured with
financially sound and reputable insurance carriers against
business interruption and liability on account of damage to any
Person or asset or pursuant to any applicable workers'
compensation Law;
l. Inspections. Upon the request of the Bank or the
Participant, promptly permit during normal business hours each
officer, employee, accountant, attorney and other agent of the
Bank or the Participant to (i) visit and inspect each of the
premises of the Borrower and each Subsidiary, (ii) examine,
audit, copy and extract each record of the Borrower and each
Subsidiary and (iii) discuss the business, operations, assets,
affairs and condition (financial or other) of the Borrower and
each Subsidiary with each responsible officer of the Borrower and
each Subsidiary and each independent accountant of the Borrower
and each Subsidiary;
m. Pension Obligations. (i) Immediately upon
acquiring knowledge of the occurrence or existence with respect
to any Pension Plan of any Prohibited Transaction, Reportable
Event or Accumulated Funding Deficiency or any event or condition
that (A) but for a waiver by the Internal Revenue Service would
constitute an Accumulated Funding Deficiency, (B) after notice,
lapse of time or both notice and lapse of time will or might
constitute a Reportable Event or (C) constitutes or will or might
constitute grounds for the initiation by the Pension Benefit
Guaranty Corporation of any proceeding under ERISA seeking the
termination of such Pension Plan or the appointment of a trustee
to administer such Pension Plan, provide to the Bank and the
Participant a certificate executed by the Chairman or President
or a Vice President of the Borrower and the chief financial
officer of the Borrower and specifying the nature of such Prohib-
ited Transaction, Reportable Event, Accumulated Funding Deficien-
cy, event or condition, what action the Borrower has taken, is
taking or proposes to take with respect thereto and, when known,
any action taken or threatened by the Internal Revenue Service,
the Department of Labor or the Pension Benefit Guaranty Corpora-
tion with respect thereto and (ii) immediately upon acquiring
knowledge of (A) the institution by the Pension Benefit Guaranty
Corporation or any other Person of any proceeding under ERISA
seeking the termination of any Pension Plan or the appointment of
a trustee to administer any Pension Plan or (B) the complete or
<PAGE>
partial withdrawal or proposed complete or partial withdrawal by
the Borrower or any Subsidiary from any Pension Plan, provide to
the Bank and the Participant a certificate executed by the
Chairman or President or a Vice President of the Borrower and the
chief financial officer of the Borrower and describing such
proceeding, withdrawal or proposed withdrawal;
n. Changes in Management, Ownership and Control.
Except for the transactions contemplated by a Merger Agreement,
dated February 25, 1994, between the Borrower and United
Coatings, Inc., a Delaware business corporation, immediately upon
acquiring knowledge of any change in (i) the identity of the
Chairman, President or chief executive officer of the Borrower,
(ii) the beneficial ownership of any stock of the Borrower or any
Subsidiary by any Person having Control of the Borrower or any
Subsidiary or (iii) Control of the Borrower or any Subsidiary,
provide to the Bank and the Participant a certificate executed by
the Chairman or President or a Vice President of the Borrower and
specifying such change;
o. Judgments. Immediately upon acquiring knowledge
of any judgment, order or award of any court, agency or other
governmental authority or arbitrator that (i) is against or
otherwise involves the Borrower, any Subsidiary or any asset of
the Borrower or any Subsidiary and has or (so far as the Borrower
or any Subsidiary can foresee) will or might have any Material
Adverse Effect or (ii) renders invalid any Loan Document or any
action taken or to be taken pursuant to any Loan Document,
provide to the Bank and the Participant a certificate executed by
the Chairman or President or a Vice President of the Borrower and
specifying the nature of such judgment, order or award and what
action the Borrower has taken, is taking or proposes to take with
respect thereto;
p. Litigation. (i) Immediately upon acquiring knowl-
edge of the commencement or written communication of any threat
of any claim, audit, investigation or action or other legal
proceeding by or before any court, agency or other governmental
authority or before any arbitrator that (A) is against or
otherwise involves the Borrower, any Subsidiary or any asset of
the Borrower or any Subsidiary and is not fully covered by
insurance except for any reasonable deductible amount and either
involves in excess of $10,000,000 or results in excess of
$10,000,000 in the aggregate for the Borrower and all
Subsidiaries being involved in all claims, audits, investigations
and actions and other legal proceedings by or before any court,
agency or other governmental authority or before any arbitrator
against or otherwise involving the Borrower, any Subsidiary or
any asset of the Borrower or any Subsidiary, (B) has or (so far
as the Borrower or any Subsidiary can foresee) will or might have
any Material Adverse Effect or (C) questions the validity of any
Loan Document or any action taken or to be taken pursuant to any
Loan Document, provide to the Bank and the Participant a
certificate executed by the Chairman or President or a Vice
President of the Borrower and specifying the nature of such
claim, audit, investigation or action or other legal proceeding
and what action the Borrower has taken, is taking or proposes to
<PAGE>
take with respect thereto and (ii) immediately upon acquiring
knowledge of any development with respect to any claim, audit,
investigation or action or other legal proceeding theretofore
disclosed by the Borrower to the Bank or the Participant that has
or (so far as the Borrower or any Subsidiary can foresee) will or
might have any Material Adverse Effect, provide to the Bank and
the Participant a certificate executed by the Chairman or Presi-
dent or a Vice President of the Borrower and specifying the
nature of such development and what action the Borrower has
taken, is taking or proposes to take with respect thereto;
q. Liens and Encumbrances. Immediately upon acquir-
ing knowledge that any asset of the Borrower or any Subsidiary
has or may become subject to any security interest, mortgage or
other lien or encumbrance other than Permitted Liens, provide to
the Bank and the Participant a certificate executed by the
Chairman or President or a Vice President of the Borrower and
specifying the nature of such security interest, mortgage or
other lien or encumbrance and what action the Borrower has taken,
is taking or proposes to take with respect thereto;
r. Defaults and Material Adverse Effects. Immediately
upon acquiring knowledge of the occurrence or existence of (i)
any Event of Default or Potential Event of Default or (ii) any
event or condition that has or (so far as the Borrower or any
Subsidiary can foresee) will or might have any Material Adverse
Effect, provide to the Bank and the Participant a certificate
executed by the Chairman or President or a Vice President of the
Borrower and the chief financial officer of the Borrower and
specifying the nature of such Event of Default, Potential Event
of Default, event or condition, the date of occurrence or period
of existence thereof and what action the Borrower has taken, is
taking or proposes to take with respect thereto;
s. Additional Guaranties. Cause any corporation that
becomes a Subsidiary after the date of this Agreement to execute
and deliver to the Bank a guaranty agreement in form and
substance satisfactory to the Bank guaranteeing, without any
limitation as to amount, the payment of all indebtedness and
other obligations of the Borrower to the Bank, whether then
existing or thereafter arising or accruing; and
t. Further Actions. Promptly upon the request of the
Bank, execute and deliver or cause to be executed and delivered
each writing, and take or cause to be taken each other action,
that the Bank shall reasonably deem necessary or desirable in
connection with any transaction contemplated by any Loan
Document.
7. NEGATIVE COVENANTS. During the term of this
Agreement, the Borrower shall not, without the prior written
consent of the Bank, do, attempt to do or agree or otherwise
incur, assume or have any obligation to do, and the Borrower
shall assure that, without the prior written consent of the Bank,
no Subsidiary does, attempts to do or agrees or otherwise incurs,
assumes or has any obligation to do, any of the following:
<PAGE>
a. Fiscal Year. Change its fiscal year;
b. Certain Indebtedness. Create, incur, assume or
have any indebtedness or other obligation (i) arising from the
borrowing of any money or the deferral of the payment of the
purchase price of any asset or (ii) pursuant to any guaranty or
other contingent obligation (including, but not limited to, any
obligation to (A) maintain the net worth of any other Person,
(B) purchase or otherwise acquire or assume any indebtedness or
other obligation or (C) provide funds for or otherwise assure the
payment of any indebtedness or other obligation, whether by means
of any investment, by means of any purchase, sale or other
acquisition or disposition of any asset or service or otherwise),
except for indebtedness and other obligations (I) to the Bank,
(II) the total of the outstanding principal amounts of which does
not at any time exceed $4,000,000 in the aggregate for the
Borrower and all Subsidiaries, (III) constituting unsecured
normal trade debt incurred upon customary terms in the ordinary
course of its business, (IV) resulting from the endorsement in
the ordinary course of its business of any check or other
negotiable instrument for deposit or collection or (V) fully and
accurately described in Exhibit A attached to and made a part of
this Agreement;
c. Pension Obligations. (i) Engage in any Prohibit-
ed Transaction with respect to any Pension Plan, (ii) permit to
occur or exist with respect to any Pension Plan any Accumulated
Funding Deficiency or any event or condition that (A) but for a
waiver by the Internal Revenue Service would constitute an
Accumulated Funding Deficiency or (B) constitutes or will or
might constitute grounds for the institution by the Pension
Benefit Guaranty Corporation of any proceeding under ERISA
seeking the termination of such Pension Plan or the appointment
of a trustee to administer such Pension Plan, (iii) make any
complete or partial withdrawal from any Pension Plan, (iv) fail
to make to any Pension Plan any contribution that it is required
to make, whether to meet any minimum funding standard under ERISA
or any requirement of such Pension Plan or otherwise, or (v)
terminate any Pension Plan in any manner, or otherwise take or
omit to take any action with respect to any Pension Plan, that
would or might result in the imposition of any lien upon any
asset of the Borrower or any Subsidiary pursuant to ERISA;
d. Liens and Encumbrances. Cause or permit, whether
upon the happening of any contingency or otherwise, any of its
assets to be subject to any security interest, mortgage or other
lien or encumbrance, except for Permitted Liens;
e. Capital Expenditures. Make (whether by means of
any purchase or other acquisition of any asset, by means of any
capital lease or otherwise) capital expenditures exceeding
$20,000,000 in the aggregate for the Borrower and all Subsidiar-
ies during any two consecutive fiscal years of the Borrower;
f. Operating Leases. Create, incur, assume or have
indebtedness and other obligations for fixed payments (whether
rentals, taxes, premiums for insurance or otherwise) pursuant to
<PAGE>
any operating lease (whether as a lessee or otherwise) exceeding
$5,500,000 in the aggregate for the Borrower and all Subsidiaries
during any fiscal year of the Borrower;
g. Investments. Make any investment (whether by
means of any purchase or other acquisition of any security or
interest, by means of any capital contribution or otherwise) in
any Person, except for Permitted Investments;
h. Loans. Make any loan, advance or other extension
of credit, except for Permitted Loans;
i. Transactions with Affiliates. In the ordinary
course of its business or otherwise, enter into, assume or permit
to exist any agreement, arrangement, transaction or other dealing
(including, but not limited to, the purchase, sale, lease,
exchange or other acquisition or disposition of any asset and the
rendering of any service) between it and any Affiliate or other-
wise deal with any Affiliate, except for (i) reasonable compensa-
tion for services actually performed, (ii) advances made in the
ordinary course of its business to any Affiliate who is one of
its officers and employees for out-of-pocket expenses incurred by
such Affiliate on its behalf in the conduct of its business or
operations, (iii) agreements, arrangements, transactions and
other dealings in the ordinary course of its business upon fair
and reasonable terms no less favorable to it than would apply in
a comparable arm's-length agreement, arrangement, transaction or
other dealing with a Person who or that is not an Affiliate and
(iv) agreements, arrangements, transactions and other dealings
fully and accurately described in Exhibit A attached to and made
a part of this Agreement;
j. Corporate Changes. (i) Assign, sell, lease as a
lessor or otherwise transfer or dispose of all or substantially
all of its assets, (ii) participate in any merger, consolidation
or other absorption, (iii) acquire all or substantially all of
the assets of any other Person, (iv) do business under or
otherwise use any name other than its true name or (v) make any
change in its corporate or business structure, any of its
business objectives and purposes or its business or operations
that would or might have any Material Adverse Effect, except that
(A) any Subsidiary may assign, sell, lease as a lessor or
otherwise transfer or dispose of all or substantially all of its
assets to the Borrower or any other Subsidiary, (B) any
Subsidiary may be merged into the Borrower or any other
Subsidiary, (B) any other corporation may be merged into the
Borrower in order to implement any Permitted Investment provided
that immediately after such merger there has not occurred or
existed and does not exist any Event of Default or Potential
Event of Default, (C) any Subsidiary may be merged or
consolidated with any other corporation in order to implement any
Permitted Investment provided that (I) the surviving or
continuing corporation is a Subsidiary and (II) immediately after
such merger or consolidation there has not occurred or existed
and does not exist any Event of Default or Potential Event of
Default and (E) the Borrower or any Subsidiary may acquire all or
substantially all of the assets of any other Person or any
<PAGE>
division or product line of any other Person in order to
implement any Permitted Investment provided that immediately
after such acquisition there has not occurred or existed and does
not exist any Event of Default or Potential Event of Default;
k. Sale of Receivables. Assign, sell or otherwise
transfer or dispose of any of its notes receivable, accounts
receivable and chattel paper, whether with or without recourse;
l. Stock of Subsidiary. Issue or sell any stock of
any Subsidiary, except (i) to the minimum extent required by any
applicable Law to enable any individual to serve as a director of
such Subsidiary, (ii) as a dividend to the shareholders of such
Subsidiary, (iii) to the Borrower or another Subsidiary and (iv)
if, in the case of any such sale, the net proceeds thereof after
taxes in excess of $5,000,000 are applied, if applied on or prior
to August 3, 1996, to the outstanding principal amounts of
Revolving Loans or, if applied after August 3, 1996, to the
outstanding principal amount of the Term Loan; or
m. Full Disclosure. Provide to the Bank or permit to
be provided to the Bank on its behalf any certificate, financial
statement or other writing that contains any statement of fact
that is incorrect or misleading in any material respect or omits
to state any fact necessary to make any statement of fact con-
tained therein not incorrect or misleading in any material
respect.
8. INDEBTEDNESS IMMEDIATELY DUE. Upon or at any time
or from time to time after the occurrence or existence of any
Event of Default other than (a) with respect to the Borrower, an
Event of Default described in clause (iv) of Section 1j of this
Agreement or (b) during the 60 days beginning on the date of this
Agreement, an Event of Default described in clause (i)(B) of such
Section 1j and constituting a default in complying with Section
6c, 6d, 6e, 6f or 6g of this Agreement, the outstanding principal
amount of each Loan, all interest owing pursuant to this Agree-
ment and remaining unpaid and all other amounts owing by the
Borrower to the Bank pursuant to this Agreement and remaining
unpaid shall, at the sole option of the Bank and without any
notice, demand, presentment or protest of any kind (each of which
is knowingly, voluntarily, intentionally and irrevocably waived
by the Borrower), become immediately due. Upon the occurrence or
existence of, with respect to the Borrower, any Event of Default
described in such clause (iv), such outstanding principal amount,
all such interest and all such other amounts shall, without any
notice, demand, presentment or protest of any kind (each of which
is knowingly, voluntarily, intentionally and irrevocably waived
by the Borrower), automatically become immediately due.
9. EXPENSES; INDEMNIFICATION.
a. Expenses. The Borrower shall pay to the Bank and
the Participant on demand each cost and expense (including, but
not limited to, the reasonable fees and disbursements of counsel
to the Bank or the Participant) incurred by the Bank or the
Participant in connection with (i) the preparation of, entry into
<PAGE>
or performance of any Loan Document, whether or not any Loan is
made, or (ii) any modification of or release, consent or waiver
relating to any Loan Document, whether or not such modification,
release, consent or waiver becomes effective. In addition, the
Borrower shall pay to the Bank and the Participant on demand each
cost and expense (including, but not limited to, the reasonable
fees and disbursements of counsel to the Bank or the Participant,
whether retained for advice, litigation or any other purpose)
incurred by the Bank or the Participant in endeavoring to (i)
collect any of the outstanding principal amount of any Loan, any
interest owing pursuant to this Agreement and remaining unpaid or
any other amount owing by the Borrower to the Bank pursuant to
this Agreement and remaining unpaid, (ii) preserve or exercise
any right or remedy of the Bank relating to, enforce or realize
upon any collateral, subordination, guaranty, endorsement or
other security or assurance of payment now or hereafter directly
or indirectly securing the repayment or payment of or otherwise
now or hereafter directly or indirectly applicable to any of such
outstanding principal amount, any such interest or any such other
amount, (iii) preserve or exercise any right or remedy of the
Bank or the Participant pursuant to any Loan Document or (iv)
defend against any claim, regardless of the basis or outcome
thereof, asserted against the Bank or the Participant as a direct
or indirect result of the entry into any Loan Document, except
for any claim for any tax imposed by any government or political
subdivision upon any income of the Bank or the Participant or any
interest or penalty relating to any such tax. Finally, if the
Bank or the Participant incurs any loss, cost or expense as a
direct or indirect result of the repayment in advance in full or
in part of any Libor Rate Portion for any Loan (whether by reason
of any reduction in yield, by reason of the liquidation or
reemployment of any deposit or other funds acquired by it by
reason of the fixing of the rate of interest payable on the
outstanding principal amount of any Loan or otherwise), the
Borrower shall pay to it on demand such loss, cost or expense,
the determination of which by it shall, in the absence of
manifest error, be conclusive and binding upon the Borrower.
b. Indemnification. The Borrower shall indemnify the
Bank, the Participant and each officer, employee, accountant,
attorney and other agent of the Bank or the Participant on demand
against each liability, cost and expense (including, but not
limited to, the reasonable fees and disbursements of counsel to
the Bank, the Participant or such officer, employee, accountant,
attorney or other agent, whether retained for advice, litigation
or any other purpose, and all costs of any investigation,
monitoring, removal, remediation or restoration) imposed on,
incurred by or asserted against the Bank, the Participant or such
officer, employee, accountant, attorney or other agent as a
direct or indirect result of, except to the extent caused by the
Bank, the Participant or such officer, employee, accountant,
attorney or other agent, (i) any Release or threatened Release of
any Hazardous Material at, in, on or under any property now or
previously owned, leased as a lessee or used by the Borrower or
any Subsidiary, (ii) any active or abandoned underground storage
tank at, in, on or under any such property, (iii) any polychlori-
nated biphenyl or friable asbestos at, in, on or under any such
<PAGE>
property, (iv) the existence of any condition at, in, on or under
any such property that gives or might give rise to any liability
pursuant to any Environmental Law or (v) the Borrower or any
Subsidiary transporting or arranging for the transportation of
any Hazardous Material to or from any property.
10. NOTICES. Each notice and other communication by
the Bank or the Participant to the Borrower or by the Borrower to
the Bank or the Participant relating to this Agreement (a) shall
be given in writing (including, but not limited to, facsimile),
(b) if given by facsimile, shall be directed to the intended
recipient thereof at the last telephone number for receipt of
facsimiles by such intended recipient shown in the following
sentence or at such other telephone number for receipt of
facsimiles by such intended recipient as may at any time or from
time to time be specified in any notice given by such intended
recipient to the giver of such notice as provided in this
sentence, (c) if given otherwise, shall be directed to such
intended recipient at the address of such intended recipient
shown in the following sentence or at such other address as may
at any time or from time to time be specified in any notice given
by such intended recipient to the giver of such notice as
provided in this sentence and (d) if sent by mail or overnight
courier service, shall be deemed to have been given when
deposited in the mail, first-class or certified postage prepaid,
or accepted by any post office or overnight courier service for
delivery and to have been received by such intended recipient
upon the earlier of (i) the actual receipt thereof or (ii) three
days after being so deposited or accepted. Each such notice and
other communication shall (a) if to the Bank, be directed to
(i) if given by facsimile, Manufacturers and Traders Trust
Company, Attention: Western New York Commercial Banking
Department, at 716-848-7318, with a courtesy copy to Hodgson,
Russ, Andrews, Woods & Goodyear, Attention: Christian G. Koelbl,
III, Esq., at 716-849-0349 or (ii) if given otherwise,
Manufacturers and Traders Trust Company, One Fountain Plaza,
Buffalo, New York 14240, Attention: Western New York Commercial
Banking Department, with a courtesy copy to Hodgson, Russ,
Andrews, Woods & Goodyear, 1800 One M&T Plaza, Buffalo, New York
14203, Attention: Christian G. Koelbl, III, Esq., (b) if to the
Participant, be directed (i) if given by facsimile, Chemical
Bank, Attention: Pratt & Lambert, Inc. Account Officer, at 716-
843-4939, with a courtesy copy to Albrecht, Maguire, Heffern &
Gregg, P.C., Attention: David C. Horan, Esq., at 716-852-2609 or
(ii) if given otherwise, Chemical Bank, 2300 Main Place Tower,
Buffalo, New York 14202, Attention: Pratt & Lambert, Inc. Account
Officer, with a courtesy copy to Albrecht, Maguire, Heffern &
Gregg, P.C., 2100 Main Place Tower, Buffalo, New York 14202,
Attention: David C. Horan, Esq., or (c) if to the Borrower, be
directed to (i) if given by facsimile, Pratt & Lambert, Inc.,
Attention: James R. Boldt, Vice President/Finance, at 716-873-
5021, with a courtesy copy to Cohen, Swados, Wright, Hanifin,
Bradford & Brett, Attention: F. Harris Nichols, Esq., at 716-856-
5228 or (ii) if given otherwise, Pratt & Lambert, Inc., 75
Tonawanda Street, Buffalo, New York 14207, Attention: James R.
Boldt, Vice President/Finance, with a courtesy copy to Cohen,
Swados, Wright, Hanifin, Bradford & Brett, 70 Niagara Street,
Buffalo, New York 14202, Attention: F. Harris Nichols, Esq.
<PAGE>
11. MISCELLANEOUS.
a. Term; Survival. The term of this Agreement shall
be until the principal amount of each Loan, all interest owing
pursuant to this Agreement and all other amounts owing by the
Borrower to the Bank pursuant to this Agreement have been fully
and indefeasibly repaid, paid or otherwise discharged. The
obligation of the Borrower to pay liabilities, costs and expenses
described in Section 9 of this Agreement shall survive for one
year beyond the term of this Agreement.
b. Survival; Reliance. Each representation, warran-
ty, covenant and agreement of the Borrower contained in this
Agreement shall survive the making of each Loan and the execution
and delivery to the Bank of each Loan Document and shall continue
in full force and effect during the term of this Agreement. Each
such representation, warranty, covenant and agreement shall be
presumed to have been relied upon by the Bank regardless of any
investigation made or not made, or any information possessed or
not possessed, by the Bank.
c. Right of Setoff. Upon and at any time and from
time to time after any occurrence or existence of any Event of
Default, (i) the Bank shall have the right, at the sole option of
the Bank and without any notice or demand of any kind (each of
which is knowingly, voluntarily, intentionally and irrevocably
waived by the Borrower), to place an administrative hold on and
set off against (A) the outstanding principal amount of each
Loan, all interest owing pursuant to this Agreement and remaining
unpaid and all other amounts owing by the Borrower to the Bank
pursuant to this Agreement and remaining unpaid (B) each indebt-
edness and other obligation of the Bank in any capacity to, in
any capacity and whether alone or otherwise, the Borrower,
whether now existing or hereafter arising or accruing, whether or
not then due and whether pursuant to any deposit account or
otherwise, and (ii) each holder of any participation in any
unpaid indebtedness of the Borrower to the Bank pursuant to this
Agreement shall have the right, at the sole option of such holder
and without any notice or demand of any kind (each of which is
knowingly, voluntarily, intentionally and irrevocably waived by
the Borrower), to place an administrative hold on and set off
against (A) such unpaid indebtedness, to the extent of such
holder's participation in such unpaid indebtedness, (B) each
indebtedness and other obligation of such holder in any capacity
to, in any capacity and whether alone or otherwise, the Borrower,
whether now existing or hereafter arising or accruing, whether or
not then due and whether pursuant to any deposit account or
otherwise. Such setoff shall become effective at the time the
Bank or such holder opts therefor even though evidence thereof is
not entered on the records of the Bank or such holder until
later.
d. Assignment or Grant of Participation. The Bank
shall have the right to assign or otherwise transfer or grant any
participation in this Agreement, any indebtedness or other
obligation of the Borrower pursuant to this Agreement or any
right or remedy of the Bank pursuant to this Agreement provided
<PAGE>
that the Bank promptly discloses the identity of any such
participant to the Borrower. The Borrower shall not assign or
otherwise transfer any right or indebtedness or other obligation
of the Borrower pursuant to this Agreement without the prior
written consent of the Bank, and any such assignment or other
transfer without such prior written consent shall be void. No
consent by the Bank to any such assignment or other transfer
shall release the Borrower from any such indebtedness or other
obligation.
e. Binding Effect. This Agreement shall be binding
upon each Borrower and each direct or indirect successor and
assignee of each Borrower and shall inure to the benefit of and
be enforceable by the Bank and each direct or indirect successor
and assignee of the Bank.
f. Entire Agreement, Modifications and Waivers. This
Agreement contains the entire agreement between the Bank and the
Borrower with respect to the subject matter of this Agreement and
supersedes each action heretofore taken or not taken, each course
of conduct heretofore pursued, accepted or acquiesced in, and
each oral or written agreement and representation heretofore
made, by or on behalf of the Bank with respect thereto. No
action heretofore or hereafter taken or not taken, no course of
conduct heretofore or hereafter pursued, accepted or acquiesced
in, no oral or written agreement or representation heretofore
made, and no oral agreement or representation hereafter made, by
or on behalf of the Bank shall modify or terminate this Agree-
ment, impair or otherwise adversely affect any indebtedness or
other obligation of the Borrower pursuant to this Agreement or
any right or remedy of the Bank pursuant to this Agreement or
arising as a result of this Agreement or operate as a waiver of
any such right or remedy. No modification of this Agreement or
waiver of any such right or remedy shall be effective unless made
in a writing duly executed by the Bank and specifically referring
to such modification or waiver.
g. Rights and Remedies Cumulative. All rights and
remedies of the Bank pursuant to this Agreement or arising as a
result of this Agreement shall be cumulative, and no such right
or remedy shall be exclusive of any other such right or remedy.
For example, all rights and remedies of the Bank pursuant to
Section 8 of this Agreement shall be in addition to all other
rights and remedies of the Bank, whether pursuant to any Loan
Document or applicable law.
h. Requests. Each request of the Bank pursuant to
this Agreement may be made (i) at any time and from time to time,
(ii) at the sole option of the Bank and (iii) whether or not any
Event of Default or Potential Event of Default has occurred or
existed.
i. Extent of Consents and Waivers. Each consent and
waiver of the Bank or the Borrower contained in this Agreement
shall be deemed to have been given to the extent permitted by
applicable law.
<PAGE>
j. Directly or Indirectly. Any provision of this
Agreement that prohibits or has the effect of prohibiting the
Borrower or any Subsidiary from taking any action shall be
construed to prohibit it from taking such action directly or
indirectly.
k. Accounting Terms and Computations. Each account-
ing term used in this Agreement shall be construed as of any time
in accordance with generally accepted accounting principles as in
effect at such time. Each accounting computation that this
Agreement requires to be made as of any time shall be made in
accordance with such principles as in effect at such time, except
where such principles are incompatible with any requirement of
this Agreement.
l. Reference to Law. Any reference in this Agreement
to any Law shall be deemed to be as of any time a reference to
such Law as in effect at such time or, if such Law is not in
effect at such time, a reference to any similar Law in effect at
such time.
m. Reference to Governmental Authority. Any refer-
ence in this Agreement to any court, agency or other governmental
authority shall be deemed to be as of any time after such court,
agency or other governmental authority ceases to exist a refer-
ence to the successor of such court, agency or other governmental
authority at such time.
n. Severability. Whenever possible, each provision
of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law. If, however, any such
provision shall be prohibited by or invalid under such law, it
shall be deemed modified to conform to the minimum requirements
of such law, or, if for any reason it is not deemed so modified,
it shall be prohibited or invalid only to the extent of such
prohibition or invalidity without the remainder thereof or any
other such provision being prohibited or invalid.
o. Governing Law. This Agreement shall be governed
by and construed, interpreted and enforced in accordance with the
internal law of the State of New York, without regard to princi-
ples of conflict of laws.
p. Headings. In this Agreement, headings of sections
are for convenience of reference only and have no substantive
effect.
12. CONSENTS AND WAIVERS RELATING TO LEGAL PROCEED-
INGS.
a. JURISDICTIONAL CONSENTS AND WAIVERS. THE BORROWER
KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY (I) CON-
SENTS IN EACH ACTION AND OTHER LEGAL PROCEEDING COMMENCED BY THE
BANK IN CONNECTION WITH ANY LOAN, ANY LOAN DOCUMENT OR ANY
COLLATERAL, SUBORDINATION, GUARANTY, ENDORSEMENT OR OTHER SECURI-
TY OR ASSURANCE OF PAYMENT NOW OR HEREAFTER DIRECTLY OR INDIRECT-
LY SECURING THE REPAYMENT OR PAYMENT OF OR OTHERWISE NOW OR
<PAGE>
HEREAFTER DIRECTLY OR INDIRECTLY APPLICABLE TO ANY OF THE PRINCI-
PAL AMOUNT OF ANY LOAN, ANY INTEREST OWING PURSUANT TO THIS
AGREEMENT OR ANY OTHER AMOUNT OWING BY THE BORROWER TO THE BANK
PURSUANT TO THIS AGREEMENT TO THE PERSONAL JURISDICTION OF ANY
COURT THAT IS EITHER A COURT OF RECORD OF THE STATE OF NEW YORK
OR A COURT OF THE UNITED STATES LOCATED IN THE STATE OF NEW YORK,
(II) WAIVES EACH OBJECTION TO THE LAYING OF VENUE OF ANY SUCH
ACTION OR OTHER LEGAL PROCEEDING, (III) WAIVES PERSONAL SERVICE
OF PROCESS IN EACH SUCH ACTION AND OTHER LEGAL PROCEEDING, (IV)
CONSENTS TO THE MAKING OF SERVICE OF PROCESS IN EACH SUCH ACTION
AND OTHER LEGAL PROCEEDING BY REGISTERED MAIL DIRECTED TO THE
BORROWER AT THE LAST ADDRESS OF THE BORROWER SHOWN IN THE RECORDS
RELATING TO THIS AGREEMENT MAINTAINED BY THE BANK, WITH SUCH
SERVICE OF PROCESS TO BE DEEMED COMPLETED FIVE DAYS AFTER THE
MAILING THEREOF, (V) WAIVES EACH RIGHT TO ATTACK ANY FINAL
JUDGMENT THAT IS OBTAINED AS A DIRECT OR INDIRECT RESULT OF ANY
SUCH ACTION OR OTHER LEGAL PROCEEDING AND (VI) CONSENTS TO EACH
SUCH FINAL JUDGMENT BEING SUED UPON IN ANY COURT HAVING JURISDIC-
TION WITH RESPECT THERETO AND ENFORCED IN THE JURISDICTION IN
WHICH SUCH COURT IS LOCATED AS IF ISSUED BY SUCH COURT.
b. WAIVER OF TRIAL BY JURY AND CLAIMS TO CERTAIN
DAMAGES. EACH OF THE BANK AND THE BORROWER KNOWINGLY, VOLUNTARI-
LY, INTENTIONALLY AND IRREVOCABLY WAIVES EACH RIGHT IT MAY HAVE
TO A TRIAL BY JURY WITH RESPECT TO, AND EACH RIGHT TO ASSERT ANY
CLAIM FOR EXEMPLARY OR PUNITIVE DAMAGES IN ADDITION TO ACTUAL,
CONSEQUENTIAL AND SPECIAL DAMAGES IN, ANY ACTION OR OTHER LEGAL
PROCEEDING, WHETHER BASED ON ANY CONTRACT OR NEGLIGENT OR INTEN-
TIONAL TORT OR OTHERWISE, IN CONNECTION WITH (I) ANY LOAN, ANY
LOAN DOCUMENT OR ANY COLLATERAL, SUBORDINATION, GUARANTY, EN-
DORSEMENT OR OTHER SECURITY OR ASSURANCE OF PAYMENT NOW OR
HEREAFTER DIRECTLY OR INDIRECTLY SECURING THE REPAYMENT OR
PAYMENT OF OR OTHERWISE NOW OR HEREAFTER DIRECTLY OR INDIRECTLY
APPLICABLE TO ANY OF THE PRINCIPAL AMOUNT OF ANY LOAN, ANY
INTEREST OWING PURSUANT TO THIS AGREEMENT OR ANY OTHER AMOUNT
OWING BY THE BORROWER TO THE BANK PURSUANT TO THIS AGREEMENT OR
(II) ANY ACTION HERETOFORE OR HEREAFTER TAKEN OR NOT TAKEN, ANY
COURSE OF CONDUCT HERETOFORE OR HEREAFTER PURSUED, ACCEPTED OR
ACQUIESCED IN, OR ANY ORAL OR WRITTEN AGREEMENT OR REPRESENTATION
HERETOFORE OR HEREAFTER MADE, BY OR ON BEHALF OF THE OTHER IN
CONNECTION WITH ANY LOAN, ANY LOAN DOCUMENT OR ANY SUCH COLLATER-
AL, SUBORDINATION, GUARANTY, ENDORSEMENT OR OTHER SECURITY OR
ASSURANCE OF PAYMENT. THIS SECTION 12b IS A MATERIAL INDUCEMENT
FOR EACH OF THE BANK AND THE BORROWER IN CONNECTION WITH ITS
ENTRY INTO THIS AGREEMENT.
The Bank and the Borrower have caused this Agreement to
be duly executed on the date shown at the beginning of this
Agreement.
MANUFACTURERS AND TRADERS TRUST COMPANY
By_________________________________________
Robert J. Daigler, Vice President
<PAGE>
PRATT & LAMBERT, INC.
By_________________________________________
James R. Boldt, Vice President/Finance
<PAGE>
ACKNOWLEDGMENTS
STATE OF NEW YORK )
: SS.
COUNTY OF ERIE )
On the 3rd day of August in the year 1994, before me
personally came Robert J. Daigler, to me known, who, being by me
duly sworn, did depose and say that he resides at 46 Eastwick
Drive, Williamsville, New York 14221; that he is a Vice President
of Manufacturers and Traders Trust Company, the corporation de-
scribed in and which executed the above instrument; and that he
signed his name thereto by order of the board of directors of
said corporation.
_________________________________________
Notary Public
<PAGE>
STATE OF NEW YORK )
: SS.
COUNTY OF ERIE )
On the 3rd day of August in the year 1994, before me
personally came James R. Boldt, to me known, who, being by me
duly sworn, did depose and say that he resides at 142 Audubon
Drive, Snyder, New York 14226; that he is the Vice
President/Finance of Pratt & Lambert, Inc., the corporation
described in and which executed the above instrument; and that he
signed his name thereto by order of the board of directors of
said corporation.
__________________________________________
Notary Public
<PAGE>
EXHIBIT A
<PAGE>
<TABLE>
PRATT & LAMBERT UNITED, INC. AND SUBSIDIARY COMPANIES EXHIBIT 11
EARNINGS PER SHARE COMPUTATION
FOR THE FIVE YEARS ENDED DECEMBER 31, 1994
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
___________________________________________________________________________________________________
<CAPTION>
LINE
NO. 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
Income:
1. Net Income $ 5,619 $ 4,756 $ 5,163 $ 6,211 $ 5,517
========== ========== ========== ========== ==========
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE - ASSUMING NO DILUTION:
Shares:
Average number of common shares
outstanding 5,687,404 5,519,670 5,533,985 5,552,578 7,645,319
Incremental shares - Dilutive stock
options (A) 37,993 60,936 78,629 106,812 136,972
__________ __________ __________ __________ __________
2. Total 5,725,397 5,580,606 5,612,614 5,659,390 7,782,291
========== ========== ========== ========== ==========
3. Decremental shares - Anti-dilutive
stock options (A) 57,081 28,378 2,585 10,727 4,289
__________ __________ __________ __________ __________
4. EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE - ASSUMING NO
DILUTION: (B)
Net Income (1 divided by 2) $ .98 $ .85 $ .92 $ 1.10 $ .71
========== ========== ========== ========== ==========
5. EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE - ASSUMING NO
DILUTION
ADJUSTED FOR ANTI-DILUTIVE EFFECT
OF STOCK OPTIONS:
Net Income (1 divided by (2-3)) $ .99 $ .86 $ .92 $ 1.10 $ .71
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
PRATT & LAMBERT UNITED, INC. AND SUBSIDIARY COMPANIES EXHIBIT 11
EARNINGS PER SHARE COMPUTATION
FOR THE FIVE YEARS ENDED DECEMBER 31, 1994
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
___________________________________________________________________________________________________
<CAPTION>
LINE
NO. 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE - ASSUMING FULL DILUTION:
Shares:
Average number of common shares
outstanding 5,687,404 5,519,670 5,533,985 5,552,578 7,645,319
Incremental shares - Dilutive
stock options (A) 39,077 75,267 81,180 122,645 185,883
__________ __________ __________ __________ __________
6. Total 5,726,481 5,594,937 5,615,165 5,675,223 7,831,202
========== ========== ========== ========== ==========
7. Decremental shares - Anti-Dilutive
stock options (A) 57,081 14,801 12,585 10,410 0
__________ __________ __________ __________ _________
8. EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE - ASSUMING FULL
DILUTION AND ADJUSTED FOR DILUTIVE
EFFECT OF STOCK OPTIONS
Net Income (1 divided by 6) (B) $ .98 $ .85 $ .92 $ 1.09 $ .70
========== ========== ========== ========== ==========
9. EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE - ASSUMING FULL
DILUTION AND ADJUSTED FOR ANTI-
DILUTIVE EFFECT OF STOCK OPTIONS:
Net Income (1 divided by (6-7)) $ .99 $ .85 $ .92 $ 1.10 $ .70
========== ========== ========== ========== ==========
(A) Detail computations omitted because of insignificant number of shares and effect on total
earnings per share.
(B) These figures agree with the related amounts in Item 6 - Selected Financial Data, except for
the 1994 one-time charges for severance associated with the adoption of Financial Accounting
Standards Board Statements No. 112, Employers' Accounting for Postemployment Benefits, as well
as costs related to the company's restructuring activities.
</TABLE>
<PAGE>
EXHIBIT (22)
SUBSIDIARIES OF PRATT & LAMBERT UNITED, INC.
State or Jurisdiction
Name of Incorporation
Pierce & Stevens Corporation New York
and its wholly-owned subsidiaries,
Pierce & Stevens Canada, Inc. and Canada
Pierce & Stevens de Mexico Mexico
Southern Coatings, Inc. South Carolina
Miracle Adhesives Corporation New York
United Paint Company Tennessee
UP Coatings, Inc. California
Weather-Flex, Incorporated New York
Eastern Coatings Corporation New York
United Coatings, Inc. Delaware
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 3,370
<SECURITIES> 0
<RECEIVABLES> 66,644
<ALLOWANCES> 3,470
<INVENTORY> 62,326
<CURRENT-ASSETS> 138,329
<PP&E> 104,379
<DEPRECIATION> 58,021
<TOTAL-ASSETS> 291,543
<CURRENT-LIABILITIES> 73,199
<BONDS> 71,103
<COMMON> 134
0
0
<OTHER-SE> 166,194
<TOTAL-LIABILITY-AND-EQUITY> 291,543
<SALES> 328,901
<TOTAL-REVENUES> 328,901
<CGS> 231,915
<TOTAL-COSTS> 231,915
<OTHER-EXPENSES> 2,603
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,496
<INCOME-PRETAX> 9,812
<INCOME-TAX> 4,295
<INCOME-CONTINUING> 12,415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,517
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.70
</TABLE>
