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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1998
Commission file number: 1-10928
INTERTAPE POLYMER GROUP INC.
(Exact name of Registrant as specified in its charter)
Canada
(Jurisdiction of incorporation or organization)
110E Montee de Liesse, St. Laurent, Quebec H4T 1N4 Canada
(Address of principal executive offices)
Securities registered pursuant Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Shares, without American Stock Exchange
nominal or par value The Toronto Stock Exchange
Securities registered or to be registered pursuant to Section 12(g)
of the Act: -NONE-
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: -NONE-
The number of outstanding shares of each of the issuer's classes of capital
stock as of December 31, 1998 is:
25,194,333 Common Shares
-0- Preferred Shares
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ___x___ No _____
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 ___x___ Item 18 _____
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TABLE OF CONTENTS
ITEM CAPTION PAGE
- ---- ------- ----
CAUTIONARY STATEMENTS AND RISK FACTORS . . . . . . . . . . . . . . . . . . .-1-
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-1-
ITEM 1. DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . . .-2-
ITEM 2. DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . . -18-
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . -19-
ITEM 4. CONTROL OF REGISTRANT. . . . . . . . . . . . . . . . . . . . . . -19-
ITEM 5. NATURE OF TRADING MARKET.. . . . . . . . . . . . . . . . . . . . -20-
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
SECURITY HOLDERS.. . . . . . . . . . . . . . . . . . . . . . . . -21-
ITEM 7. TAXATION.. . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
ITEM 8. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . -23-
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . -27-
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.. . . . . . . . . . . . . . -29-
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.. . . . . . . . . . . . . -33-
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT
OR SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . . -34-
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS . . . . . . . . . -37-
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
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PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
ITEM 15. DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . . . . . -39-
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY
FOR REGISTERED SECURITIES. . . . . . . . . . . . . . . . . . . . -39-
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
ITEM 17. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . -39-
ITEM 18. FINANCIAL STATEMENTS.. . . . . . . . . . . . . . . . . . . . . . -40-
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS. . . . . . . . . . . . . . . . -40-
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
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CAUTIONARY STATEMENTS AND RISK FACTORS
This Annual Report contains certain "forward-looking statements" within
the meaning of Section 27A of the U.S. Securities Act of 1933, as amended
(the "Securities Act") and Section 21E of the U.S. Securities Exchange Act of
1934, as amended (the "Exchange Act") concerning, among other things,
discussions of the business strategy of Intertape Polymer Group Inc. (the
"Company" or "Intertape Polymer Group") and expectations concerning the
Company's future operations, liquidity and capital resources. When used in
this Annual Report, the words "anticipate", "believe", "estimate", "expect"
and similar expressions are generally intended to identify forward-looking
statements. Such forward-looking statements, including statements regarding
intent, belief or current expectations of the Company or its management, are
not guarantees of future performance and involve risks and uncertainties.
Actual results may differ materially from those in the forward-looking
statements as a result of various factors, including those factors set forth
below and other factors discussed elsewhere in this Annual Report. In
addition to the other information contained in this Annual Report, readers
should carefully consider the cautionary statements and risk factors
contained in Item 9A below.
IMPLEMENTATION OF BUSINESS STRATEGY
The Company's business strategy includes, among other things, increasing
manufacturing capacity, developing new products, improving distribution
efficiencies, and expanding into new geographic markets. There can be no
assurance that the Company will be able to fully implement its strategy or
that the anticipated results of this strategy will be realized.
Implementation of this strategy could also be affected by a number of factors
beyond the Company's control such as manufacturing difficulties, disruption
of distribution systems, or general or local economic conditions. Any
material failure to implement its strategy could have a material adverse
effect on the Company's business, financial condition and results of
operations.
RAW MATERIAL PRICES AND AVAILABILITY
A substantial portion of the cost of manufacturing the Company's
products is the cost of raw materials, primarily petroleum based resins.
Historically, there have been fluctuations in these raw material prices due
to factors which are beyond the Company's control, and in some instances
price movements have been volatile when associated with outside influences.
There can be no assurance that the Company will be able to pass on raw
material price increases in the future. Further, in the past, there have
been shortages from time to time in the supply of certain resins. There can
be no assurances that the Company will not be subject to such shortages in
the future.
EXCHANGE RATE RISKS
The Company's result of operations are reported in Canadian dollars.
Due to the geographic mix of the Company's business, any weakening in the
value of the Canadian dollar relative to the U.S. dollar would result in
increased consolidated earnings for the Company, expressed in Canadian
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dollars. These earnings, however, on an earnings per share basis, would be
negatively impacted when translated into U.S. dollars. Since the trading
price in the United States of the Common Shares will be quoted in U.S.
dollars, any weakening of the Canadian dollar relative to the U.S. dollar
could result in a decline in the market value and trading price of the Common
Shares measured in U.S. dollars. The exchange rate between Canadian dollars
and U.S. dollars has varied significantly over the last five years.
NEW PRODUCT DEVELOPMENT
The Company is developing returnable plastic cases for the
transportation and retail display of fruits and vegetables and other new
products. Any new product involves risk and, as in the case of stretch wrap,
may require significant capital expenditures. There can be no assurance that
the returnable plastic cases, or any other new products, will produce
revenues or profits for the Company, and that expenditures thereon will not
have a material adverse effect on the Company's results of operations.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Intertape Polymer Group develops, manufactures and sells a variety of
specialized polyolefin plastic packaging products for industrial use. These
products include pressure sensitive and water activated carton sealing tape,
masking and reinforced filament pressure sensitive tapes, duct tapes, acrylic
coating, EXLFILM-TM- shrink wrap ("EXLFILM-TM-"), STRETCHFLEX-TM- stretch wrap
("STRETCHFLEX-TM-") and woven products. Most of the Company's products are
derived from resins that are converted into films and adhesives. Resins also
are combined with paper and converted into a variety of packaging products.
Vertical integration, whereby the Company performs each step in the conversion
of polyolefin resins and paper into its various products, and continuous capital
expenditures to increase manufacturing efficiencies allow the Company to be
among the low-cost producers of each product it manufactures. This vertical
integration combined with the use of high speed production equipment provides
competitive advantages to the Company in flexibility and control of the
manufacturing process and in speed of delivery. Management considers all of its
products to be within one operational segment because all products are made
basically from similar extrusion processes and differ only in the final stages
of manufacturing.
The Company's most recent expansion of its product offering occurred with
the September, 1998 acquisition of Anchor Continental Inc. ("Anchor"), a U.S.
manufacturer of pressure sensitive tapes, including both masking and duct tapes,
and the October, 1998, acquisition of Rexford Paper Company ("Rexford"), a
redistributor of a variety of pressure sensitive tapes and a manufacturer of
water activated tapes.
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In addition, the Company announced in April, 1999, that it has agreed to
acquire two subsidiaries of Spinnaker Industries, Inc., Central products
Company, a leading manufacturer of carton sealing and other industrial tapes,
and Spinnaker Electrical, a pressure sensitive electrical tape business. As of
the date of filing, this acquisition has not been consummated.
The Company's revenues are derived primarily from sales of its products in
the United States and Canada, with approximately 89% of the Company's 1998
revenues attributable to sales in the United States. The Company is
headquartered in Montreal, Quebec and maintains 2.4 million square feet of
manufacturing facilities throughout the United States, Canada and Portugal.
The registered office of the Company is located at 1155 Rene-Levesque
Boulevard West, Suite 4000, Montreal, Quebec, Canada H3B 3V2, and its principal
executive offices are located at 110E Montee de Liesse St. Laurent, Quebec,
Canada H4T 1N4. The Company's telephone number at its principal executive
offices is (514) 731-0731.
HISTORY
The Company's business was established in 1981 by Melbourne F. Yull,
Intertape Polymer Group's Chairman of the Board and Chief Executive Officer,
when Intertape Systems Inc. ("Systems"), a predecessor of the Company,
established a pressure sensitive tape manufacturing facility in Montreal.
Intertape Polymer Group was incorporated under the laws of Canada in 1989 and in
February, 1992, completed an initial public offering of its common shares at the
offering price of $5.035 (US$4.25)(after giving effect to a 2:1 stock split on
June 4, 1996). The Company's shares are listed on the American Stock Exchange
and, since January, 1993, on The Toronto Stock Exchange. The Company completed
a second public offering of its common shares in Canada and the United States in
October, 1995, at the offering price of $19.75 (US$14.60). The Company
completed a third public offering of its common shares in Canada on a "bought
deal" basis in March, 1999, at the offering price of $40.25 (US $26.33) per
share.
The Company has pursued a strategy of aggressive growth through both
substantial capital investments and acquisitions (See "Acquisition History"
below). When the Company commenced operations in 1981, it converted purchased
films into pressure-sensitive carton sealing tapes. Originally intended as a
local manufacturer, management of the Company decided in the mid-1980's to take
advantage of the extraordinary growth in demand for carton sealing tapes by
significantly expanding its output of such product and, thereby, its customer
base. Following adoption of this new business plan and over the next few years,
the output of the Montreal plant doubled and a new facility was constructed in
Danville, Virginia in 1987. The Virginia plant was "upstream integrated" to
include film extrusion, thereby reducing material cost. The market for carton
sealing tape has continued to grow and the Danville facility is five times
larger (measured in capacity) today than at the date of its construction.
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Even as the Company was growing its customer base in pressure sensitive
tapes, it pursued an aggressive policy of new product development to leverage
its pressure sensitive tape products. In 1992, the Company developed a new
variety of speciality shrink films and purchased and installed manufacturing
equipment to produce such films. The ability to manufacture its own shrink
films enabled the Company to participate in the shrink film market estimated to
be U.S.$500 million annually. Further, it strengthened the Company's position
with its customers.
The Company's entry into the stretch wrap market began with the Company's
concurrent development of stretch wrap products with the processes to
manufacture such products. The Company entered the stretch wrap market
(estimated at U.S.$1 billion annual sales in 1996) utilizing its existing
customer base and distribution network.
To broaden the product line and provide one-stop shopping with a "basket of
products", the Company has made a series of acquisitions. Interpak
Machinery Inc., a designer of automatic carton sealing equipment, was acquired
by the Company in 1993. In acquiring Interpak, the Company gained technology
for systems capable of utilizing large volumes of high value carton sealing
tapes. Tape Inc. was acquired in 1996 to provide a complete line of water
activated tapes. American Tape was acquired in 1997 bringing to the Company
products including high performance masking, filament and speciality products,
which mesh well with the Company's related product lines. Anchor was acquired
in 1998 and was a main competitor of the Company for the sale of masking tapes.
Rexford Paper Company ("Rexford"), a redistributor of a variety of pressure
sensitive tapes, as well as a manufacturer of water activated tapes, was also
acquired in 1998. The combination of these various product lines enables the
Company to offer the market place a range of products to service its customers'
needs.
The Company also markets products directly to the end user. Polymer
International (N.S.) Inc. ("Polymer International") and International Container
Systems, Inc. ("International Container") were acquired in 1989. Polymer
International manufactures a wide range of coated, woven polyolefin fabrics;
International Container manufactures returnable plastic cases for the beverage
industry. Since acquiring Polymer International, sales of the Company's woven
product line have increased five-fold, assisted in part by the development of
lumber wrap and other products. In addition, two small companies (Cajun Bag &
Supply Co. and Augusta Bag & Supply Co.) were purchased to produce flexible
intermediate bulk containers ("FIBC's") utilizing the Company's fabric as the
prime raw material.
The Company participates in two joint ventures: Fibope Portuguesa-Filmes
Biorientados, S.A. ("Fibope") and IFCO-U.S., L.L.C. ("IFCO"). Fibope produces
shrink films in Portugal for the European market and has doubled its
manufacturing capacity since 1995. IFCO is a provider of returnable plastic
cases for the produce industry.
Until 1998, the majority of the Company's growth came from the sale of
internally developed products. Capacity increases are ongoing throughout the
organization and all product lines. The Company's Utah manufacturing facility,
a 115,000 square foot plant, became operational in June, 1998, as scheduled and
will be expanded further in 1999. Consistent with the Company's strategy, this
plant will act not only as a producer of shrink and stretch films but also as a
distribution center
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for all of the Company's products to increase sales in the
western United States and western Canada. In 1998, there were significant
increases in revenues as a result of the acquisitions of American Tape Co.
("American Tape") (December 1997), Anchor and Rexford (October 1998).
The Anchor manufacturing facilities are located on an 87-acre site in
Columbia, South Carolina. The site includes sixteen buildings containing an
aggregate of approximately 490,000 square feet. The facility has a demand flow
manufacturing system known as the "focused factory concept". Focused factories
have been designed to maximize efficiency in material movement and are operated
using various pull system scheduling techniques that seek to improve
manufacturing velocity, reduce inventories and improve quality. The Anchor
acquisition also included five strategically located distribution facilities
located in South Carolina, Ontario, Illinois, Texas, and California,
respectively.
The Company is a holding company which owns various operating companies in
the United States and in Canada. Intertape Polymer Inc., a Canadian corporation
("IPI"), is the principal operating company for the Company's Canadian
operations. Intertape Polymer Corp., a Virginia corporation ("IPC"), is the
principal operating company for the Company's United States and international
operations including, most notably, each of the businesses referenced in the
acquisition table set forth above.
As of May 11, 1999, the Company had 28,273,559 common shares outstanding.
Unless the context otherwise requires, the terms "Intertape Polymer Group"
and the "Company" are used to refer to Intertape Polymer Group Inc. together
with all of its wholly-owned subsidiaries and joint ventures. Where the context
requires, such terms also include the predecessors of Intertape Polymer Group.
All dollar amounts referenced in this Annual Report are in Canadian Dollars
unless otherwise indicated.
ACQUISITION HISTORY
In addition to internally generated growth, the Company has engaged in a
series of acquisitions. The Company believes it now ranks among the leading
developers and manufacturers of industrial plastic packaging products in North
America. The following table illustrates the principal acquisitions completed
by the Company.
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<TABLE>
<CAPTION>
COMPLETED ACQUISITIONS
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COST OF
YEAR ACQUISITION COMPANY LOCATION PRODUCTS
- ------ -------------- ------------------------------- -------------------- ------------------------
<S> <C> <C> <C> <C>
($ in
millions)
1989 $82.4 Polymer International Corp. and Tampa, Florida Holding company
its subsidiaries:
- Polymer International Truro, Nova Scotia Woven fabrics
- International Container(1) Tampa, Florida Transport & display
cases
1993 $ 6.6 Interpak Machinery Inc. Toronto, Canada Equipment used to
seal corrugated boxes
Cajun Bag & Supply Co. Crowley, Louisiana FIBCs
1995 $3.9 IFCO-U.S., L.L.C.(2) Tampa, Florida Distributor of
returnable plastic
containers
Fibope Portugesa-Filmes Porto, Portugal EXLFILM-TM-
Biorientados S.A.(3)
1996 $12.1 Augusta Bag & Supply Co. Augusta, Georgia FIBCs
Tape, Inc. Green Bay, Water activated carton
Wisconsin sealing tape
1997 $174.5 American Tape Co. Marysville, Pressure sensitive
Michigan tapes, masking tapes
Richmond, Kentucky
1998 $173.2 Anchor Continental Inc. Columbia, Pressure sensitive tapes,
South Carolina masking and duct tapes
Rexford Paper Company Milwaukee, Pressure sensitive and water
Wisconsin activated tapes
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(1) The Company originally purchased a 67% interest in this company. In
1994, the Company conducted a tender offer for all the outstanding shares it did
not already own, the cost of this tender offer was $2.6 million.
(2) The Company acquired a 20% interest in this joint venture.
(3) The Company acquired a 50% interest in this joint venture.
BUSINESS STRATEGY
The Company's overall objective is to gain market share in large niche
markets which it believes are growing at rates faster than the economy as a
whole. The Company's strategies for achieving this objective are as follows:
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- SOLIDIFY THE COMPANY'S POSITION AS A LOW-COST MANUFACTURER. The
Company has pursued a vertically integrated manufacturing strategy as
a means of controlling the costs of its manufacturing inputs and, in
connection therewith, has made substantial investments in high-speed
production equipment and various forms of manufacturing automation.
For example, during the past several years the Company has installed
various extrusion lines of equipment for the making of film for
pressure sensitive carton sealing tapes. This allows the Company to
buy resin as a basic raw material to produce its own films and
adhesives rather than purchase them from other manufacturers at
greater cost. In addition, the Company continually undertakes
initiatives to reduce waste at its production facilities as a means
of further controlling its manufacturing costs.
- INCREASE MANUFACTURING CAPACITY. The Company believes that
increasing manufacturing capacity at its existing plants will
contribute to its ability to increase market share in its current
markets. Over the past five years, the Company has achieved an
increase in its coating capability at its Danville plant, an
increase in its output of woven products from its Truro facility
and a doubling of the EXLFILM-TM- production capacity at its Truro
facility. In addition, the Company commenced EXLFILM-TM- and
STRETCHFLEX-TM- manufacturing operations at its new facility
located in Tremonton, Utah during the second quarter of 1998 and
plans to further expand this facility during 1999.
- DEVELOP NEW PRODUCTS. The Company has been increasing its
investment in research and development and believes that it can
take advantage of its manufacturing strengths and distribution
network by introducing new products and product line extensions
which complement its existing product base. The Company introduced
in 1996 a new stretch wrap product line sold under the
STRETCHFLEX-TM- trademark. The Company through IFCO is introducing
a system which employs reusable plastic produce containers in the
distribution of fruits and vegetables to food retailers. The
Company has developed several other new products, such as truck and
rail car flexible covers, and product line extensions, such as new
acrylic coatings and new varieties of EXLFILM-TM- shrink films,
each of which it is in the process of introducing. In addition,
with the acquisition of American Tape, Anchor, and Rexford, the
Company has broadened the variety of products it offers in its
complete line of masking and duct tape products.
- DEVELOP CENTRAL DISTRIBUTION CENTERS. The Company has installed in
both its Danville and Tremonton an enhanced facilities warehouse
distribution system which will increase efficiency in the storage,
shipping and inventory management of all its products located in
those facilities. This investment will increase the level of
service that the Company provides to its customers as well as
reduce its operating costs in these areas.
- EVALUATE FUTURE COMPLEMENTARY ACQUISITIONS. The Company is
continually evaluating the attractiveness of other companies,
technologies or products that could complement the Company's existing
product lines and manufacturing and distribution strengths. The
Company considers complementary companies, technologies and products
as potential acquisition targets, and evaluates the merits of each
such potential acquisition. The Company's purchase of American Tape
and Anchor are examples of such acquisitions,
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providing the Company with masking, duct, reinforced filament and
printable and non-printable flat back tapes as well as other
specialty tapes not previously manufactured by the Company but which
can be integrated into the Company's distribution system to broaden
the range of products offered to its customers.
- EXPAND SALES INTO NEW GEOGRAPHIC MARKETS. The Company intends to
continue to exploit the breadth of its product lines, distribution
network and strong market position by entering into new markets in
both North America and abroad. The Company was able to use its joint
venture arrangement with a Portuguese manufacturer of shrink films as
a springboard to market some of its North American manufactured
products in Europe. In addition, with the acquisitions of American
Tape and Anchor, the Company gained a market presence throughout the
world in high performance masking tapes and duct tapes. The Company
believes that it can leverage this market position in the sale of its
other products. The Company expects to increase its penetration in
all markets either by enhancing its internal marketing efforts or
through joint ventures or acquisitions.
PRODUCTS
CARTON SEALING TAPE: PRESSURE SENSITIVE AND WATER ACTIVATED TAPE
The Company produces a variety of pressure sensitive plastic film carton
sealing tape, ranging from commodity designed standard tape to tape tailored to
meet customers' unique requirements. The product range encompasses tape with
film thickness from 25 microns to 50 microns and adhesives formulated for manual
as well as automatic applications. Carton sealing tape lends itself to use in
high speed taping machines that replace other closure methods such as staples,
hot melt glues and cold glues. The tape produced by the Company includes a wide
range of customized colored and printed tape, as well as tape designed for cold
temperature applications and label protection.
The Company believes that it is one of the leading manufacturers of
pressure-sensitive carton sealing tape. Carton sealing tape is manufactured and
sold under the INTERTAPE-TM- name to industrial distributors and manufactured
for other customers for sale under private labels. It is produced at the
Company's Danville, Montreal, Richmond and Columbia facilities and is utilized
by end-users for sealing corrugated cartons. Geographic territories in which
the Company markets its products are serviced by sales personnel and
manufacturers' representatives coordinated by regional managers. Distributors
are appointed on a basis designed to achieve market penetration of both
commodity and higher grade products. In 1994, the Company commenced efforts to
utilize its expanded production capacity and field support to begin to penetrate
the United States west coast and the western Canadian market and continues to
increase its sales force for these markets. The Company expects its centralized
warehouse distribution system in the Tremonton, Utah facility will continue to
enhance these efforts. In addition, the Company exports its product to Europe,
Asia, Central America and South America.
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The Company's acquisition in 1993 of the assets of Interpak Machinery Inc.,
a manufacturer of equipment used to apply pressure sensitive tapes to seal
corrugated boxes, enabled the Company to further enhance the mix of products it
offered to its customers. The Company introduced a line of machines designed
for the high-speed application of pressure sensitive carton sealing tape in
January 1994 and has continued to enhance and improve its equipment designs.
In 1996, the acquisition of Tape, Inc. added a complete range of water
activated adhesive tapes to the Company's product mix. This product line is
generally sold through the same distribution network as pressure-sensitive
carton sealing tape which has allowed the Company to increase its market
penetration of this product.
The Company's principal competitors for the sale of carton sealing tape
products include Minnesota Mining & Manufacturing Co. ("3M") and Central
Products Company, Inc. ("Central"), a subsidiary of Spinnaker Industries, Inc.
The Company has announced the acquisition of Central which remains pending at
the time of this filing.
MASKING TAPES: PERFORMANCE AND GENERAL PURPOSE
The Company added masking tapes to its product line in December 1997
through the acquisition of American Tape, a leading manufacturer of these
products and expanded its position in this product line with the acquisition of
Anchor in September 1998. Masking tapes are used for a variety of end-use
applications which can be broadly described under two categories: general
purpose and performance.
General purpose applications include packaging and bundling, residential
and commercial paint applications. Performance applications include use in
painting of aircraft, cars, buses and boats, where the properties of the tape,
such as high temperature resistance and clean adhesive release, are individually
designed for the customer's process.
The Company's processing capabilities include solvent and synthetic rubber,
hot melt and acrylic adhesive alternatives. The Company believes that its
unique adhesive systems provide it with a competitive advantage in this market.
The main competitors for the sale of masking tapes include 3M, Shuford Mills,
Inc., Industrias Tuk, S.A. de C.V., and Tesa Tape Inc. ("Tesa").
REINFORCED FILAMENT TAPE: PERFORMANCE AND GENERAL PURPOSE
In addition to masking tapes, the Company's purchases of American Tape and
Anchor also introduced reinforced filament tapes and flat back tapes to the
Company's product line. Reinforced, general and specialty products are
manufactured at the Company's facilities in Richmond, Kentucky, Marysville,
Michigan and Columbia, South Carolina facilities which were acquired in the
American Tape and Anchor acquisitions. These facilities produce filament tape
using synthetic, natural rubber and hot melt adhesives coated on a variety of
plastic filaments. The reinforcement is provided by fibreglass yarns laminated
between two plastic substrates.
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Many of these filament tapes are odorless, stainless, and provide clean
removal and are used in bundling, sealing, unitizing, palletizing and packaging,
notably for household appliances. The Company's main competitor in this market
is 3M, and for commodity filament tapes the Company's main competitors are Tesa
and RJM Manufacturing, Inc.
ACRYLIC COATING
In 1995, the Company completed a $10.0 million capital expenditure program
for an acrylic coater and ancillary equipment design to apply acrylic based
adhesives to a wide variety of substrates at its Danville plant. These acrylic
coatings, when applied to filmic tapes, offer extended shelf life as well as
increased performance under the extremes of low and high temperatures.
When acrylic coating is applied to polypropylene film, the finished product
broadens the Company's line of pressure sensitive carton sealing tape. In
addition, certain applications, such as mirror backing, utilize woven products
as the base material to which acrylic coating is applied.
DUCT TAPE
The acquisition of Anchor provided the Company a significant capacity in
the duct tape product line. duct tapes are manufactured in Columbia, South
Carolina. Approximately 75% of the duct tape volume consists of
polyethylene-coated cloth. Aluminum foil type tape accounts for most of the
non-polyethylene coated product sales of the Company's duct tape products.
The main competitors are Tyko International, Ltd. and Shurtape Technologies,
Inc.
EXLFILM-TM- SHRINK WRAP
EXLFILM-TM- is a specialty plastic film which shrinks under controlled heat
to conform to package shape as compared to other packaging forms that require
unique machinery for different product sizes and shapes. The process provides
versatility because it permits the over-wrapping of a variety of products of
considerably different sizes and dimensions (such as printing and paper
products, packaged foods, cassettes, toys, games and sporting goods, and
hardware and housewares). The Company manufactures EXLFILM-TM- at its plant in
Truro, Nova Scotia and maintains additional extruders for EXLFILM-TM- production
there. The Company began EXLFILM-TM- production at its new Tremonton, Utah
facility during the second quarter of 1998. The Company believes that its
continued investment in equipment will help it expand its exploitation of niches
in this market.
The Company's shrink wrap products are sold through its existing industrial
distribution base primarily to manufacturers of packaged goods and printing and
paper products who package their products internally. In addition, the Company
holds a 50% interest in FIBOPE, a manufacturer of shrink films in Portugal.
FIBOPE utilizes similar manufacturing equipment as is currently operated by the
Company in its Truro and Tremonton facilities.
In addition to being served by the Company, the United States and Canadian
markets for polyolefin shrink wrap are currently served by two large United
States manufacturers, W.R. Grace & Co. and E.I. DuPont de Nemours & Co., and to
a lesser extent by foreign manufacturers.
-10-
<PAGE>
STRETCHFLEX-TM- STRETCH WRAP
STRETCHFLEX-TM- is a multi-layer plastic film that can be stretched without
application of heat. It is used industrially to wrap pallet loads of various
products to ensure a solid load for shipping and is also used in agriculture as
a bale wrap. The Company produces STRETCHFLEX-TM- at its Danville plant and has
the capacity to produce 60 million pounds of polyolefin stretch wrap annually.
Although excess capacity exists in the stretch wrap market, management believes
the performance capabilities of the Company's film accounts for operations at
its Danville plant being at capacity. The Company's high level of production at
Danville, combined with its western oriented marketing initiatives, prompted the
Company to include additional extruders for stretch wrap production in the
Tremonton facility.
The North American market for such polyolefin stretch wrap is served by a
number of manufacturers, the largest of which are Tenneco Inc. and Linear Films,
Inc.
WOVEN PRODUCTS
The Company produces a variety of finished products utilizing coated woven
polyolefin fabrics, such as bags and lumber wrap, as well as coated woven
polyolefin fabrics that are sold to other manufacturers which convert these
fabrics into finished products, such as packaging, protective covers, pond
liners, housewrap, recreational products, and temporary structures.
Depending on the needs of the customer, the Company produces valve bags or
open mouth bags. Valve bags have a one way self-closing filler valve inserted
into one corner and are used for packaging pelletized and granular chemicals and
other materials. Open mouth bags, which require a secondary closure method such
as stitching, are used primarily for packaging of compressed material such as
mineral fibers.
NOVA-THENE-Registered Trademark- lumber wrap is a polyolefin fabric which
is extrusion coated and printed to customer specifications. It is used in the
forest products industry to package kiln-dried cut lumber. The Company believes
that polyolefin products have certain advantages over traditional paper-plastic
laminate products, including superior strength, ease of application, durability,
better appearance and the potential to be recycled.
The Company added FIBCs to its product line in 1993 with the acquisition of
Cajun Bag & Supply Co. ("Cajun Bag"). To facilitate production of seamless
FIBCs in the Crowley, Louisiana plant, the Company installed circular weaving
equipment in 1994 in its Truro plant. The Company made additional investments
in the Crowley plant in 1995 to reduce costs, increase capacity and reduce
turnover. In 1996, the Company opened an FIBC plant in Edmundston, New
Brunswick, Canada to meet the growing demands of the industry and purchased the
assets of Augusta Bag & Supply Co. ("Augusta Bag") to add further capacity,
expand market share and acquire unique manufacturing methods. In 1997, the
Company initiated an organizational review of the operations of certain
facilities manufacturing FIBCs and, during the latter half of 1997, approved a
restructuring plan designed to improve efficiency and reduce operating costs.
Specifically, while the Company
-11-
<PAGE>
will continue to produce the fabrics used to make FIBCs, the Company has
decided to outsource the conversion process due to enhanced foreign
competition. As a consequence, during 1997 the Company incurred a one-time
charge against earnings in respect of write-downs of certain assets employed
in these operations as well as goodwill associated with the Cajun Bag and
Augusta Bag acquisitions.
The Company also manufactures other coated woven polyolefin fabrics that it
supplies to converters which produce finished products for specific application,
such as synthetic fiber packaging, recreational products, protective covers,
pond liners, and flame retardant brattice cloth. The markets for these products
are diverse and considered by management to be too small to justify the cost of
further vertical integration to the finished product stage.
The Company's NOVA-THENE-Registered Trademark- lumber wrap line competes
with products manufactured by partially integrated manufacturers and by
secondary converters. In addition, the Company competes with manufacturers of
coated woven fabrics such as Amoco Fabrics and Fibers Company and Fabrene, Inc.,
which sell their products to converters.
The market for FIBCs is highly competitive and is not dominated by any
single manufacturer.
SOFT DRINK TRANSPORT AND DISPLAY CASES
The Company is engaged in the design, development and sale of reusable
plastic soft drink transport and display cases. These cases are manufactured
for the Company by independent contractors located throughout North America.
This approach is consistent with the Company's goal of being a low-cost producer
in each market it serves, as management believes the savings to its customers on
freight exceed any potential savings from in-house manufacturing.
RETURNABLE PLASTIC CASES
The Company has entered into a joint venture agreement with Schoeller
International Logistics Beteiligungsgesellschaft GmbH to develop a system of
returnable plastic cases for the transportation and retail display of fruits and
vegetables in the United States and Canada as an alternative to the use of
corrugated boxes and wooden crates. The system is in effect in Europe and the
Company is currently engaged in a roll-out program of the patented containers
with a growing number of grocery store chains in North America.
SALES AND MARKETING
As of January 1, 1999, the Company maintained a sales force of 102
personnel. The Company participates in industry trade shows and uses trade
advertising as part of its marketing efforts. The Company's overall customer
base is diverse, with no single customer accounting for more than 5% of total
sales. The Company has one long term contract with a customer which accounts
for less than 5% of total sales. Sales to customers in the United States and
Canada accounted for approximately 80% and 20% of total sales, respectively, in
1997, and approximately
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<PAGE>
89% and 11% in 1998. The Company has also continued to develop its sales
efforts in Europe, Asia, Central America and South America. Management does
not intend to achieve more than 10% of its sales outside North America.
Export sales currently represent less than 5% of total sales and are included
in United States or Canadian sales depending on the manufacturing facility
from which the sale originates.
The Company sales are focused in two distinct areas: distribution products
and woven products. Distribution products go to market through a network of
paper and packaging distributors throughout North America. Products sold into
this segment include carton sealing, masking, duct and reinforced tapes,
EXLFILM-TM- and STRETCHFLEX-TM-. In order to enhance sales of its pressure
sensitive carton sealing tape, the Company also sells carton closing systems,
including automatic and semi-automatic carton sealing equipment. Prior to the
acquisition of the Interpak Machinery Inc., these products were manufactured by
others. The Company's EXLFILM-TM- and STRETCHFLEX-TM- products are sold through
its existing industrial distribution base primarily to manufacturers of packaged
goods and printing and paper products which package their products internally.
The Company's woven products group sells its products directly to the
end-users. It offers a line of lumberwrap, valve bags, FIBCs and speciality
fabrics manufactured from plastic resins. The woven products group markets
its products throughout North America.
MANUFACTURING; QUALITY CONTROL
The Company's philosophy is, where efficient, to manufacture products from
the lowest cost raw material and add value to such products by vertical
integration. About 80% of the Company's products are manufactured through a
process which starts with a variety of polyolefin resins and extrudes them into
film for further processing. Over 50 million pounds of wide width biaxially
oriented polypropylene film is extruded annually in the Company's facilities.
This film is then coated in high-speed equipment with in-house-produced adhesive
and cut to various widths and lengths for carton sealing tape. The same basic
process applies for reinforced filament tape, which also uses polypropylene film
and adhesive but has fiberglass strands inserted between the layers. Specific
markets demand different adhesives and the Company manufactures acrylic solvent
based rubber and "Hot Melt" adhesives to respond to all demands. Masking tapes
utilize the same process with paper as the coating substrate. Duct tapes
utilize a similar process with either polyethylene or aluminum foil type coated
cloth.
The technology for basic film extrusion, essential to the low cost
production of pressure sensitive tape products, also has been utilized by the
Company to expand its product line into highly technical and sophisticated
films. Extrusion of up to five layers of various resins is done in four of the
Company's plants. These high value added films service the shrink and stretch
wrap markets, both of which have high entry barriers.
A wide variety of woven products are also part of the Company's family of
products. The first manufacturing step in the production of woven products is
film extrusion utilizing various resins and additives. These speciality films
are slit in line and woven on wide width looms. They are then
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<PAGE>
coated with a variety of resins to provide unique properties for large niche
markets. Printing, bag making and FIBC converting enhance the value added on
certain products.
The Company also designs and sells specialty cases for the reusable
containers market. Propriety molds and raw materials are provided to outside
contractors which produce cases on an exclusive basis. Continuing product
development, investment in new capital equipment and advanced engineering
provide the basis that enables the Company to compete in its marketplace.
The Company maintains a quality control laboratory and a process control
program on a 24-hour basis to monitor the quality of all packaging and woven
products it manufactures. At the end of 1998, five of the Company's plants were
certified under ISO-9002 quality standards program.
EQUIPMENT AND RAW MATERIALS
The Company purchases mostly custom designed manufacturing equipment,
including extruders, coaters, finishing equipment, looms, printers, bag
manufacturing machines and injection molds, from manufacturers located in the
United States and Western Europe, and participates in the design and upgrading
of such equipment. It is not dependent on any one manufacturer for such
equipment.
Polyolefin resins are a widely produced petrochemical product and are
available from a variety of sources worldwide. The Company purchases raw
materials from a limited number of vendors with whom, over time, it has
developed long-term relationships. The Company believes that such long term
relationships, together with the Company's centralized purchasing operations,
have enhanced the Company's ability to obtain a continuity of supply of raw
materials on competitively favorable purchase terms. Historically, fluctuations
in raw material prices experienced by the Company have been passed on to its
customers over time.
RESEARCH AND DEVELOPMENT; NEW PRODUCTS
Prior to 1992, research and development consisted of activities related to
adapting new technologies as they emerged within the various manufacturing
environments. Management decided to embark upon a program, beginning in 1992,
to develop new manufacturing processes, to enhance product performance and to
develop new products throughout the Company. In 1994, the Company emphasized
developing products for existing markets, and in 1996 established a corporate
research and development group to undertake development of new products.
Expenditures for research and development in 1996, 1997, and 1998 totaled
$1,763,000, $2,228,000, and $4,682,000, respectively.
The Company currently maintains active research and development programs in
three areas: woven products, pressure sensitive products and specialty films.
In woven products, the emphasis is on developing polyolefin fabrics that can
replace vinyl fabrics. Targeted end-use areas include truck tarps, protective
coverings and billboards. Research and development in pressure sensitive
products is focused on improving the Company's cost base and product line in
solvent, hot melt and
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<PAGE>
acrylic based general purpose performance products. In specialty films, the
Company has recently introduced Exfilm Plus, a cross-linked heat shrinkable
film, and IP72, a low-shrink force product. The Company believes that the
development of these products will allow the Company to expand into the
specialty film market which previously was not accessible using conventional
products. Research and development is an important factor generating internal
growth for the Company.
TRADEMARKS AND PATENTS
The Company markets its carton sealing tape under the registered
trademark INTERTAPE-TM- and various private labels. The Company's valve
or open mouth bags are marketed under the registered trademark
NOVA-PAC-Registered Trademark-. Its woven polyolefin fabrics are sold under
the registered trademark NOVA-THENE-Registered Trademark-. Its shrink wrap
is sold under the trademark EXLFILM-TM-. Its stretch films are sold under
the trademark STRETCHFLEX-TM-. FIBC's are sold under the trademarks LeGRAND
SACK-Registered Trademark- and CAJUN BAGS-Registered Trademark-. The Company
has sixty-eight registered trademarks, principally in the United States and
Canada, including trademarks acquired from American Tape, Anchor and Rexford.
The Company does not have, nor does management believe it important to the
Company's business to have, patent protection for its carton sealing tape
products, woven products, stretch wrap or shrink wrap. The Company has six
patents acquired as part of the Anchor acquisition with respect to tape and
stencil products.
COMPETITION
The Company competes with other manufacturers of plastic packaging products
as well as manufacturers of alternative packaging products, such as paper,
cardboard and paper-plastic combinations. Management believes that competition,
while primarily based on price and quality, is also based on other factors,
including product performance characteristics and service. No statistics,
however, on the packaging market are currently publicly available. See
"Products" for a discussion of the Company's main competitors.
The Company believes that significant barriers to entry exist in the
packaging market. Management considers the principal barriers to be: (i) the
high cost of vertical integration which is necessary to operate competitively,
(ii) the significant number of patents which already have been issued in respect
of various processes and equipment, and (iii) the difficulties and expense of
developing an adequate distribution network.
ENVIRONMENTAL REGULATION
The Company manufactures and sells a variety of specialized polyolefin
plastic packaging products for industrial use at its manufacturing plants
throughout North America and through its joint venture in Portugal. The Company
is actively promoting environmental solutions, both in the development of its
products and in its own manufacturing facilities.
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<PAGE>
Furthermore, the Company's operations are subject to extensive regulation.
Federal and state environmental laws applicable to the Company include statutes
(i) intended to allocate the cost of remedying contamination among specifically
identified parties as well as to prevent future contamination (the
"Comprehensive Environmental Response, Compensation, and Liability Act");
(ii) imposing national ambient standards and, in some cases, emission standards,
for air pollutants which present a risk to public health or welfare (the
"Federal Clean Air Act"); (iii) governing the management, treatment, storage and
disposal of hazardous wastes (the "Resource Conservation and Recovery Act"); and
(iv) regulating the discharge of pollutants into protected waterways (the "Clean
Water Act of 1972"). The Company's use in its manufacturing processes of
hazardous substances and the generation of hazardous wastes not only by the
Company but by prior occupants of Company facilities suggest that hazardous
substances may be present at or near certain of the Company's facilities or may
come to be located there in the future. Consequently, the Company is required
to monitor closely its compliance under all the various environmental
regulations applicable to it. In addition, the Company arranges for the
off-site disposal of hazardous substances generated in the ordinary course of
its business.
Except as described below, the Company believes that all of its facilities
are in material compliance with applicable environmental laws and regulations.
MICHIGAN FACILITY
The Company's environmental due diligence review conducted in connection
with the acquisition of American Tape, revealed certain issues associated
with American Tape's use of chemical solvents at its Marysville facility in
the tape-making process. These solvents (primarily toluene) are stored in
tanks on site, emitted into the air and, when mixed with other wastes from
the manufacturing process, shipped off-site as wastes for disposal.
Management undertook a comprehensive plan of investigation and remediation at
the facility, focusing on the site's approximately fifteen underground
storage tanks which contained a variety of hazardous substances. Remediation
of six 10,000 gallon tanks is expected to continue for two to three years.
The Company, however, anticipates that the full cost of remediation will be
funded through amounts available under a US$ 2.0 million escrow fund
established by the sellers at closing.
In addition, the Michigan facility emits toluene and other pollutants, but
86% of the toluene used is recaptured under existing solvent recovery systems.
While these emissions do not currently exceed permitted limits, they may exceed
limits being phased in over the next five years under Title V of the Clean Air
Act Amendments of 1990. To satisfy future Title V requirements, in 1997,
American Tape entered into an Administrative Order and Consent with the Michigan
Department of Environmental Quality under which it agreed to install a
regenerative thermal oxidizer to increase the capture rate from 86% to 95%, and
budgeted $2.2 million for such purchase and installation. Construction was
completed and the thermal oxidizer activated in March, 1998. The Company
believes that ultimate resolution of these matters should not have a material
adverse effect on the Company's business or results of operations.
-16-
<PAGE>
EMPLOYEES
As of May 11, 1999, the Company employed approximately 2,442 people, 608 of
whom held either sales-related, operating or administrative positions and 1,834
of whom were employed in production. Approximately 70 hourly employees at the
Montreal plant are unionized and are subject to a collective bargaining
agreement expiring in November 2002. Approximately 81 hourly employees at the
Edmundston plant became unionized in February 1997 and are subject to a
collective bargaining agreement which expires in October 2000. Approximately 82
hourly employees at the Green Bay plant are unionized and a collective
bargaining agreement is in place that expired in February 1999 and is the
process of being renegotiated. Finally, approximately 185 hourly employees at
the Marysville plant are unionized and subject to a collective bargaining
agreement which expires in May 2002. The Company has never experienced a work
stoppage and considers its employee relations to be satisfactory.
AMERICAN TAPE ACQUISITION
On December 16, 1997 the Company acquired from STC Corp., a publicly traded
multinational company based in Seoul, South Korea, all the outstanding capital
stock of American Tape Co., a leading manufacturer and marketer of high
performance and general purpose masking, reinforced filament pressure sensitive
and other specialty tapes. The Company paid US$122 million for the acquisition,
including costs, consisting of US$46 million in cash and US$76 million in
assumed indebtedness, substantially all of which was refinanced. The Company
acquired American Tape principally to improve and increase the Company's product
base, increase production capacity, enhance its customer base and strengthen the
Company's competitive position in the market.
In connection with the acquisition, the Company inherited two manufacturing
facilities: one in Marysville, Michigan, and one in Richmond, Kentucky. While
the Michigan facility is profitable, the Kentucky facility had experienced
production problems and has only recently achieved break even status. The
Company's strong technical expertise is expected to improve production
efficiencies at both manufacturing facilities.
ANCHOR CONTINENTAL INC. AND REXFORD PAPER COMPANY ACQUISITIONS
On September 23, 1998, the Company acquired 100% of the outstanding shares
of Anchor, a South Carolina manufacturer of pressure sensitive tapes, including
both masking and duct tapes. The acquisition included an 87-acre facility in
Columbia, South Carolina.
On October 7, 1998, the Company acquired substantially all of the operating
assets of Rexford Paper Company, a Wisconsin redistributor of a variety of
pressure sensitive tapes, as well as a manufacturer of water activated tapes.
Rexford was a relatively small manufacturer of water activated tape in
Milwaukee, Wisconsin, and more importantly, a unique re-distributor of packaging
products. Rexford's specialized sales department continues to focus on a
distributor niche, which specifically place small quantity orders. This sales
department remains intact and the Company
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<PAGE>
intends to utilize this department to develop business with its network of
distributors. The Company closed Rexford's Milwaukee facility and shifted
production to the Green Bay plant.
The total cash consideration and estimated transaction costs for both these
acquisitions on a combined basis were approximately U.S.$113.3 million.
The Company anticipates that it will benefit from certain synergies
resulting from the American Tape and Anchor acquisitions. Specifically, high
performance masking tape represents a new opportunity for the Company, while
general purpose masking tape, duct tape, and reinforced filament tape may be
sold through the Company's existing distribution channels. The Company believes
the acquisitions of American Tape and Anchor have further improved the Company's
status as a single source basket-of-products supplier to its distributor
customers.
Finally, the acquisitions of American Tape and Anchor have positioned the
Company as a stronger supplier of industrial tape, second only, in the
estimation of management, to 3M in North America, with the additional capability
to provide shrink and stretch wrap, a product line 3M does not offer. The
Company's status as a low-cost, high value added single source supplier to its
individual distributor customer base should lead to continued strong sales
growth in the intermediate future.
ITEM 2. DESCRIPTION OF PROPERTY.
The following table illustrates the principal manufacturing and
distribution facilities owned or leased by the Company as at December 31, 1998:
<TABLE>
<CAPTION>
Area
Location Use Products (sq. ft.) Title
- ----------------- ------------------- ------------------------------- --------- ---------------------------
<S> <C> <C> <C> <C>
UNITED STATES:
Augusta, Georgia Manufacturing FIBCs 41,000 Leased to July 1999
Augusta, Georgia Warehouse FIBCs 20,000 Leased to October 2000
Bradenton, Corporate Offices N/A 20,800 Owned
Florida
Crowley, Warehouse FIBCs 40,000 Leased month-to-month
Louisiana
Danville, Manufacturing and Carton sealing tape, 281,000 Capital lease to August 2007
Virginia Distribution STRETCHFLEX-TM- with option to purchase for
acrylic coating nominal amount
Green Bay, Manufacturing and Water activated carton sealing 156,000 Owned
Wisconsin Distribution tape
Marysville, Manufacturing High performance masking, 250,000 Owned
Michigan filament tape, and specialty
pressure-sensitive tape
Rayne, Manufacturing and FIBCs 78,000 Leased to September 2000
Louisiana Distribution
Richmond, Manufacturing and Carton sealing, masking and 200,000 Owned
Kentucky Distribution reinforced tape
Tampa, Corporate offices Display and crate operations 4,000 Leased to February 2003
Florida
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Area
Location Use Products (sq. ft.) Title
- ----------------- ------------------- ------------------------------- --------- ---------------------------
<S> <C> <C> <C> <C>
Tremonton, Manufacturing and EXLFILM-TM-, STRETCHFLEX-TM- 115,000 Owned
Utah Distribution
Columbia, South Manufacturing and Pressure sensitive masking and 490,000 Owned
Carolina Distribution duct tapes
Bedford Park, Warehouse Pressure sensitive masking and 3,500 Leased month-to-month
Illinois duct tapes
Ft. Worth, Texas Warehouse Pressure sensitive masking and 7,000 Leased month-to-month
duct tapes
Commerce, Warehouse Pressure sensitive masking and 10,400 Leased month-to-month
California duct tapes
CANADA:
Edmundston, Manufacturing FIBCs 65,000 Owned
New Brunswick
Lachine, Manufacturing Carton sealing equipment 13,000 Leased to July 1999
Quebec
St. Laurent, Slitting, Warehouse Carton sealing tape 60,000 Leased month-to-month
Quebec and Corporate
Headquarters
St. Laurent, Manufacturing and Carton sealing tape 25,000 Owned
Quebec Distribution
Truro, Manufacturing Woven products, 260,000 Owned
Nova Scotia EXLFILM-TM-
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, nor is the Company's property the subject
of, any pending material litigation, or any litigation which, if adversely
determined, would have a material effect, individually or in the aggregate, on
the business or financial condition of the Company. The Company is not aware of
any material proceedings being contemplated by governmental authorities.
ITEM 4. CONTROL OF REGISTRANT.
To the knowledge of the Company, there is no person who, or corporation
that, beneficially owns or exercises control or direction over shares carrying
more than 10% of the voting rights attached to all shares of the Corporation:
As of May 11, 1999, the directors and officers of the Company as a group
owned beneficially, directly or indirectly, 1,560,844 Common Shares,
representing approximately 6% of all Common Shares outstanding.
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<PAGE>
SHAREHOLDER PROTECTION RIGHTS PLAN
On August 24, 1993, the shareholders of the Company approved a
Shareholders' Protection Rights Plan (the "Rights Plan"). Under the Rights
Plan, one Common Share purchase right was issued on September 1, 1993, in
respect of each outstanding Common Share and became issuable in respect of each
Common Share issued thereafter. The Rights Plan was to have expired on
September 1, 1998, however, on May 21, 1998, the Shareholders approved an
amendment extending the term of the Rights Plan to September 1, 2003. The
effect of the Rights Plan is to require anyone who seeks to acquire 20% or more
of the Company's voting shares to make a bid complying with specific provisions.
ITEM 5. NATURE OF TRADING MARKET.
The Company's Common Shares currently trade on the American Stock Exchange
and The Toronto Stock Exchange. The Common Shares were listed on The Toronto
Stock Exchange on January 6, 1993. The Common Shares are not traded on any
other exchanges. Prior to the February 21, 1992 initial public offering of
Common Shares, there was no public market for such shares. As of May 11, 1999,
26% of the Company's Common Shares are held in the United States by 48 record
holders in the United States.
The following table sets forth high and low sales price information for
trading of the Common Shares on the American Stock Exchange in 1997 and 1998:
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ---- ---
U.S.$ U.S.$
<S> <C> <C>
1st Quarter 1997 25.00 19.88
2nd Quarter 1997 21.00 18.38
3rd Quarter 1997 24.75 20.75
4th Quarter 1997 25.00 19.81
</TABLE>
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ---- ---
U.S$ U.S$
<S> <C> <C>
1st Quarter 1998 24.00 20.62
2nd Quarter 1998 24.00 20.12
3rd Quarter 1998 25.38 18.12
4th Quarter 1998 25.50 16.25
</TABLE>
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<PAGE>
The following table sets forth high and low sales price information for
trading of the Common Shares on The Toronto Stock Exchange in 1997 and 1998:
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ---- ---
CDN.$ CDN.$
<S> <C> <C>
1st Quarter 1997 33.85 27.50
2nd Quarter 1997 29.20 25.25
3rd Quarter 1997 34.30 28.50
4th Quarter 1997 34.45 27.00
</TABLE>
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ---- ---
CDN.$ CDN.$
<S> <C> <C>
1st Quarter 1998 34.00 30.00
2nd Quarter 1998 35.00 29.00
3rd Quarter 1998 38.28 25.75
4th Quarter 1998 39.00 25.75
</TABLE>
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS.
There are no governmental laws, decrees or regulations in Canada that
restrict the export or import of capital, including, but not limited to, foreign
exchange controls, or that affect the remittance of dividends, interest or other
payments to nonresident holders of the Common Shares, other than withholding tax
requirements. Any such remittances, however, are subject to withholding tax.
There is no limitation imposed by Canadian law or by the charter or other
constituent documents of the Company on the right of nonresident or foreign
owners to hold or vote Common Shares, other than the Rights Plan discussed in
ITEM 4 above or as provided in the INVESTMENT CANADA ACT (Canada) (the
"INVESTMENT CANADA ACT"). The following summarizes the principal features of
the INVESTMENT CANADA ACT.
The INVESTMENT CANADA ACT requires certain "non-Canadian" (as defined in
the INVESTMENT CANADA ACT) individuals, governments, corporations and other
entities who wish to acquire control of a "Canadian business" (as defined in the
INVESTMENT CANADA ACT) to file either a notification or an application for
review with the Director of Investments appointed under the INVESTMENT CANADA
ACT. The INVESTMENT CANADA ACT requires that in certain cases an acquisition of
control of a Canadian business by a "non-Canadian" must be reviewed and approved
by the Minister responsible for the INVESTMENT CANADA ACT on the basis that the
Minister is satisfied that the acquisition is "likely to be of net benefit to
Canada", having regard to criteria set forth in the INVESTMENT CANADA ACT.
With respect to acquisitions of voting shares, generally only those
acquisitions of voting shares of a corporation that constitute acquisitions of
control of such corporation are reviewable under the INVESTMENT CANADA ACT. THE
INVESTMENT CANADA ACT provides detailed rules for the
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determination of whether control has been acquired. For example, the
acquisition of one-third or more of the voting shares of a corporation may,
in some circumstances, be considered to constitute an acquisition of control.
Certain reviewable acquisitions of control may not be implemented before
being approved by the Minister. If the Minister does not ultimately approve
a reviewable acquisition which has been completed, the non-Canadian person or
entity may be required, among other things, to divest itself of control of
the acquired Canadian business. Failure to comply with the review provisions
of the INVESTMENT CANADA ACT could result in, among other things, a court
order directing the disposition of assets of shares.
ITEM 7. TAXATION.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO U.S. RESIDENTS
The following is a summary of the principal Canadian federal income tax
considerations generally applicable to a person who is a U.S. Holder. In
this summary, a "U.S. Holder" means a person who, for the purposes of the
CANADA-UNITED STATES TAX CONVENTION (1980) (the "Convention"), is a resident
of the United States and not of Canada and who, for the purposes of the
INCOME TAX ACT (Canada) (the "Canadian Tax Act"), deals at arms's length with
the Company, does not use or hold and is not deemed to use or hold the Common
Shares in carrying on business in Canada and who holds his Common Shares as
capital property. Generally, Common Shares will be considered to be capital
property to a U.S. Holder provided the U.S. Holder does not hold the Common
Shares in the course of carrying on a business and has not acquired the
Common Shares in one or more transactions considered to be an adventure in
the nature of trade. This summary is not applicable to a U.S. Holder that is
a "financial institution" for purposes of the mark-to-market rules in the
Canadian Tax Act and to Insurers who carry on an insurance business in Canada
and elsewhere whose Common Shares are "designated insurance property".
The summary is based upon the Convention, the current provisions of the
Canadian Tax Act, the regulations thereunder, and proposed amendments to the
Canadian Tax Act and regulations publicly announced by or on behalf of the
Minister of Finance, Canada, prior to the date hereof. It does not otherwise
take into account or anticipate any changes in law, whether by legislative,
governmental or judicial decision or action. The discussion does not take
into account the tax laws of the various provinces or territories of Canada.
It is intended to be a general description of the Canadian federal income tax
considerations and does not take into account the individual circumstances of
any particular shareholder. This summary is of a general nature only: U.S.
Holders should consult their own tax advisors with respect to the income tax
consequences to their holding and disposing of Common Shares having regard to
their particular circumstances.
DIVIDENDS.
U.S. Holders will be subject to a 15% withholding tax on the gross
amount of dividends paid or deemed to be paid by the Company. In the case of
a U.S. Holder that is a corporation which beneficially owns at least 10% of
the voting stock of the Company, the applicable withholding tax rate on
dividends is 5%.
-22-
<PAGE>
A purchase of Common Shares by the Company (other than by a purchase in
the open market in the manner in which shares are normally purchased by a
member of the public) will give rise to a deemed dividend equal to the amount
paid by the Company on the purchase in excess of the paid-up capital of such
shares, determined in accordance with the Canadian Tax Act. Any such deemed
dividend will be subject to non-resident withholding tax, as described above,
and will reduce the proceeds of disposition to a holder of Common Shares for
the purposes of computing the amount of his capital gain or loss arising on
the disposition.
DISPOSITIONS.
A U.S. Holder will not be subject to tax under the Canadian Tax Act in
respect of any capital gain arising on a disposition of Common Shares
(including on a purchase by the Company) unless such shares constitute
taxable Canadian property and the U.S. Holder is not entitled to relief under
the Convention. Generally, Common Shares will not constitute taxable Canadian
property of a U.S. Holder unless, at any time during the five year period
immediately preceding the disposition of the Common Shares, the U.S. Holder,
persons with whom the U.S. Holder did not deal at arm's length or to any
combination thereof, owned or had a right to acquire not less than 25% of the
issued shares of any class or series of a class of the capital stock of the
Company. In any event, under the Convention, gains derived by a U.S. Holder
from the disposition of Common Shares will generally not be taxable in Canada
unless the value of the Company's shares is derived principally from real
property situated in Canada.
Common Shares will constitute taxable Canadian property of a U.S. Holder
that is a former Canadian resident who made an election under the Canadian
Tax Act to be deemed not to dispose of such shares on the U.S. Holder's
departure from Canada. Such U.S. Holders may not be eligible to claim the
exemption provided in the Convention for gains realized on a disposition of
Common Shares if they were resident in Canada at any time during the ten year
preceding the disposition.
ITEM 8. SELECTED FINANCIAL DATA.
Set forth below are selected and consolidated financial data for each of
the years ended December 31, 1994, 1995, 1996, 1997 and 1998, which data have
been derived from consolidated financial statements that been audited by
Raymond Chabot Grant Thornton, General Partnership, independent chartered
accountants, a member firm of Grant Thornton International.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(in thousands of Canadian dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Amounts Under Canadian GAAP (1)
Sales $176,973 $225,378 $271,277 $348,270 $578,575
Cost of Sales 125,485 159,195 192,748 251,856 416,252
-------- -------- -------- -------- --------
Gross Profit 51,488 66,183 78,529 96,414 162,323
-------- -------- -------- -------- --------
Selling, general and
administrative expenses 22,400 26,071 32,895 41,754 71,547
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(in thousands of Canadian dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Research and Development 976 1,104 1,763 2,228 4,682
Amortization of goodwill 1,440 1,760 1,780 2,360 5,096
Financial expenses 3,289 3,194 1,695 3,247 19,022
28,105 32,129 38,133 49,589 100,347
-------- -------- -------- -------- --------
Earnings before restructuring, income
taxes and non-controlling interest 46,825 61,976
Restructuring charges 27,116 --
-------- --------
Earnings before income taxes and
non-controlling interest 23,383 34,054 40,396 19,709 61,976
Income taxes 9,050 12,500 11,800 6,110 17,973
-------- -------- -------- -------- --------
Earnings before
non-controlling interest 14,333 21,554 28,596 13,599 44,003
Non-controlling interest (36) -- -- -- --
-------- -------- -------- -------- --------
Net earnings $14,369 $21,554 $28,596 $13,599 $44,003
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per share before restructuring:
Basic $1.30
Fully diluted 1.26
Earnings per share:
Basic $0.71 $1.02 $1.18 $0.55 1.75
Fully diluted $0.68 $0.97 $1.13 $0.53 1.68
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1994 1995 1996 1997 1998 (3)
---- ---- ---- ---- ----
(in thousands of Canadian dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
U.S. GAAP Earnings Reconciliation(1)
Net earnings according
to Canadian GAAP $14,369 $21,554 $28,596 $13,599 $44,003
Net earnings before the following
U.S. GAAP adjustments 14,369 21,554 28,596 13,599 44,003
Deferred preproduction and product
development costs 691 530 282 --
Decrease in the income tax expense
for the period with respect to the
income tax effects of the above (249) (191) (102) --
Difference in the determination
of income taxes 180 180 180 --
------- ------- ------- ------- -------
Net earnings according to U.S.
GAAP 14,991 22,073 28,956 13,599 44,003
====== ====== ====== ====== ======
Earnings per share according
to U.S. GAAP before restructuring charge
Basic $1.30
Diluted $1.26
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1994 1995 1996 1997 1998 (3)
---- ---- ---- ---- ----
(in thousands of Canadian dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Earnings per share according
to U.S. GAAP
Basic $0.74 $1.04 $1.20 $0.55 1.75
Diluted $0.72 $1.00 $1.15 $0.53 1.68
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(in thousands of Canadian dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Amounts Under Canadian GAAP(2)
Working capital $ 44,390 $ 95,672 $ 81,018 $ 60,054 (17,314)
Total assets 207,572 300,540 348,578 596,043 952,204
Long-term debt 51,667 54,680 64,026 230,067 321,163
Total liabilities 94,491 102,521 115,671 345,941 654,906
Shareholders' equity 113,081 198,019 232,907 250,102 297,298
</TABLE>
- --------------------------
(1) In certain respects, Canadian GAAP differs from US GAAP. For a more
extensive discussion of the differences between Canadian GAAP and U.S.
GAAP, see Note 22 to the consolidated financial statements set forth in
the 1998 Annual Report to Shareholders which is attached as Exhibit 4
to, and incorporated by reference in, this Annual Report on Form 20-F.
Starting in fiscal 1997, any U.S. GAAP reconciling matters, for the
statements of earnings, were assessed to be not material enough to require
separate disclosure.
(2) Under Canadian GAAP, the financial statements are prepared using the
proportionate consolidation method of accounting for joint ventures. Under
U.S. GAAP, these investments would be accounted for using the equity
method.
See Note 22 to the consolidated financial statements set forth in the 1998
Annual Report to Shareholders which is attached as Exhibit 4 to, and
incorporated by reference in, this Annual Report on Form 20-F.
The other differences in presentation that would be required under U.S.
GAAP to the consolidated balance sheets are not viewed as significant
enough to require further disclosure.
(3) The Company adopted for the year ended December 31, 1998, the new SFAS No.
130 pertaining to comprehensive income:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net earnings in accordance with U.S. GAAP $44,003 $13,599 $28,956
Foreign currency translation adjustments 4,660 1,642 484
------- ------- -------
Consolidated comprehensive income 48,663 15,241 29,440
------- ------- -------
------- ------- -------
</TABLE>
New accounting pronouncements applicable over next years
The Financial Accounting Standards Board (FASB) has issued SFAS No. 133
which outlines accounting and reporting standards pertaining to derivative
instruments and hedging activities. For U.S. GAAP reporting purposes, this
statement should be adopted for fiscal years commencing after June 15,
1999. As the Company does not presently use derivative nor hedging
instruments, there is no foreseen impact for the implementation of this new
recommendation.
-25-
<PAGE>
The Canadian Institute of Chartered Accountants has issued a new accounting
standard concerning reporting cash flows statements (section 1540). This
standard should be adopted for fiscal years commencing after August 1,
1998. The Company has determined that the implementation of this standard
will result in the preparation of cash flows statements which will
generally be consistent with U. S. Standards.
The following table sets forth certain exchange rates, expressed in United
States dollars per Canadian dollar, determined by the noon buying rates in New
York City for cable transfers in Canadian dollars as certified for customs
purposes by the Federal Reserve Bank of New York. On May 11, 1999, the noon
buying rate was CDN. $1.00 = U.S. $0.6879.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(All amounts in United States dollars)
<S> <C> <C> <C> <C> <C>
Exchange rate at end
of period $0.7128 $0.7323 $0.7297 $0.6999 $0.6504
Average exchange rate
during period $0.7302 $0.7305 $0.7296 $0.7221 $0.6714
Highest exchange rate
during period $0.7632 $0.7527 $0.7477 $0.7487 $0.7105
Lowest exchange rate
during period $0.7103 $0.7023 $0.7271 $0.6962 $0.6341
</TABLE>
The Company has no written policy for the payment of dividends. On March
8, 1993, the company paid its first dividend of CDN. $0.05 or U.S. $0.04 per
common share to shareholders of record on March 19, 1993. On March 14, 1994,
the Company declared a dividend of CDN. $0.06 or U.S. $0.04 per common share to
shareholders of record on March 23, 1994. Dividends totaling CDN. $1.2 Million
were paid on March 31, 1994. On March 14, 1995, the Company declared a dividend
of CDN. $0.07 or U.S. $0.05 per common share to Shareholders of record on March
23, 1995. Dividends totaling CDN. $1.4 Million were paid on March 30, 1995. On
February 28, 1996, the Company declared a dividend of CDN. $0.085 or U.S. $0.06
per common share to Shareholders of record on March 8, 1996. Dividends totaling
CDN. $2.0 Million were paid on March 22, 1996. On March 4, 1997, the Company
declared a dividend of CDN. $0.10 or U.S.$0.073 per common share to Shareholders
of record on March 13, 1997. Dividends totaling CDN. $2.5 Million were paid on
March 27, 1997. On March 10, 1998, the Company declared a dividend of CDN.
$0.013 or U.S. $0.092 per common share to Shareholders of record on March 20,
1998. Dividends totaling CDN. $3.3 Million were paid on March 31, 1998. On
March 9, 1999, the Company declared a dividend of CDN. $0.16 or U.S.$0.106 to
Shareholders of record on March 19, 1999. Dividends totaling CDN.$4.5 Million
were paid on April 5, 1999.
-26-
<PAGE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Reference is made to "Management's Discussion and Analysis" on Pages 7
through 18 of Registrant's 1998 Annual Report to Shareholders, which is
incorporated herein by reference and which is included as Exhibit 4 to this
Annual Report on Form 20-F.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(a) QUANTITATIVE INFORMATION ABOUT MARKET RISK
The following table provides information about the Company's financial
statements that are sensitive to changes in interest rates, which
include the Company's bank indebtedness, credit facilities, and
long-term debt. For long-term debt, the table presents principal cash
flows and related interest by expected maturity dates.
As of December 31, 1998:
<TABLE>
<CAPTION>
Expected Maturity Date
1998
1998 1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
---- ---- ---- ---- ---- ---- ---------- ----- ----------
(CDN$ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term Debt $ -0- (1) $3,064 $53,609 $53,214 $2,405 $683 $211,252 $324,227 $338,476(2)
Bank Indebtedness & $186,874(3) -- -- -- -- -- -- -- --
Credit Facilities
</TABLE>
_________________________________
1. Long-term debt consists of the following:
(a) US#137,000,000 Senior Notes: Senior unsecured U.S. dollar Notes,
bearing interest at 6.82%, payable semi-annually, maturing March 31,
2008.
(b) US$33,000,000 Series 1,2 and 3 Notes: Senior unsecured U.S. dollar
Notes, bearing interest at an effective rate of 7.78% (7.78% in 1997),
payable semi-annually. These Notes mature on June 1, 2001.
(c) US$33,001,000 bank loan under a revolving credit facility: Senior
unsecured U.S. dollar bank loan under a US$50 million revolving credit
facility maturing April 1, 2000. This loan bears interest at U.S.
prime rate or LIBOR plus 1.00%. As at December 31, 1998, the
effective interest rate pertaining to the bank loan was 6.9%.
(d) Other Debt: Consists of government loans, mortgage loans in a joint
venture, obligations related to capitalized leases and other loans at
fixed and variable interest rates ranging from interest-free to 8.25%
and requiring periodic principal repayments through 2008.
2. For all debts with fixed interest rates, the fair value has been determined
based on the discounted value of cash flows under the existing contracts
using rates representing those which the Company could currently obtain for
loans with similar terms, conditions and maturity dates. For the debts
with floating interest rates, the fair value is closely equivalent to their
carrying amounts. (The fair value of cash, receivables, bank indebtedness,
as well as accounts payable and accrued liabilities is equivalent to
carrying amounts, given the short maturity period of such financial
instruments. The fair value of receivables from joint ventures
approximates the carrying amounts reported in the consolidated balance
sheets.)
3. The bank indebtedness consists of the utilized portion of unsecured demand
and revolving bank credit facilities and cheques issued which have not been
drawn from the facilities and is reduced by any cash balances. As of
December 31, 1998, the Company had:
-27-
<PAGE>
- A US$100 million senior unsecured bank loan under a term credit
facility which matures August 22, 1999. This loan bears interest at
U.S. prime rate plus a premium varying between 0.50% and 1.25% or
LIBOR plus a premium varying between 1.25% and 2.00%. As of December
31, 1998, the effective interest rate pertaining to the bank loan was
approximately 7.8%.
- $30 million of revolving credit facilities from Canadian financial
institutions of which $2.2 million was utilized as at December 31,
1998.
- US$30 million of revolving credit facilities from U.S. and Canadian
financial institutions of which US$8.4 million was utilized as at
December 31, 1998.
The effective interest rate on the used portion of these credit facilities
was 8.0% as of December 31, 1998 (5.0% as of December 31, 1997).
FOREIGN EXCHANGE RISK MANAGEMENT
The Company's objective in managing foreign exchange risk is to protect
against cash flow and balance sheet volatility resulting from changes in foreign
exchange rates. Substantially all of the company's revenues are denominated in
U.S. dollars. Long-term debt denominated in U.S. dollars exposes the Company to
changes in foreign exchange rates. As of December 31, 1998, the Company did not
hold any derivative instruments related to foreign currency risk.
(b) QUALITATIVE INFORMATION ABOUT MARKET RISK
The Company is exposed to various types of market risk in the normal course
of business, including the impact of interest rate changes and foreign currency
exchange rate fluctuations. The Company does not presently use derivative nor
hedging instruments and does not hold derivatives for trading purposes.
INTEREST RATE RISK MANAGEMENT AND SENSITIVITY
The Company's objective in managing its cash flow exposure to fluctuations
in interest rate is to maintain a mix of fixed and variable-rate debt that will
limit its exposure to within reasonable risk parameters. Generally, the fair
market value of fixed interest rate debt will increase as interest rates fall
and decrease as interest rates rise. Changes in interest rates will affect the
market value but do not impact earnings or cash flows. Conversely for floating
rate debt, interest rate changes generally do not affect the fair market value
but do impact future earnings and cash flows assuming other factors are held
constant.
FOREIGN EXCHANGE RISK MANAGEMENT
The Company's objective in managing foreign exchange risk is to protect
against cash flow and balance sheet volatility resulting from changes in foreign
exchange rates. Substantially all of the company's revenues are denominated in
U.S. dollars. Long-term debt denominated in U.S. dollars exposes the Company to
changes in foreign exchange rates. As of December 31, 1998, the Company did not
hold any derivative instruments related to foreign currency risk.
-28-
<PAGE>
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.
The name and office with the Company of each person who is, or has been
chosen to become, a Director or executive officer of the Company as of the date
hereof are set forth in the following table.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Melbourne F. Yull 58 Chairman of the Board,
Chief Executive Officer and Director
H. Dale McSween 49 Executive Vice President and
Chief Operating Officer
Andrew M. Archibald 53 Chief Financial
Officer, Secretary, Treasurer and
Vice President Administration
Lloyd W. Jones 61 Corporate Vice-President
Salvatore Vitale 35 Vice-President, Finance
Jim Bob Carpenter 43 Vice President, Sales-Woven Products
Joseph D. Bruno 60 Vice President, Distribution Products
Richard Gerrior 52 Vice President, Manufacturing, Truro
James A. Jackson 50 Vice President, Chief Information Officer
Eric E. Baker 65 Director
Michael L. Richards 60 Director
James A. Motley, Sr. 70 Director
Irvine Mermelstein 72 Director
L. Robbie Shaw 56 Director
Ben J. Davenport, Jr. 56 Director
Gordon R. Cunningham 54 Director
</TABLE>
MELBOURNE F. YULL, founder of the Company, has been the Chief Executive Officer
and a director of the Company since 1989 and was a director of the predecessor
company since 1981. He was President of the predecessor company from 1981 to
1989 and President of the Company until June, 1994. He has been Chairman of the
Board since January, 1995. Mr. Yull has over 27 years experience in the
packaging industry, primarily related to both extrusion and coating.
-29-
<PAGE>
H. DALE MCSWEEN has served as Executive Vice-President and Chief Operating
Officer since May 1995. Prior thereto he was Senior Vice-President since
1990. From 1987 to 1989 Mr. McSween was the President and Chief Executive
Officer of Polymer International (N.S.) Incorporated. The Company indirectly
acquired all of the shares of Polymer International during 1989, and it
became part of Intertape Polymer Inc. in January 1990 in the context of a
corporate reorganization. From 1982 to 1987, Mr. McSween was the Director of
Sales and Marketing of Polymer International.
ANDREW M. ARCHIBALD has been Chief Financial Officer, Secretary, Treasurer
and Vice President Administration since May 1995. He was Vice President
Finance from May, 1995, to January 15, 1999. Prior thereto he served as
Vice-President, Finance and Secretary of the Company since 1989. Prior to
1989 he was an audit and financial consulting service partner with Raymond,
Chabot, Martin, Pare, Chartered Accountants.
LLOYD W. JONES has been Corporate Vice-President since June 1994. Previously
he was Vice-President Manufacturing since 1990. He was also President and a
director of International Container Systems, Inc. from 1989 to 1994.
International Container was a public company which was merged with Polymer
International Corp. ("PIC") in late 1994. Mr. Jones is President of PIC.
SALVATORE VITALE has been Vice President Finance since September 1, 1998. He
was Controller of the Company since May 1997. Prior to that time, he was a
business unit controller for various manufacturing companies.
JIM BOB CARPENTER has been Vice President, Sales-Woven Products, since
September 1, 1999. Prior to that time, he was General Manager of
polypropelene products for Fina Corporation.
JOSEPH BRUNO has been Vice President, Distribution Products, since September
1, 1998. He was Vice President, Sales & Marketing from April 1996. Prior to
that time, he was Vice-President/General Manager of Clark Brothers Industries.
JAMES A. JACKSON has been Vice-President, Chief Information Officer, since
September 1, 1998. Prior to 1999, he was a principal in a Distribution
Logistics company, Spectrum Information Management Systems, Inc.
RICHARD GERRIOR has been Vice-President, Manufacturing Truro since 1990.
From 1968 to 1989 he served in various manufacturing management positions
with Polymer International.
ERIC E. BAKER, has served as a director of the Company since 1984. He was
Chairman of the Board from 1984 to January 1995. He has been President of
Miralta Capital II, Inc., a venture capital company, and is the President of
Almiria Capital Corp., a venture capital company, and its predecessor,
Altamira Capital Corp. since 1984.
MICHAEL L. RICHARDS has served as a Director of the Company and its
predecessor, Systems, since 1981. Mr. Richards is a Senior Partner at the
law firm of Stikeman, Elliott, Montreal, Quebec.
-30-
<PAGE>
JAMES A. MOTLEY, SR., has been a director of the Company since February 1992.
He is a Director of American Bank and Trust Company and American National Bank
Shares, Inc. and was formerly Chairman of the Board and Chief Executive Officer
of the same firms.
IRVINE MERMELSTEIN, a director of the Company since March 1994, is a resident
of Tucson, Arizona and Halifax, Nova Scotia, and is the managing partner of
Market-Tek, management consultants.
L. ROBBIE SHAW, a resident of Halifax, Nova Scotia, has been a director of
the Company since June 1994. He was Vice-President Marketing and Public
Affairs of Nova Scotia Power from 1993 to 1995, and since then, Vice
President Customer Service and Marketing. Prior to that, Mr. Shaw was
Managing Partner for Atlantic Canada of Peat Marwick Stevenson Kellogg, a
management consulting firm.
BEN J. DAVENPORT, JR. has been a director of the Company since June 1994. He
is a resident of Chatham, Virginia, and has been since 1983 the President of
Chatham Oil Company, a distributor of oil, gasoline and propane. He also is
the Chairman of the Board and Chief Executive Officer of First Piedmont
Corporation, a waste hauling business.
GORDON R. CUNNINGHAM was elected a director of the Company last year. He is
a resident of Toronto, Ontario, and is President of Cumberland Asset
Management Corp., formerly known as Connor Capital Management Corp. Prior to
that Mr. Cunningham was President and Chief Executive Officer of London Life
Insurance Co. and President and Chief Executive Officer of London Insurance
Group.
STATEMENT OF COMPANY GOVERNANCE PRACTICES
In 1995, The Toronto Stock Exchange adopted a requirement that
disclosure be made by each listed company of its corporate governance system
by making reference to The Toronto Stock Exchange Guidelines for Corporate
Governance (the "Guidelines"). Compliance with the Guidelines is not
mandatory but each listed corporation is required to explain where its system
of governance differs from the Guidelines.
MANDATE OF THE BOARD
The mandate of the Board of Directors is to supervise the management of
the business and affairs of the Company, including the development of major
policy and strategy. The Board meets at least quarterly, and more frequently
as required to consider particular issues or conduct specific reviews between
quarterly meetings whenever appropriate. Governance responsibilities are
undertaken by the Board as a whole, with certain specific responsibilities
delegated to the audit and compensation committees as described below.
COMPOSITION OF THE BOARD
The Company's Board currently consists of eight directors, five of whom are
unrelated directors in accordance with the definition of an unrelated director
in the Guidelines.
-31-
<PAGE>
CHAIR OF THE BOARD
The Board is chaired by a director who is also the Chief Executive Officer
of the Company. The Board is of the view that this does not impair its ability
to act independently of management due to the independence of the remaining
members of the Board and the role of the Board in determining its own policies,
procedures and practices, and ensuring that the appropriate information is made
available to the Board.
COMMITTEES
The Board has established two committees, the Audit Committee and the
Compensation Committee, to facilitate the carrying out of its duties and
responsibilities and to meet applicable statutory requirements. The Guidelines
recommend that the Audit Committee be made up of outside directors only and that
other board committees should be comprised generally of outside directors, a
majority of whom should be unrelated directors. The Audit Committee complies
with the Guidelines as it is composed of four outside directors. The
Compensation Committee, as presently constituted, does not comply with the
Guidelines, inasmuch as it has two related directors and two unrelated
directors. The Board has decided not to modify its composition for the reasons
outlined below.
The following is a description of the Committees of the Board and their
mandate:
- Audit Committee: The mandate of the Committee is to review the annual
financial statements of the Company and to make recommendations to the Board of
Directors in respect thereto. The Committee also reviews the nature and scope
of the annual audit as proposed by the auditors and management and, with the
auditors and management, the adequacy of the internal accounting control
procedures and systems within the Company. The Committee also makes
recommendations to the Board regarding the appointment of independent auditors
and their remuneration and reviews any proposed change in accounting practices
or policies.
- Compensation Committee: The Committee is responsible for the
determination and administration of the compensation policies and levels for the
executive officers of the Company and its subsidiaries. The recommendations of
the Committee are communicated to the Board of Directors. The compensation of
the Chief Executive Officer and the recommendation for the granting of stock
options to executive officers are submitted to the Board of Directors for
approval. The Chairman and Chief Executive Officer is a member of this
Committee. The Board of Directors considers his participation in the Committee
as essential and feels he should continue to serve on the Committee provided the
other members are outside directors. Mr. Yull does not, however, participate in
the Committee's or the Board's deliberations concerning the recommendation on
his own compensation.
DECISIONS REQUIRING BOARD APPROVAL
All major decisions concerning, among other things, the Company's corporate
status, capital, debt financing, securities, distributions, investments,
acquisitions, divestitures and strategic alliances, are subject to approval by
the Board of Directors. In particular, capital investments and other outlays
-32-
<PAGE>
of an aggregate monetary amount of one million dollars or more are subject to
the prior approval of the Board of Directors.
DIRECTOR RECRUITMENT AND BOARD EFFECTIVENESS
All the directors presently in office and proposed to be elected (other
than Mr. Cunningham) at the next annual meeting of shareholders have served as
directors in good standing of the Company since 1994 and the majority of them
have served since it became a reporting issuer in 1992. The Board of Directors
has not adopted a formal policy for the recruitment of directors.
Participation of directors is expected at all Board of Directors and
Committee meetings to which they are called. Directors are asked to notify the
Company if they are unable to attend, and attendance at meetings is duly
recorded. All the directors have agreed to contribute to the evaluation of
their collective as well as their individual performances.
SHAREHOLDER COMMUNICATION AND FEEDBACK
The fundamental objective of the Company's shareholder communication policy
is to ensure open, accessible and timely exchange of information with all
shareholders respecting the business, affairs and performance of the Company,
subject to the requirements of securities legislation in effect and other
statutory and contractual obligations limiting the disclosure of such
information.
In order to facilitate the effective and timely dissemination of
information to all shareholders, the Company releases its disclosed information
through news wire services, the general media, telephone conferences with
investment analysts and mailings to shareholders.
DIRECTORS' AND OFFICERS' INSURANCE
The Company maintains directors' and officers' liability insurance covering
liability, including defense costs, of directors and officers of the Company
incurred as a result of acting as such directors and officers, provided they
acted honestly and in good faith with a view to the best interests of the
Company. The current limit of insurance is $25,000,000 and an annual premium of
$143,000 was paid by the Company in the last completed financial year with
respect to the period from October 1998 to December 1999. Claims payable to the
Company are subject to a retention of $250,000 per occurrence.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.
Under most circumstances, the Company's bonus policy provides for the
payment of bonuses to its officers based on the performance of the Company.
Bonuses are paid to certain officers if the net income of their respective
divisions reaches a certain percentage of the budgeted net income. Such bonuses
are set at 0% of the salary of the particular executive if net income equals 80%
of budgeted net income, increasing on a straight line basis to a maximum of 50%
(60% with respect to the Chief Executive Officer) as net income increases to
100% of budgeted net income. Bonuses are paid yearly after the receipt of the
audited financial statements of the Company.
-33-
<PAGE>
The Company provided certain executive officers with non-cash compensation,
including the use of a car or a car allowance and the reimbursement of related
expenses, during the year ended December 31, 1998. Such non-cash compensation
for the Company's officers did not exceed an aggregate of $50,000 for that year.
The aggregate compensation paid by the Company for the year ended December
31, 1998, to all directors and executive officers as a group, for services in
all capacities, was $3,926,061.
The aggregate amount accrued or set aside by the Company for the year ended
December 31, 1998 to provide pension, retirement or similar benefits, to all
directors and executive officers as a group was $2,092,000.
The following table sets forth all compensation paid in 1998 in respect of
the individuals who were, at December 31, 1998, the Chief Executive Officer and
the other four (4) most highly compensated executive officers of the Corporation
(the "named executive officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
OTHER ANNUAL
NAME SALARY $ BONUS $ COMPENSATION $(1)
<S> <C> <C> <C>
M. F. Yull 610,493 732,592 30,431
D. McSween 289,324 289,324 9,949
A. M. Archibald 236,510 236,510 32,920
K. Rogers U.S. 160,000 U.S. 128,000 U.S. 4,837
L. W. Jones U.S. 228,367 U.S. 228,367 U.S. 5,711
</TABLE>
- ---------------
(1) Perquisites and other personal benefits do not exceed the lesser of $50,000
and 10% of the total of the annual salary and bonus for any of the named
executive officers. The amounts in this column related to taxable benefits on
employee loans and company contribution to the pension plan.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.
EXECUTIVE STOCK OPTION PLAN
In the context of its initial public offering, the Company established an
ongoing Executive Stock Option Plan. The ongoing Executive Stock Option Plan of
the Company is designed to promote a proprietary interest in the Company among
its executives, to encourage the executives to further the development of the
Company and to assist the Company in attracting and retaining executives
necessary for the Company's long-term success. The Executive Stock Option Plan
is administered by the Board
-34-
<PAGE>
of Directors. The shares offered under the Executive Stock Option Plan are
common shares of the Company. The total number of shares reserved for
issuance under the Plan and any other insider stock option or stock purchase
plan will not exceed 10% of the issued and outstanding common shares of the
Company from time to time.
The Board of Directors designates from time to time from the eligible
executives those to whom options are granted and determines the number of shares
covered by such options. Generally, participation in the Plan will be limited
to persons holding positions that can have a significant impact on the Company's
long-term results. The number of common shares to which the options relate will
be determined by taking into account, INTER ALIA, the market price of the common
shares and each optionee's base salary. The exercise price payable for each
common share covered by an option will be determined by the Board of Directors,
but will not be less than the market value of the underlying common shares on
the day preceding the grant. The Plan provides that options issued thereunder
shall vest 25% per year over four years.
As of December 31, 1998, there were outstanding options to purchase a total
of 2,406,067 of the Company's common shares, of which options to purchase a
total of 1,623,620 common shares are held by the directors and officers as a
group.
The following table sets forth the exercise price and expiration date for
all of the currently outstanding options:
<TABLE>
<CAPTION>
NUMBER OF
OPTION SHARES EXERCISE PRICE EXPIRATION DATE
CDN.$ U.S.$
<S> <C> <C> <C>
146,700 $5.035 $4.25 February, 2002
92,050 $6.125 $4.813 January, 2003
5,600 $7.730 $6.022 July, 2003
150,000 $7.915 $6.040 October, 2003
100,000 $8.585 $6.406 December, 2003
39,850 $10.465 $7.710 March, 2004
8,500 $11.175 $8.260 October, 2004
94,900 $11.175 $8.135 January, 2005
49,034 $12.095 $8.575 March, 2005
100,000 $14.890 $10.860 June, 2005
290,100 $22.500 $16.300 February 2006
20,000 $24.780 $17.840 August, 2006
</TABLE>
-35-
<PAGE>
<TABLE>
<S> <C> <C> <C>
339,900 $26.51 $19.09 May, 2003
299,000 $29.03 $20.59 December, 2003
274,650 $32.92 $23.26 March, 2004
296,650 $32.92 $23.26 March, 2004
5,000 $33.90 $23.01 May, 2004
20,000 $30.65 $19.50 September, 2004
405,500 $25.86 $16.69 October, 2004
16,816 $29.75 $19.30 November, 2004
2,748,934
---------
---------
</TABLE>
In addition, on December 31, 1998, certain executive officers were credited
notional units, based on salary, related to the market price of the Company's
common shares. Each such unit credited to the officers corresponds to one
common share of the Company. These units do not vest for three years and are
paid in full at the end of the three-year period. The value of the units
fluctuates with share appreciation (and depreciation) and additional
entitlements (dividend equivalents) may be awarded by the Company to compensate
the holder of these units for any dividends paid to the shareholders of the
Company. If employment is terminated during the three-year restriction period,
the units will be cancelled. No notional units have vested under this plan.
Payments on these units are treated as free-standing Stock Appreciation Rights
("SARs") and reported in the table below.
The following table sets forth individual grants of options under the Plan
and SARs during the financial year ended December 31, 1998 to the named
executive officer:
OPTIONS/SAR GRANTS DURING THE
FINANCIAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Market Value of
% of Total Securities
Securities Under Options/SARs Underlying
Options/SAR's Granted to Options/SARs on
Granted Employees in Exercise Price Date of Grant
Name (#) Financial Year ($) ($) Expiration Date
- ---------------- -------------------- -------------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C>
M. F. Yull 200,000(1) 26.77 25.86 25.86 October 10, 2009
1,006(2) 0.13 U.S.$25.50 U.S.$25.50 December 31, 2001
D. McSween 25,000(1) 3.35 25.86 25.86 October 10, 2009
17,500(1) 2.34 29.75 29.75 November 2, 2009
623(2) 0.08 39.00 39.00 December 31, 2001
A.M. Archibald 25,000(1) 3.35 25.86 25.86 October 10, 2009
553(2) 0.07 39.00 39.00 December 31, 2001
</TABLE>
-36-
<PAGE>
<TABLE>
<CAPTION>
Market Value of
% of Total Securities
Securities Under Options/SARs Underlying
Options/SAR's Granted to Options/SARs on
Granted Employees in Exercise Price Date of Grant
Name (#) Financial Year ($) ($) Expiration Date
- ---------------- -------------------- -------------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C>
K. Rogers 20,000(1) 2.68 U.S.$23.26 U.S.$23.26 March 10, 2009
15,000(1) 2.01 U.S.$16.69 U.S.$16.69 October 10, 2009
390(2) 0.05 U.S.$25.50 U.S.$25.50 December 31, 2001
L.W. Jones 50,000(1) 6.69 U.S.$23.26 U.S.$23.26 March 10, 2009
25,000(1) 3.35 U.S.$16.69 U.S.$16.69 October 10, 2009
</TABLE>
- ---------------
(1) Represents securities under options granted.
(2) Represents securities under SARs granted.
The following table sets forth each exercise of options during the
financial year ended December 31, 1998 by the named executive officers. No SARs
vested during the financial year ended December 31, 1998.
AGGREGATED OPTION/SAR EXERCISES DURING THE FINANCIAL YEAR ENDED
DECEMBER 31, 1998 AND FINANCIAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Securities Value of
Acquired Aggregate Unexercised Options/SARs
On Value Unexercised Options/SARs at at FY-End
Exercise Realized FY-End (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------- ---------------- ------------------ -------------------------------- -------------------------------
<S> <C> <C> <C> <C>
M.F. Yull Nil n/a 191,500 / 452,500 7,468,500 / 17,647,500
D. McSween 50,000 1,625,000 121,369 / 120,623 4,733,391 / 4,704,297
A.M. Archibald Nil n/a 150,115 / 107,571 5,854,485 / 4,195,269
K. Rogers Nil n/a 105,803 / 65,601 4,126,317 / 2,558,439
L. W. Jones 23,770 U.S.$544,566 17,957 / 98,319 700,323 / 3,834,441
</TABLE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.
INDEBTEDNESS TO THE COMPANY
Officers of the Company are currently indebted to the Company in
respect of interest-free loans granted for the purpose of purchasing Common
Shares of the Company upon the exercise of options. Such loans are repayable
not later than September 30, 1999. As of May 11, 1999, the aggregate
indebtedness of all officers to the Company entered into in connection with the
purchase of common shares was $399,531. The following table summarizes the
largest amount of the loans outstanding since January 1, 1998, and the amount
outstanding on May 11, 1999.
-37-
<PAGE>
<TABLE>
LARGEST AMOUNT
NAME AND MUNICIPALITY OUTSTANDING DURING AMOUNT OUTSTANDING
OF RESIDENCE FISCAL YEAR ENDED 12/31/98 ON MAY 11, 1999
<S> <C> <C>
Melbourne F. Yull $369,218 $369,218
Chairman of the Board and
Chief Executive Officer
Montreal, Quebec
H. Dale McSween $ 30,313 $ 30,313
Executive Vice President and
Chief Operating Officer
Sarasota, Florida
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
On July 1, 1998, the Company entered into a new employment agreement with
Melbourne F. Yull. Pursuant to the terms of the employment agreement, Mr. Yull
agreed to continue to serve as Chairman of the Board and Chief Executive Officer
of the Company and its subsidiaries initially at a fixed annual gross salary and
subsequently at compensation levels to be reviewed annually by the Company in
accordance with its internal policies. The agreement provides for annual
bonuses based on budgeted objectives of the Company. The agreement also
provides for the payment of 24 months of Mr. Yull's remuneration in the event of
termination without cause or resignation within six months of a change of
control. Further, it provides for all options for the acquisition of common
shares of the Company previously granted to Mr. Yull to become immediately
vested and exercisable in the event of his termination without cause, or his
resignation within six months of a change of control, or his retirement at any
time after his 60th birthday or in the event of his death, and that they must be
exercised within ninety (90) days following the effective date of such
termination, resignation, retirement or death. In addition to his participation
in the pension plan, the employment contract provides for Mr. Yull to receive,
upon his ceasing to be an employee for any reason, a defined benefit
supplementary pension annually for life equal to two percent of his average
annual gross salary for the final five years of his employment multiplied by his
years of service with the Company.
On June 13, 1989, predecessors of Intertape Polymer Inc. entered into an
employment agreement with Lloyd W. Jones, whereby he agreed to act as President
of a subsidiary as well as in such other positions within the Intertape Polymer
Group as would be agreed upon between the parties. The agreement is renewed
yearly for an additional one-year term and Mr. Jones' compensation is agreed
upon on an annual basis, including the salary and the basis for the
determination of the annual bonus.
The Company has entered into change-in-control letter agreements dated
August 8, 1996 with Messrs. McSween, Archibald, Rogers and Jones. These letter
agreements provide that if, within a period of six months after a change in
control of the Company, (a) an executive voluntarily terminates his employment
with the Company, or (b) the Company terminates an executive's employment
without cause, such executive will be entitled to a lump sum in the case of his
resignation or an indemnity in
-38-
<PAGE>
lieu of notice in a lump sum in the case of his termination, equal to fifteen
months of such executive's remuneration at the effective date of such
resignation or termination. In addition, all options for the acquisition of
common shares of the Company previously granted to such executive under the
Plan shall become immediately vested and exercisable and must be exercised
within 90 days following the effective date of such resignation or
termination.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
The management of the Company is unaware of any material interest of
any director or officer of the Company, of any management nominee for election
as a director of the Company or of any person who beneficially owns or exercises
control or direction over shares carrying more than 10% of the voting rights
attached to all shares of the Company or any associate or affiliate of any such
person, in any transaction since the beginning of the last completed fiscal year
of the Company or in any proposed transaction that has materially affected or
will materially affect the Company or any of its affiliates.
PART II
Not Applicable
PART III
ITEM 15. DEFAULTS FROM SENIOR SECURITIES.
None Reportable
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES.
None Reportable
PART IV
ITEM 17. FINANCIAL STATEMENTS.
Reference is made to the Company's Financial Statements, and the notes
thereto, together with the Auditors' Report, on Pages 19 through 45 of
Registrant's 1998 Annual Report to
-39-
<PAGE>
Shareholders which is incorporated herein by reference and which is included
as Exhibit 4 to this Annual Report on Form 20-F, and to the Financial
Statement Schedules, together with the Auditor's Report thereon, included as
part of this Annual Report on Form 20-F.
ITEM 18. FINANCIAL STATEMENTS.
Not Applicable
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS.
(a) (1) Financial Statements Page(s)
Auditors' Report A-1 **
Consolidated Earnings 20 *
Consolidated Retained Earnings 20 *
Consolidated Changes in Cash
Resources 21 *
Consolidated Balance Sheets 22 *
Notes 1-22 to the Financial
Statements 23-45 *
(a) (2) Financial Statement Schedules
Auditors' Report F-1 **
Schedule II - Valuation and
Qualifying Accounts F-2 **
(b) Exhibits
1 Renewal of operating line of credit between Intertape
Polymer Inc. and the National Bank of Canada dated
April 29, 1996 ***
2.1 Fourth Lease Amendment between Intertape Polymer
Corp. and Danville Industrial Development Incorporated
dated February 1, 1993 ***
2.2 Fifth Lease Amendment between Intertape Polymer
Corp. and Danville Industrial Development Incorporated
dated September 6, 1995 ***
2.3 Loan Agreement between Intertape Polymer Corp.,
Intertape Polymer Inc., Intertape Polymer Group Inc.
and Danville Industrial Development and American
-40-
<PAGE>
National Bank and Trust Company ***
3 [Deleted]
4 Registrant's 1998 Annual Report to
Shareholders
5 Consent of Independent Auditors
6 Note agreements between Intertape Polymer Group
Inc. and various institutions dated January 1, 1996 ***
7 Amended Memorandum of lease between Intertape
Polymer Corp. and Danville Industrial
Development, Inc. dated May 14, 1996 ***
8 Loan modification agreement between Danville
Industrial Development Incorporated,
American National Bank and Trust Company,
Intertape Polymer Corp., Intertape Polymer
Inc. and Intertape Polymer Group Inc. dated
July, 1996 ***
9 Loan documents between Danville Industrial
Development, Incorporated and American
National Bank and Trust Company, dated
August 15, 1996. ***
10 Acquisition Agreement between Intertape
Polymer Group Inc. and STC Corp. dated
December 16, 1997. ***
11 Loan Documents between IPG Holdings,
L.P. and Toronto Dominion Bank dated
December 15, 1997 and Guaranty by
Intertape Polymer Group Inc. ***
12 Revolving Credit Facility between IPG
Holdings, L.P. and Comerica Bank
dated December 15, 1997 and Guaranty
by Intertape Polymer Group Inc. ***
13 Restated Revolving Credit Agreement
between IPG Holdings, L.P. and
Comerica Bank dated as of May 8, 1998
14 First Amendment to Restated Revolving
Credit Agreement dated as of September 1, 1998
-41-
<PAGE>
15 Second Amendment to Restated Revolving
Credit Agreement dated as of January 22, 1999
16 Stock Purchase Agreement between Intertape Polymer
Group Inc., Coating Technologies International, Inc.
and Anchor Continental Holdings, Inc. dated August 19, 1998
- -----------------------------
* The financial statements filed as part of this report are incorporated
herein by reference to the 1998 Annual Report to Shareholders which is
included as Exhibit 4 to this Annual Report on Form 20-F. References to
page numbers are references to the applicable page in the 1998 Annual
Report.
** References are to pages in this Annual Report on Form 20-F.
*** Previously filed as an exhibit to registrant's Annual Report on Form 20-F,
Commission File No. 1-10928, and incorporated herein by reference.
-42-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTERTAPE POLYMER GROUP INC.
(Registrant)
(SIGNED) Andrew M. Archibald, C.A.
----------------------------------
(Signature)
Name: Andrew M. Archibald, C.A.
Title: Chief Financial Officer,
Secretary, Treasurer, and
Vice President Administration
Date: May 20, 1999
-43-
<PAGE>
Exhibit Index
1 Renewal of operating line of credit between Intertape
Polymer Inc. and the National Bank of Canada dated
April 29, 1996 ***
2.1 Fourth Lease Amendment between Intertape Polymer
Corp. and Danville Industrial Development Incorporated
dated February 1, 1993 ***
2.2 Fifth Lease Amendment between Intertape Polymer
Corp. and Danville Industrial Development Incorporated
dated September 6, 1995 ***
2.3 Loan Agreement between Intertape Polymer Corp.,
Intertape Polymer Inc., Intertape Polymer Group Inc.
and Danville Industrial Development and American
National Bank and Trust Company ***
3 [Deleted]
4 Registrant's 1998 Annual Report to
Shareholders
5 Consent of Independent Auditors
6 Note agreements between Intertape Polymer Group
Inc. and various institutions dated January 1, 1996 ***
7 Amended Memorandum of lease between Intertape
Polymer Corp. and Danville Industrial
Development, Inc. dated May 14, 1996 ***
8 Loan modification agreement between Danville
Industrial Development Incorporated,
American National Bank and Trust Company,
Intertape Polymer Corp., Intertape Polymer
Inc. and Intertape Polymer Group Inc. dated
July, 1996 ***
9 Loan documents between Danville Industrial
Development, Incorporated and American
National Bank and Trust Company, dated
August 15, 1996. ***
-44-
<PAGE>
10 Acquisition Agreement between Intertape
Polymer Group Inc. and STC Corp. dated
December 16, 1997. ***
11 Loan Documents between IPG Holdings,
L.P. and Toronto Dominion Bank dated
December 15, 1997 and Guaranty by
Intertape Polymer Group Inc. ***
12 Revolving Credit Facility between IPG
Holdings, L.P. and Comerica Bank
dated December 15, 1997 and Guaranty
by Intertape Polymer Group Inc. ***
13 Restated Revolving Credit Agreement between
IPG Holdings, L.P. and Comerica Bank dated as
of May 8, 1998.
14 First Amendment to Restated Revolving
Credit Agreement dated as of September
1, 1998.
15 Second Amendment to Restated Revolving
Credit Agreement dated as of January 22,
1999.
16 Stock Purchase Agreement between Intertape Polymer
Group Inc., Coating Technologies International, Inc.
and Anchor Continental Holdings, Inc. dated
August 19, 1998
- --------------------------------------
*** Previously filed as an exhibit to registrant's Annual Report on Form 20-F,
Commission File No. 1-10928, and incorporated herein by reference.
-45-
<PAGE>
AUDITORS' REPORT
To the Shareholders of
INTERTAPE POLYMER GROUP INC.
We have audited the consolidated balance sheets of Intertape Polymer Group
Inc. as at December 31, 1998 and 1997 and the consolidated statements of
earnings, retained earnings and changes in cash resources for the years ended
December 31, 1998, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an
audit to obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December
31, 1998 and 1997 and the results of its operations and the changes in its
financial position for the years ended December 31, 1998, 1997 and 1996 in
accordance with generally accepted accounting principles in Canada.
Generally accepted accounting principles in Canada differ in some respects
from those applicable in the United States of America (See Note 22).
/s/ Raymond Chabot Grant Thornton
General Partnership
Chartered Accountants
Montreal, Canada
March 9, 1999
<PAGE>
AUDITORS' REPORT ON SCHEDULE II
To the Board of Directors of
Intertape Polymer Group Inc.
In connection with our audit of the Consolidated Financial Statements of
Intertape Polymer Group Inc. referred to in our report dated March 9, 1999,
which is included in the Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the year ended December 31, 1998 on Form
20-F, we have also audited Schedule II for each of the years in the three
year period ended December 31, 1998. In our opinion, this schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related Consolidated Financial Statements taken as a
whole.
/s/ Raymond Chabot Grant Thornton
General Partnership
Chartered Accountants
Montreal, Canada
March 9, 1999
<PAGE>
SCHEDULE II
INTERTAPE POLYMER GROUP INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS AMOUNTS
BEGINNING CHARGED TO ASSUMED UNDER BALANCE AT END
OF YEAR EXPENSES DEDUCTIONS ACQUISITIONS OF YEAR
---------- ---------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
DESCRIPTION
ALLOWANCE FOR DOUTFUL ACCOUNTS
Year ended December 31, 1998 $1,935 $561 $201 $1,087 $3,382
------ ---- ---- ------ ------
------ ---- ---- ------ ------
Year ended December 31, 1997 $ 764 $455 $162 $ 878 $1,935
------ ---- ---- ------ ------
------ ---- ---- ------ ------
Year ended December 31, 1996 $ 689 $217 $142 -- $ 764
------ ---- ---- ------ ------
------ ---- ---- ------ ------
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We have issued our reports, dated March 9, 1999 on the Consolidated Financial
Statements and the Financial Statement Schedule of Intertape Polymer Group
Inc. referred to in Items 8 and 17 of this Annual Report on Form 20-F and we
hereby consent to the use of such reports in this Annual Report on Form 20-F.
/s/ Raymond Chabot Grant Thornton
General Partnership
Chartered Accountants
Montreal, Canada
May 20, 1999
<PAGE>
RESTATED REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT made as of the 8th day of May
-------
1998 by and between IPG HOLDINGS LP, a Delaware limited partnership
("Borrower"), INTERTAPE POLYMER GROUP INC., a corporation organized under the
laws of Canada ("Company") and COMERICA BANK, a banking corporation organized
under the laws of Michigan, with principal offices at 500 Woodward Avenue,
Detroit, Michigan 48226 ("Bank").
W I T N E S S E T H :
WHEREAS, Borrower and Bank are party to a certain Revolving Credit
Agreement dated as of December 15, 1997 ("Prior Agreement") pursuant to which
Bank established a revolving credit facility for Borrower in the amount of
Thirty Three Million Dollars ($33,000,000) and Borrower delivered to Bank a
Revolving Credit Note, as evidence thereof, in the face amount of Thirty Three
Million Dollars ($33,000,000) ("Prior Note").
WHEREAS, Borrower and Company have requested Bank to amend the Prior
Agreement and Prior Note to among other things, increase the amount of loans and
advances available to Borrower;
WHEREAS, Bank is willing to do so on the terms set forth herein;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree that the Prior Agreement is hereby
amended and restated in its entirety as follows:
ARTICLE I
REVOLVING CREDIT FACILITY
1.1 Subject to and upon the terms and conditions herein set forth,
the Bank hereby establishes a Revolving Credit Facility in favor of the Borrower
("Revolving Credit") which may be utilized by Borrower by direct advances under
Section 1.2 below and/or for Letters of Credit issued under Section 1.4 hereof,
provided however that the aggregate principal amount of advances plus the
aggregate face amount of Letters of Credit at any one time outstanding hereunder
shall at no time exceed the Commitment Amount.
1.2 Subject to the provisions of this Agreement, so long as no
Event of Default exists, and if no condition exists which, but for the giving of
notice or the lapse of time or both, would constitute an Event of Default
hereunder, the Borrower may draw upon such Revolving Credit in whole or in part,
from time to time, and the amount of any borrowing may be repaid and reborrowed,
until the Maturity Date.
1.3 The indebtedness hereunder shall be due and payable in full on
the Maturity Date and interest thereon shall accrue and be paid as provided in
the promissory note
<PAGE>
executed by Borrower as evidence of the Revolving Credit in the form attached
as Exhibit "A" (the "Note").
1.4 The Borrower may request the Bank from time to time to issue,
for the Borrower's accounts with third parties, letters of credit (called
herein, together with any "Letters of Credit" which were issued by Bank pursuant
to the Prior Agreement which remain issued and unexpired as of the Closing Date,
the "Letters of Credit"), in each case with expiries not later than the earlier
of (x) one year and (y) the Maturity Date. In connection with each such
request, Borrower shall execute and deliver to Bank, prior to the requested date
of issuance, a letter of credit application and agreement in form satisfactory
to Bank.
1.5 The Borrower shall pay to the Lender (a) a closing fee, on
even date herewith, in the amount of Seventy Five Thousand Dollars ($75,000),
which fee shall be fully earned as of the date hereof and shall not be
refundable in whole or part for any reason, (b) with respect to Letters of
Credit generally, the Bank's standard charges in connection with processing,
issuance, amendments and drawings on letters of credit, which standard charges
are set forth in Exhibit B hereto, (c) with respect to standby Letters of
Credit, letter of credit fees payable quarterly in arrears on each the first day
of each January, April, July and October, in the amount of one percent (1%) per
annum on the face amounts thereof, and (d) with respect to trade Letters of
Credit, letter of credit fees, payable upon issuance thereof in the amount of
three-eighths percent (3/8%) per annum of the face amount thereof.
ARTICLE II
PURPOSE OF THE LOAN
2.1 The proceeds of the loan to be made hereunder are to be used
(i) in an initial advance to be made on the Closing Date for the purpose of, and
in the amount necessary to, repay, by replacement and renewal evidences,
indebtedness outstanding under the Prior Note, and (ii) thereafter, for general
working capital purposes.
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF THE BORROWER
The Borrower represents and warrants to the Bank that:
3.1 AUTHORIZATION. The Borrower has the power and authority
necessary and has taken all necessary steps in order to be authorized to borrow
hereunder and to execute and deliver and perform its obligations under this
Agreement and Note in accordance with the terms and conditions thereof and to
complete the transactions contemplated herein. This Agreement and the Note have
been duly executed and delivered by duly authorized officers of the Borrower and
Company and constitute legal, valid and binding obligations of the Borrower and
Company, enforceable in accordance with their terms.
2
<PAGE>
3.2 NO VIOLATION TO RESULT. The execution and delivery of this
Agreement and the contemplated hereby:
(a) are not in violation or breach of, do not conflict with or
constitute a default under, and will not accelerate or permit the acceleration
of the performance required by, the limited partnership agreement of the
Borrower or any note, debt instrument, security agreement or mortgage, or any
other contract or agreement, written or oral, to which the Borrower is a party
or by which the Borrower or any of its properties or assets are bound;
(b) will not be an event which, after notice or lapse of time or
both, will result in any such violation, breach, conflict, default, or
acceleration;
(c) will not result in violation under any law, judgment, decree,
order, rule, regulation or other legal requirement of any governmental
authority, court or arbitration tribunal whether federal, state, provincial,
municipal or local (within the U.S. or otherwise) at law or in equity, and
applicable to the Borrower; and
(d) will not result in the creation or imposition of any lien,
possibility of lien, encumbrance, security agreement, equity, option, claim,
charge, pledge or restriction in favor of any third person upon any of the
properties or assets of the Borrower.
3.3 NO EXISTING DEFAULTS. To the best knowledge and reasonable
belief of the Borrower, there exists no unwaived material default or violation:
(a) under any of the material terms of any note, debt instrument,
security agreement or mortgage or under any other material commitment, contract,
agreement, license, lease or other instrument, whether written or oral, to which
it is a party or by which it or any of its properties or assets is bound;
(b) under any law, judgment, decree, order, permit, rule,
regulation or other legal requirement or any governmental authority, court or
arbitration tribunal whether federal, state, provincial, municipal or local
(within the U.S. or otherwise), at law or in equity, and applicable to it or to
any of its properties or assets, wherein such default would result in a material
adverse effect upon the Borrower, its properties or assets; or
(c) in the payment of any of its monetary obligations or debts and
there exists no condition or event which, after notice or lapse of time or both,
would constitute a material default in connection with any of the foregoing.
3.4 NO ADVERSE CHANGES. From the date of the December 31, 1997
financial statements delivered by Company to Bank pursuant to the Prior
Agreement:
(a) The Borrower has not sustained any damage, destruction or
loss, by reason of fire, explosion, earthquake, casualty, labor trouble,
requisition or taking of property by any government or agency thereof,
windstorm, embargo, riot, act of God or the public enemy, flood, volcanic
eruption, accident, other calamity or other similar or dissimilar event (whether
or not
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covered by insurance) adversely affecting the business, properties, financial
condition or operations of the Borrower taken as a whole;
(b) There have been no changes in the condition (financial or
otherwise), business, net worth, assets, properties, liabilities or obligations
(fixed, contingent, known, unknown or otherwise) of the Borrower which in the
aggregate have had or may have a material adverse effect on the business,
properties, financial condition or operations of the Borrower taken as a whole,
and there has been no occurrence, circumstance or combination thereof which
might reasonably be expected to result in any such adverse effect.
3.5 FULL DISCLOSURE. The information furnished by the Borrower or
by any of its directors, officers, employees, agents, accountants or
representatives to the Bank or its counsel pursuant to this Agreement (whether
furnished prior to, at, or subsequent to the date hereof), the information
contained in the Exhibits and Schedules referred to in this Agreement, and the
other information furnished to the Bank by the Borrower or by any of their
respective directors, officers, employees, agents, accountants or
representatives of the Borrower (pursuant to the request of the Bank or
otherwise), does not and will not omit to state any material fact necessary to
make all such information not misleading.
3.6 TAXES. The Borrower has prepared (or caused to be prepared)
and properly filed (or caused to be properly filed) with the appropriate
federal, state, provincial, municipal or local authorities (within the U.S. or
otherwise) all tax returns, information returns and other reports required to be
filed and have paid or accrued (or caused to be so paid or accrued) in full all
taxes, interest, penalties, assessments or deficiencies, if any, due to, or
claimed to be due by, any taxing authority. The Borrower has not executed or
filed with any taxing authority any agreement extending the period for
assessment or collection of any taxes. The Borrower is not a party to any
pending action or proceeding, nor is any such action or proceeding threatened,
by any governmental authority for the assessment or collection of taxes, and no
claim for assessment or collection of taxes has been asserted against the
Borrower and during the course of any audit currently in process or not
completed, no issues have been suggested by any representative of any such
governmental authority that, if asserted, would result in a proposed assessment
of taxes, interest or penalties, against the Borrower.
3.7 TITLE TO ASSETS. The Borrower has good and marketable title
to its property, free and clear of any and all liens, encumbrances, security
agreements, equities, options, claims, charges, pledges, restrictions,
encroachments, defects in title and easements except for the matters previously
disclosed to the Bank in writing.
3.8 LITIGATION. Except as set forth in Exhibit 3.8 hereto, there
is no litigation, suit, proceeding, action, claim or investigation, at law or in
equity, pending or threatened against the Borrower or its property or assets,
before any court, agency, authority or arbitration tribunal, including, without
limitation, any product liability, workers' compensation or wrongful dismissal
claims, or claims, actions, suits or proceedings relating to toxic materials,
hazardous substances, pollution or the environment which are not properly
insured. There are no facts known to the Borrower which, if known to the
Borrower, to customers, governmental authorities or other persons, might result
in any such litigation, suit, proceeding, action, claim or
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investigation. Except as set forth in such Exhibit 3.8 hereto, the Borrower
is not subject to or in default with respect to any notice, order, writ,
injunction or decree of any court, agency, authority or arbitration tribunal.
3.9 COMPLIANCE WITH LAWS. To the best of its knowledge and
belief, the Borrower has complied with all laws, municipal by-laws, regulations,
rules, orders, judgments, decrees and other requirements and policies imposed by
any governmental authority applicable to it, its properties or the operation of
its business. Without limiting the generality of the foregoing, the Borrower is
in full compliance with:
(a) all laws relating to the protection of human health and
safety, including, without limitation, the Occupational Safety and Health Act of
1970, as amended, and all regulations and standards issued thereunder by the
Secretary of Labor or the Occupational Safety and Health Administrator or other
governmental agency or authority acting at any time thereunder;
(b) all laws relating to protection of the environment, including,
without limitation, the Resource Conservation and Recovery Act ("RCRA") and the
Comprehensive Environment Response, Compensation and Liability Act ("CERCLA");
(c) all laws administered by the Environmental Protection Agency;
(d) all laws relating to equal opportunity; and
(e) all zoning, building and other laws, ordinances, rules,
regulations, plans and directives of government authorities, Boards of Fire
Underwriters and other entities having jurisdiction, as well as all private
restrictions and covenants (whether or not registered or of record), in each
case without reliance on nonconforming use or similar rule.
The Borrower has not received any notice or citation for
noncompliance with any of the foregoing, and there exists no condition,
situation or circumstance, nor has there existed such a condition, situation or
circumstance, which, after notice or lapse of time, or both, would constitute
noncompliance with or give rise to future liability with regard to any of the
foregoing, except as otherwise disclosed in Exhibit 3.9 hereto.
3.10 TRUE COPIES All documents furnished or caused to be furnished
to the Bank or its counsel by the Borrower or by any of its directors, officers,
employees, agents, accountants or representatives are true and correct copies,
and there are no amendments or modifications thereto except as set forth in such
documents.
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ARTICLE IV
CONDITIONS OF LENDING
4.1 The obligation of the Bank to make any advance of the loans
hereunder or to issue any Letter of Credit shall be subject to the fulfillment
of each of the foregoing conditions:
(a) PROMISSORY NOTE. The Borrower shall have executed and
delivered to the Bank the Note, dated the date hereof, incorporated by reference
herein and made part hereof.
(b) GUARANTEE. Company, shall have executed and delivered to the
Bank a Guarantee in respect of the Borrower's obligations hereunder, such
Guarantee to be in form and substance satisfactory to the Bank's counsel.
(c) OFFICER'S CERTIFICATE. The Bank shall have received: (i) the
certificate of the General Partner of the Borrower, certifying as to the
Borrower's authority in respect of the borrowing by the Borrower hereunder and
the issuance of the Note and the offices and specimen signatures of officers of
the Borrower executing any documents delivered to the Bank in connection with
the Loan; and (ii) the certificate of the secretary of Company certifying as to
the Company's authority to execute and deliver this Agreement and the guarantee
and showing the officers and specimen signatures of officers of Company
executing and delivering such documents.
(d) OPINIONS. The Bank shall have received opinion letters from
the legal counsel for Borrower and Company covering such matters as Bank shall
require and in form and content satisfactory to Bank.
ARTICLE V
COVENANTS
The Borrower and Company covenant and agree that, until any Note
together with interest and all its other indebtedness to the Bank under this
Agreement are paid in full, unless specifically waived by the Bank in writing:
5.1 CORPORATE EXISTENCE, ETC. The Company and Borrower will
preserve and keep in full force and effect, and will cause each Restricted
Subsidiary to preserve and keep in full force and effect, its corporate
existence and all licenses and permits necessary to the proper conduct of its
business; provided, however, that the foregoing shall not prevent any
transaction permitted by Section 5.12.
5.2 INSURANCE. The Company and Borrower will maintain, and will
cause each Restricted Subsidiary to maintain, insurance coverage by financially
sound and reputable insurers in such forms and amounts and against such risks as
are customary for corporations of established reputation engaged in the same or
a similar business and owning and operating similar properties in accordance
with good business practice.
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5.3 TAXES, CLAIMS FOR LABOR AND MATERIALS, COMPLIANCE WITH LAWS.
Without limiting any other obligation of the Borrower and Company hereunder
including, without limitation, pursuant to the second sentence of this Section
5.3, the Company and Borrower will promptly pay and discharge, and will cause
each Subsidiary promptly to pay and discharge, all lawful taxes, assessments and
governmental charges or levies imposed upon the Company, Borrower or such
Subsidiary, respectively, or upon or in respect of all or any part of the
property or business of the Company and Borrower or such Subsidiary, all trade
accounts payable in accordance with usual and customary business terms, and all
claims for work, labor or materials, which if unpaid might become a Lien upon
any property of the Company, Borrower or a Restricted Subsidiary; provided,
however, that the Company, Borrower or such Subsidiary shall not be required to
pay any such tax, assessment, charge, levy, account payable or claim if (i) the
validity, applicability or amount thereof is being contested in good faith by
appropriate actions or proceedings which will prevent the forfeiture or sale of
any property of the Company, Borrower or such Subsidiary or any material
interference with the use thereof by the Company, Borrower or such Subsidiary,
and (ii) the Company, Borrower or such Subsidiary shall set aside on its books,
reserves adequate in accordance with GAAP. The Company and Borrower will
promptly comply and will cause each Subsidiary to comply with all laws,
ordinances or governmental rules and regulations to which it is subject
including, without limitation, the Occupational Safety and Health Act of 1970,
as amended, ERISA and all laws, ordinances, governmental rules and regulations
relating to environmental protection in all applicable jurisdictions, the
violation of which could materially and adversely affect the properties,
business, profits or condition of the Company and Borrower and its Subsidiaries
or would result in any Lien not permitted under Section 5.10.
5.4 MAINTENANCE, ETC. The Company and Borrower will maintain,
preserve and keep, and will cause each Restricted Subsidiary to maintain,
preserve and keep, its properties which are used or useful in the conduct of its
business (whether owned in fee or a leasehold interest) in good repair and
working order and from time to time will make all necessary repairs,
replacements, renewals and additions so that at all times the efficiency thereof
shall be maintained.
5.5 NATURE OF BUSINESS. The Company, Borrower and each Restricted
Subsidiaries will continue to carry on substantially the same type of business
currently carried on and activities which are ancillary, incidental or necessary
to the ongoing business of the Company, Borrower and the Restricted Subsidiaries
as presently conducted.
5.6 CONSOLIDATED NET WORTH. The Company will at all times keep
and maintain Consolidated Net Worth at an amount not less than $200,000,000.
5.7 FIXED CHARGES COVERAGE RATIO. The Company will keep and
maintain the ratio (determined as of the end of each fiscal quarter of the
Company) of Net Income Available for Fixed Charges to Fixed Charges for the
immediately preceding period of four consecutive fiscal quarters including the
fiscal quarter ending on the calculation date (taken as a single accounting
period) at not less than 2.0 to 1.0.
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5.8 LEVERAGE RATIO. The Company will not at any time permit
Consolidated Funded Debt to exceed 55% of Consolidated Total Capitalization.
5.9 ADDITIONAL LIMITATIONS ON DEBT.
(a) The Company and the Borrower will not, and will not permit any
Restricted Subsidiary to, create, assume or incur or in any manner become liable
in respect of any Debt, except:
(1) Funded Debt of the Company, Borrower and Restricted
Subsidiaries permitted by Section 5.8;
(2) Current Debt of the Company, Borrower or any Restricted
Subsidiary, provided that during the twelve-month period immediately preceding
the date of any determination hereunder, there shall have been a period of 30
consecutive days during which Current Debt of the Company and its Restricted
Subsidiaries shall be an amount no greater than the amount of additional Funded
Debt that could have been issued on each such day of said 30-day period within
the limitations of Section 5.9(a)(1) above;
(3) in addition to the limitations with respect to Debt
pursuant to the foregoing paragraphs (1) and (2), in the case of Priority Debt,
at the time of issuance of any such Priority Debt and after giving effect
thereto and the application of the proceeds thereof, (x) the aggregate principal
amount of Priority Debt shall not exceed an amount equal to 20% of Consolidated
Net Worth and (y) all such Priority Debt shall have been incurred within the
other applicable limitations of this Section 5.9(a); and
(4) Debt of a Restricted Subsidiary owing to the Company or
to a Wholly-owned Restricted Subsidiary.
(b) Any corporation which becomes a Restricted Subsidiary after
the date hereof shall for all purposes of this Section 5.9 be deemed to have
created, assumed or incurred at the time it becomes a Restricted Subsidiary all
Debt of such corporation existing immediately after it becomes a Restricted
Subsidiary.
5.10 LIMITATION ON LIENS. The Company and Borrower will not, and
will not permit any Restricted Subsidiary to, create or incur, or suffer to be
incurred or to exist, any Lien on its or their property or assets, whether now
owned or hereafter acquired, or upon any income or profits therefrom, or
transfer any property for the purpose of subjecting the same to the payment of
obligations in priority to the payment of its or their general creditors, or
acquire or agree to acquire, or permit any Restricted Subsidiary to acquire, any
property or assets upon conditional sales agreements or other title retention
devices, except:
(a) Liens for property taxes and assessments or governmental
charges or levies and Liens securing claims or demands of mechanics and
materialmen, provided payment thereof is not at the time required by
Section 5.3;
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(b) Liens of or resulting from any judgment or award, the time for
the appeal or petition for rehearing of which shall not have expired, or in
respect of which the Company or a Restricted Subsidiary shall at any time in
good faith be prosecuting an appeal or proceeding for a review and in respect of
which a stay of execution pending such appeal or proceeding for review shall
have been secured;
(c) Liens incidental to the conduct of business or the ownership
of properties and assets (including Liens in connection with worker's
compensation, unemployment insurance and other like laws, warehousemen's and
attorneys' liens and statutory landlords' liens) and Liens to secure the
performance of bids, tenders or trade contracts, or to secure statutory
obligations, surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided in each case, the obligation secured is not overdue
or, if overdue, is being contested in good faith by appropriate actions or
proceedings;
(d) minor survey exceptions or minor encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and other similar
purposes, or zoning or other restrictions as to the use of real properties,
which are necessary for the conduct of the activities of the Company and its
Restricted Subsidiaries or which customarily exist on properties of corporations
engaged in similar activities and similarly situated and which do not in any
event materially impair their use in the operation of the business of the
Company and its Restricted Subsidiaries;
(e) Liens securing Indebtedness of a Restricted Subsidiary to the
Company or to another Wholly-owned Restricted Subsidiary;
(f) Liens on shares of stock of Unrestricted Subsidiaries;
(g) Liens existing as of January 1, 1998 and reflected on Exhibit
5.10 hereto.
(h) Liens incurred after the Closing Date given to secure the
payment of the purchase price incurred in connection with (and within twelve
months of) the acquisition after the Closing Date of fixed assets useful and
intended to be used in carrying on the business of the Company or a Restricted
Subsidiary, including Liens existing on such fixed assets at the time of
acquisition thereof or at the time of acquisition by the Company or a Restricted
Subsidiary of any business entity then owning such fixed assets, whether or not
such existing Liens were given to secure the payment of the purchase price of
the fixed assets to which they attach so long as they were not incurred,
extended or renewed in contemplation of such acquisition, provided that (i) the
Lien shall attach solely to the fixed assets acquired or purchased, (ii) at the
time of acquisition of such fixed assets, the aggregate amount remaining unpaid
on all Indebtedness secured by Liens on such fixed assets whether or not assumed
by the Company or a Restricted Subsidiary shall not exceed an amount equal to
the lesser of the total purchase price or fair market value at the time of
acquisition of such fixed assets (as determined in good faith by the Board of
Directors of the Company), and (iii) all such Indebtedness shall have been
incurred within the other applicable limitations of Section 5.8 and
Section 5.9; and
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(i) Liens, in addition to those permitted by Section 5.10(a)
through (h) above, securing Debt of the Company or any Restricted Subsidiary
(including, without limitation, Liens securing obligations of the Company or any
Restricted Subsidiary under any operating lines or short-term or revolving bank
facilities); provided that after giving effect to the incurrence of all Debt
secured by such Liens (i) the aggregate principal amount of Priority Debt shall
not exceed an amount equal to 20% of Consolidated Net Worth and (ii) all such
Debt shall have been incurred within the other applicable limitations of Section
5.8 and Section 5.9;
5.11 RESTRICTED PAYMENTS. The Company and Borrower will not, and
will not permit any Restricted Subsidiary to, make any Restricted Investment or
Restricted Payment, if, after giving effect thereto, the sum of (i) the
aggregate amount of Restricted Payments made during the period from and after
January 1, 1998 to and including the date of the making of the Restricted
Payment in question, plus (ii) the aggregate amount of all Restricted
Investments made by the Company or any Restricted Subsidiary during said period
would exceed the sum of (x) $115,000,000 (Canadian) plus (y) 75% of Consolidated
Net Income for such period, computed on a cumulative basis for said entire
period (or if such Consolidated Net Income is a deficit figure for any fiscal
period within such period, then minus 100% of such deficit) plus (z) an amount
equal to the aggregate net cash proceeds received by the Company from the
issuance or sale after the Closing Date (other than to the Company or any
Subsidiary) of shares of common stock of the Company (such sum described in
clauses (x), (y) and (z) being referred to as the "Available Pool").
In addition to the foregoing restrictions, the Company will not make any
Restricted Payments or any Restricted Investment if, at the time thereof or
after giving effect thereto, any Default or Event of Default shall exist.
The Company will not declare any dividend which constitutes a Restricted
Payment payable more than 60 days after the date of declaration thereof.
For the purposes of this Section 5.11, the amount of any Restricted
Payment declared, paid or distributed in property shall be deemed to be the
greater of the book value or fair market value (as determined in good faith by
the Board of Directors of the Company) of such property at the time of the
making of the Restricted Payment in question.
In valuing any Restricted Investments for the purpose of applying the
limitations set forth in this Section 5.11, such Restricted Investments shall
be taken at the original cost thereof, without allowance for any subsequent
write-offs or appreciation or depreciation therein, but less any amount
repaid or recovered on account of capital or principal.
For purposes of this Section 5.11, at any time when a corporation becomes
a Restricted Subsidiary, all Restricted Investments of such corporation at such
time shall be deemed to have been made by such corporation, as a Restricted
Subsidiary, at such time.
5.12 MERGERS, CONSOLIDATIONS AND SALES OF ASSETS.
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(a) The Company and Borrower will not, and will not permit any
Restricted Subsidiary to, (i) consolidate or amalgamate with or be a party to a
merger with any other corporation or (ii) sell, lease or otherwise dispose of
all or any substantial part (as defined in paragraph (d) of this Section 5.12)
of Consolidated Assets; provided, however, that:
(1) any Restricted Subsidiary may merge or amalgamate or
consolidate with or into the Company or any Wholly-owned Restricted Subsidiary
so long as in any merger or consolidation involving the Company, the Company
shall be the surviving or continuing corporation;
(2) the Company may consolidate or amalgamate or merge with
any other corporation if (i) (x) in the case of any consolidation or merger, the
purchasing, surviving or continuing corporation shall be the Company or (y) in
the case of any amalgamation, the Company's existence shall continue with the
amalgamation and all obligations hereunder and under the Note shall constitute
obligations of the amalgamated entity and (ii) at the time of such amalgamation,
consolidation or merger and after giving effect thereto, no Default or Event of
Default shall have occurred and be continuing; and
(3) any Restricted Subsidiary may sell, lease or otherwise
dispose of all or any substantial part of its assets to the Company or any
Wholly-owned Restricted Subsidiary.
(b) The Company will not permit any Restricted Subsidiary to
issue or sell any shares of stock of any class (including as "stock" for the
purposes of this Section 5.12, any warrants, rights or options to purchase or
otherwise acquire stock or other Securities exchangeable for or convertible
into stock) of such Restricted Subsidiary to any Person other than the
Company or a Wholly-owned Restricted Subsidiary, except for the purpose of
qualifying directors, or except in satisfaction of the validly pre-existing
preemptive rights of minority shareholders in connection with the
simultaneous issuance of stock to the Company and/or a Restricted Subsidiary
whereby the Company and/or such Restricted Subsidiary maintain their same
proportionate interest in such Restricted Subsidiary.
(c) The Company will not sell, transfer or otherwise dispose of
any shares of stock of any Restricted Subsidiary (except to qualify directors)
and will not permit any Restricted Subsidiary to sell, transfer or otherwise
dispose of (except to the Company or a Wholly-owned Restricted Subsidiary) any
shares of stock of any other Restricted Subsidiary, unless:
(1) simultaneously with such sale, transfer, or disposition,
all shares of stock of such Restricted Subsidiary at the time owned by the
Company and by every other Restricted Subsidiary shall be sold, transferred or
disposed of as an entirety; and
(2) such sale or other disposition does not involve a
substantial part (as hereinafter defined) of the assets of the Company and its
Restricted Subsidiaries.
(d) As used in this Section 5.12, a sale, lease or other
disposition of assets shall be deemed to be a "substantial part" of the assets
of the Company and its Restricted
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Subsidiaries if the book value of such assets, when added to the book value
of all other assets sold, leased or otherwise disposed of by the Company and
its Restricted Subsidiaries (other than in the ordinary course of business)
during the 12-month period ending with the date of such sale, lease or other
disposition, exceeds 10% of Consolidated Assets, determined as of the end of
the immediately preceding fiscal quarter.
For the purpose of making any determination of "substantial part," any
sale, lease or other dispositions of assets of the Company and its Restricted
Subsidiaries shall not be included if and to the extent the net proceeds are
segregated from the general accounts of the Company and any Restricted
Subsidiary, invested in Cash Equivalents until applied in accordance with
clauses (1) or (2) below, and either (1) within one year after such sale, lease
or other disposition, are used to acquire Like Assets, or (2) within one year
after such sale, lease or disposition, are applied to the optional prepayment of
Senior Funded Debt. Any such prepayment applied to the prepayment of the Notes
shall be prepaid as and to the extent provided in Section 2.2 hereof.
5.13 TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any Restricted Subsidiary to, enter into or be a party to any
transaction or arrangement with any Affiliate (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate), except in the ordinary course of and pursuant
to the reasonable requirements of the Company's or such Restricted Subsidiary's
business and upon fair and reasonable terms no less favorable to the Company or
such Restricted Subsidiary than would obtain in a comparable arm's-length
transaction with a Person other than an Affiliate.
5.14 TERMINATION OF PENSION PLANS. The Company will not and will
not permit any Subsidiary to withdraw from any Multiemployer Plan or permit any
employee benefit plan maintained by it to be terminated if such withdrawal or
termination could result in withdrawal liability (as described in Part 1 of
Subtitle E of Title IV of ERISA) or the imposition of a Lien on any property of
the Company or any Subsidiary pursuant to Section 4068 of ERISA.
5.15 DESIGNATION OF RESTRICTED SUBSIDIARIES. The Company may
designate any Subsidiary a Restricted Subsidiary by giving written notice to
Bank that the Board of Directors of the Company has made such designation,
provided, however, no Subsidiary may be designated a Restricted Subsidiary
unless, at the time of such designation and after giving effect thereto, no
Default or Event of Default shall exist. Any such designation shall be
irrevocable.
5.16 REPORTS AND RIGHTS OF INSPECTION. The Company will keep, and
will cause each Restricted Subsidiary to keep, proper books of record and
account in which full and correct entries will be made of all dealings or
transactions of, or in relation to, the business and affairs of the Company or
such Restricted Subsidiary, in accordance with GAAP consistently applied (except
for changes disclosed in the financial statements furnished to you pursuant to
this Section 5.17 and concurred in by the independent public accountants
referred to in Section 5.17(b) hereof), and will furnish to you so long as you
are the holder of any Note and to each
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other holder of the then outstanding Notes (in duplicate if so specified
below or otherwise requested):
(a) QUARTERLY STATEMENTS. As soon as available and in any event
within 75 days after the end of each quarterly fiscal period (except the last)
of each fiscal year, copies of:
(1) consolidated balance sheets of the Company and its
consolidated Subsidiaries (and, if different, of the Restricted Group) as of the
close of such quarterly fiscal period, setting forth in comparative form the
consolidated figures for the corresponding period of the fiscal year then most
recently ended,
(2) consolidated statements of earnings and retained
earnings of the Company and its consolidated Subsidiaries (and, if different, of
the Restricted Group) for such quarterly fiscal period and for the portion of
the fiscal year ending with such quarterly fiscal period, in each case setting
forth in comparative form the consolidated figures for the corresponding periods
of the preceding fiscal year, and
(3) consolidated statements of changes in cash resources of
the Company and its consolidated Subsidiaries (and, if different, of the
Restricted Group) for the portion of the fiscal year ending with such quarterly
fiscal period, setting forth in comparative form the consolidated figures for
the corresponding period of the preceding fiscal year,
all in reasonable detail and certified as complete and correct by an
authorized financial officer of the Company;
(b) ANNUAL STATEMENTS. As soon as available and in any event
within 140 days after the close of each fiscal year of the Company, copies of:
(1) consolidated and consolidating balance sheets of the
Company and its consolidated Subsidiaries (and, if different, of the Restricted
Group) as of the close of such fiscal year, and
(2) consolidated and consolidating statements of earnings
and retained earnings and changes in cash resources of the Company and its
consolidated Subsidiaries (and, if different, of the Restricted Group) for such
fiscal year,
in each case setting forth in comparative form the
consolidated and consolidating figures for the preceding fiscal year, all in
reasonable detail and with regard to the consolidated figures, accompanied by a
report thereon of a firm of independent public accountants of recognized
national standing in the United States or Canada selected by the Company to the
effect that the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company and its
consolidated Subsidiaries (and, if different, of the Restricted Group) as of the
end of the fiscal year being reported on and the consolidated results of the
operations and cash flows for said year in conformity with GAAP and that the
examination of such accountants in connection with such financial statements has
been conducted in accordance with generally accepted auditing standards and
included such tests
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of the accounting records and such other auditing procedures as said
accountants deemed necessary in the circumstances;
(c) AUDIT REPORTS. Promptly upon receipt thereof, one copy of
each interim or special audit made by independent accountants of the books of
the Company or any Restricted Subsidiary;
(d) GOVERNMENTAL AND OTHER REPORTS. Promptly upon their becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by the Company to stockholders generally and of each regular or
periodic report, and any registration statement or prospectus filed by the
Company or any Subsidiary with any securities exchange or any governmental
regulatory body including, but without limitation, the Companies Form 20F and
unaudited quarterly reports, and copies of any orders in any proceedings to
which the Company or any of its Subsidiaries is a party, issued by any
governmental agency having jurisdiction over the Company or any of its
Subsidiaries;
(e) ERISA REPORTS. Promptly upon the occurrence thereof, written
notice of (i) a Reportable Event with respect to any Plan; (ii) the institution
of any steps by the Company, any ERISA Affiliate, the PBGC or any other person
to terminate any Plan; (iii) the institution of any steps by the Company or any
ERISA Affiliate to withdraw from any Plan; (iv) a non-exempt "prohibited
transaction" within the meaning of Section 406 of ERISA in connection with any
Plan; (v) any material increase in the contingent liability of the Company or
any Subsidiary with respect to any post-retirement welfare liability; or (vi)
the taking of any action by, or the threatening of the taking of any action by,
the Internal Revenue Service, the Department of Labor or the PBGC with respect
to any of the foregoing;
(f) OFFICER'S CERTIFICATES. Within the periods provided in
paragraphs (a) and (b) above, a certificate of an authorized financial officer
of the Company stating that such officer has reviewed the provisions of this
Agreement and setting forth: (i) the information and computations (in
sufficient detail) required in order to establish whether the Company was in
compliance with the requirements of Section 5.6 through Section 5.12 at the end
of the period covered by the financial statements then being furnished, and (ii)
whether there existed as of the date of such financial statements and whether,
to the best of such officer's knowledge, there exists on the date of the
certificate or existed at any time during the period covered by such financial
statements any Default or Event of Default (including, without limitation, with
respect to Section 5.2) and, if any such condition or event exists on the date
of the certificate, specifying the nature and period of existence thereof and
the action the Company is taking and proposes to take with respect thereto;
(g) ACCOUNTANT'S CERTIFICATES. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an opinion with
respect to such financial statements, stating that they have reviewed this
Agreement and stating further whether, in making their audit, such accountants
have become aware of any Default or Event of Default under any of the terms or
provisions of this Agreement insofar as any such terms or provisions pertain to
or involve accounting matters or determinations, and if any such condition or
event then exists, specifying the nature and period of existence thereof;
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(h) UNRESTRICTED SUBSIDIARIES. Within the respective periods
provided in paragraphs (a) and (b) above, financial statements of the character
and for the dates and periods as in said paragraphs (a) and (b) provided
covering each Unrestricted Subsidiary (or groups of Unrestricted Subsidiaries on
a consolidated basis);
(i) FORECASTS AND BUDGET. Within sixty (60) days following the
end of each fiscal year of Company, the Consolidated pre-tax operating forecast
and Consolidated capital expenditures budget of Company; and
(j) REQUESTED INFORMATION. With reasonable promptness, such other
data and information as you or any such holder may reasonably request.
Without limiting the foregoing, the Company will permit Bank, to visit and
inspect, any of the properties of the Company, Borrower and any Restricted
Subsidiary, to examine all of their books of account, records, reports and other
papers, to make copies and extracts therefrom and to discuss their respective
affairs, finances and accounts with their respective officers, employees, and
independent public accountants (and by this provision the Company authorizes
said accountants to discuss with you the finances and affairs of the Company and
its Restricted Subsidiaries) all at such reasonable times and as often as may be
reasonably requested.
5.17 FURTHER ASSURANCE. The Borrower shall, at its cost and
expense, upon request of the Bank, duly execute and deliver to the Bank such
further instruments and do and cause to be done such further acts as may be
necessary or proper in the reasonable opinion of the Bank to carry out more
effectually the provisions and purposes of this Agreements.
5.18 PERFORMANCE OF OBLIGATIONS. The Borrower shall perform all
obligations in accordance with usual and customary business terms, except to the
extent that the non-fulfillment of same would not reasonably be expected to
result in a Material Adverse Change, considered on a Consolidated basis, and
except where the same are being contested in good faith, if the outcome of such
contestation, if decided adversely to the Company or the Restricted
Subsidiaries, would not reasonably be expected to result in a Material Adverse
Change, considered on a Consolidated basis. Notwithstanding the foregoing
contained in this Section it shall punctually pay all amounts due or to become
due under this Agreement.
ARTICLE VI
DEFAULTS AND REMEDIES
6.1 EVENTS OF DEFAULT. If any of the "Events of Default" (as
defined in the Note) shall occur, then and in any such event, and at any time
thereafter, if such or any other Event of Default shall then be continuing, the
Bank may, at its option, declare the Notes to be due and payable, whereupon the
maturity of the then unpaid balance of the Note shall be accelerated and the
same, and all interest accrued thereon, shall forthwith become due and payable
without presentment, demand, protest, or notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the Note to the
contrary notwithstanding, provided, however, upon the occurrence of an Event of
Default of the type described in clause
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(d) of the definition of Events of Default in the Note, the Bank's commitment
to lend shall automatically terminate and all of the principal, interest and
other amounts payable hereunder, hereunder and under the Note and in
connection with any outstanding Letter of Credit shall be automatically due
and payable without notice or demand. In addition to the foregoing, upon any
demand therefore made by Bank during the existence of any Event of Default,
Borrower and Company hereby agree to deposit and pledge to bank, cash
collateral in an amount not less than the aggregate face amount of all
Letters of Credit which are outstanding as of the date of such demand.
6.2 SUITS FOR ENFORCEMENT. In case any one or more Events of
Default shall occur and be continuing, the Bank may proceed to protect and
enforce its rights or remedies either by suit in equity or by action at law, or
both, whether for the specific performance of any covenant, agreement, or other
provision contained herein, in the Note or in any document or instrument
delivered in connection with or pursuant to this Agreement, or to enforce the
payment of the Note and Borrower's and Company's other obligations hereunder or
any other legal or equitable right or remedy. The Borrower and Company
expressly agree:
(i) That the Courts of the State of Michigan and the United
States District Court for the Eastern District of Michigan, shall be the
exclusive forums for the adjudication of any enforcement action or dispute
arising under this Agreement and/or the Notes.
(ii) That it is subject to the personal jurisdiction of the
Courts of the State of Michigan in connection with any enforcement action or
dispute arising under this agreement.
(iii) That service of any summons and complaint made by
certified mail to the then address of the Borrower with copies to the Borrower's
counsel, shall be deemed good and sufficient service.
6.3 RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon the Bank is intended to be exclusive of any other right or remedy
contained herein, in the Note or in any instrument or document delivered in
connection with or pursuant to this Agreement, and every such right or remedy
shall be cumulative and shall be in addition to every other such right or remedy
contained herein and therein or now or hereafter existing at law or in equity or
by statute, or otherwise.
6.4 RIGHTS AND REMEDIES NOT WAIVED. No course of dealing between
the Borrower and the Bank or any failure or delay on the part of the Bank in
exercising any rights or remedies hereunder shall operate as a waiver of any
rights or remedies of the Bank and no single or partial exercise of any rights
or remedies hereunder shall operate as a waiver or preclude the exercise of any
other rights or remedies hereunder.
ARTICLE VII
DEFINITIONS
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7.1 The following words and expressions, when used in this
Agreement, unless the contrary is stipulated, have the following meaning:
"AFFILIATE" means any Person (other than a Restricted
Subsidiary) (i) which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the Company,
(ii) which beneficially owns or holds 5% or more of any class of the Voting
Stock of the Company or (iii) 5% or more of the Voting Stock (or in the case of
a Person which is not a corporation, 5% or more of the equity interest) of which
is beneficially owned or held by the Company or a Subsidiary. The term
"CONTROL" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of Voting Stock, by contract or otherwise;
"CAPITALIZED LEASE" shall mean any lease (i) the obligation
for Rentals with respect to which is required to be capitalized on a
consolidated balance sheet of the lessee and its subsidiaries in accordance with
GAAP or (ii) for which the amount of the asset and liability thereunder as if so
capitalized should be disclosed in a note to such balance sheet.
"CAPITALIZED RENTALS" of any Person means as of the date of
any determination thereof the amount at which the aggregate Rentals due and to
become due under all Capitalized Leases under which such Person is a lessee
would be reflected as a liability on a consolidated balance sheet of such
Person.
"CASH EQUIVALENTS" means, as of the date of any determination
thereof, Investments of the type described in clauses (ii), (iii) and (iv) of
the definition of the term "Restricted Investments".
"CLOSING DATE" shall mean the date on which the conditions
described in Section 4.1 hereof are satisfied.
"COMMITMENT AMOUNT" means Fifty Million Dollars ($50,000,000).
"CONSOLIDATED" means produced by aggregating the relevant
financial statements or accounts of the Subsidiaries (or other Persons which, in
accordance with GAAP, are to be included in such computation) of a Person on a
line-by-line basis (i.e.: adding together corresponding items of assets,
liabilities, revenues and expenses) with the relevant financial statements or
accounts of such Person, eliminating inter-company balances and transactions and
providing for any Minority Interests, all as determined in accordance with GAAP;
for greater certainty, the Consolidated ratios contemplated by Section 5.14 with
respect to the Company shall include its Restricted Subsidiaries as well as all
Unrestricted Subsidiaries the Debt of which is guaranteed by the Company;
"CONSOLIDATED" when used as a prefix to any item shall mean
the aggregate amount of all such item of the Company and its Restricted
Subsidiaries on a consolidated basis eliminating intercompany items in
accordance with GAAP.
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"CONSOLIDATED ASSETS" shall mean, as of the date of any
determination thereof, consolidated total assets of the Company and its
Restricted Subsidiaries determined in accordance with GAAP (excluding, in any
event, assets or equity attributable to Unrestricted Subsidiaries).
"CONSOLIDATED CURRENT LIABILITIES" shall mean as of the date
of any determination thereof such liabilities of the Company and its Restricted
Subsidiaries on a consolidated basis as shall be determined in accordance with
GAAP to constitute current liabilities (excluding, in any event, liabilities
attributable to Unrestricted Subsidiaries).
"CONSOLIDATED NET INCOME" for any period shall mean the gross
revenues of the Company and its Restricted Subsidiaries for such period less all
expenses and other proper charges (including taxes on income), determined on a
consolidated basis after eliminating earnings or losses attributable to
outstanding Minority Interests, but excluding in any event:
(a) any gains or losses (i) on the sale or other disposition
of Investments or fixed or capital assets, and any taxes on such excluded
gains and any tax deductions or credits on account of any such excluded
losses or (ii) attributable to any non-recurring or extraordinary items
including, without limitation, any discontinuance of operations;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Restricted Subsidiary
accrued prior to the date it became a Restricted Subsidiary;
(d) net earnings and losses of any corporation (other than a
Restricted Subsidiary), substantially all the assets of which have been
acquired in any manner by the Company or any Restricted Subsidiary,
realized by such corporation prior to the date of such acquisition;
(e) net earnings and losses of any corporation (other than a
Restricted Subsidiary) with which the Company or a Restricted Subsidiary
shall have consolidated or which shall have merged into or with the
Company or a Restricted Subsidiary prior to the date of such consolidation
or merger;
(f) net earnings of any business entity (other than a
Restricted Subsidiary) in which the Company or any Restricted Subsidiary
has an ownership interest unless such net earnings shall have actually
been received by the Company or such Restricted Subsidiary in the form of
cash distributions;
(g) any portion of the net earnings of any Restricted
Subsidiary which for any reason is unavailable for payment of dividends to
the Company or any other Restricted Subsidiary;
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(h) earnings resulting from any reappraisal, revaluation or
write-up of assets;
(i) any deferred or other credit representing any excess of
the equity in any Subsidiary at the date of acquisition thereof over the
amount invested in such Subsidiary;
(j) any gain arising from the acquisition of any Securities
of the Company or any Restricted Subsidiary; and
(k) any reversal of any contingency reserve, except to the
extent that provision for such contingency reserve shall have been made
from income arising during such period.
"CONSOLIDATED NET WORTH" shall mean, as of the date of any
determination thereof, the consolidated total shareholders equity of the Company
and its Restricted Subsidiaries, determined in accordance with GAAP.
"CONSOLIDATED TOTAL CAPITALIZATION" shall mean, as of the date
of any determination thereof, the sum of (i) the aggregate principal amount of
Consolidated Funded Debt then outstanding plus (ii) Consolidated Net Worth.
"CURRENT DEBT" of any Person shall mean as of the date of any
determination thereof all Debt of such Person other than Funded Debt of such
Person.
"DEBT" of any Person shall mean, as of the date of any
determination thereof (without duplication):
(i) all Indebtedness for borrowed money or evidenced by
notes, bonds, debentures or similar evidences of Indebtedness of such
Person;
(ii) obligations secured by any Lien upon property owned by
such Person or created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such
Person, notwithstanding the fact that the rights and remedies of the
seller, lender or lessor under any such arrangement in the event of
default are limited to repossession or sale of property including, without
limitation, obligations secured by Liens arising from the sale or transfer
of notes or accounts receivable, but, in all events, excluding trade
payables and accrued expenses constituting Consolidated Current
Liabilities:
(iii) Capitalized Rentals;
(iv) reimbursement obligations in respect of credit
enhancement instruments including letters of credit (excluding, however,
short-term letters of credit and surety bonds issued in commercial
transactions in the ordinary course of business); and
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(v) (without duplication of any of the foregoing) Guaranties
of obligations of others of the character referred to hereinabove in this
definition.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and any successor statute of similar import, together with
the regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed to also refer to any
successor sections.
"ERISA AFFILIATE" shall mean any corporation, trade or
business that is, along with the Company, a member of a controlled group of
corporations or a controlled group of trades or businesses, as described in
section 414(b) and 414(c), respectively, of the Code or Section 4001 of ERISA.
"EVENT OF DEFAULT" shall have the meaning given it in the
Note.
"FIXED CHARGES" for any period shall mean on a consolidated
basis the sum of (i) all Rentals (other than Rentals on Capitalized Leases)
payable during such period by the Company and its Restricted Subsidiaries, and
(ii) all Interest Charges on all Indebtedness (including the interest component
of Rentals on Capitalized Leases) of the Company and its Restricted
Subsidiaries.
"FUNDED DEBT" of any Person shall mean all Debt of such Person
having a final maturity of one or more than one year from the date of origin
thereof (or which is renewable or extendible at the option of the obligor for a
period or periods of one or more than one year from the date of origin),
including all payments in respect thereof that are required to be made within
one year from the date of any determination of Funded Debt, whether or not the
obligation to make such payments shall constitute a current liability of the
obligor under GAAP.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" or "GAAP" means the
generally accepted accounting principles acknowledged by the Canadian Institute
of Chartered Accountants and published in the Canadian Institute of Chartered
Accountants' Handbook;
"GUARANTIES" by any Person shall mean all obligations (other
than endorsements in the ordinary course of business of negotiable instruments
for deposit or collection) of such Person guaranteeing, or in effect
guaranteeing, any Indebtedness, dividend or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, all obligations incurred through an agreement,
contingent or otherwise, by such Person: (i) to purchase such Indebtedness or
obligation or any property or assets constituting security therefor, (ii) to
advance or supply funds (x) for the purchase or payment of such Indebtedness or
obligation, or (y) to maintain working capital or other balance sheet condition
or otherwise to advance or make available funds for the purchase or payment of
such Indebtedness or obligation, (iii) to lease property or to purchase
Securities or other property or services primarily for the purpose of assuring
the owner of such Indebtedness or obligation of the ability of the primary
obligor to make payment of the Indebtedness or obligation, or (iv) otherwise to
assure the owner of the Indebtedness or obligation of the primary obligor
against loss in respect thereof. For the purposes of all
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computations made under this Agreement, a Guaranty in respect of any
Indebtedness for borrowed money shall be deemed to be Indebtedness equal to
the principal amount of such Indebtedness for borrowed money which has been
guaranteed, and a Guaranty in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum
aggregate amount of such obligation, liability or dividend.
"INDEBTEDNESS" of any Person shall mean and include all
obligations of such Person which in accordance with GAAP shall be classified
upon a balance sheet of such Person as liabilities of such Person, and in any
event shall include all (i) obligations of such Person for borrowed money or
which has been incurred in connection with the acquisition of property or
assets, (ii) obligations secured by any Lien upon property or assets owned by
such Person, even though such Person has not assumed or become liable for the
payment of such obligations, (iii) obligations created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person, notwithstanding the fact that the rights and remedies
of the seller, lender or lessor under such agreement in the event of default are
limited to repossession or sale of property, (iv) Capitalized Rentals and (v)
Guaranties of obligations of others of the character referred to in this
definition.
"INTEREST CHARGES" for any period shall mean all interest and
all amortization of debt discount and expense on any particular Indebtedness for
which such calculations are being made. Computations of Interest Charges on a
pro forma basis for Indebtedness having a variable interest rate shall be
calculated at the rate in effect on the date of any determination.
"INTERTAPE POLYMER CORP." shall mean Intertape Polymer Corp.,
a Virginia corporation, and any Person who succeeds to all, or substantially
all, of the assets and business of Intertape Polymer Corp.
"INVESTMENTS" shall mean all investments, in cash or by
delivery of property made, directly or indirectly in any Person, whether by
acquisition of shares of capital stock, indebtedness or other obligations or
Securities or by loan, advance, capital contribution or otherwise; provided,
however, that "Investments" shall not mean or include routine investments in
property to be used or consumed in the ordinary course of business.
"LIEN" shall mean any interest in property securing an
obligation owed to, or a claim by, a Person other than the owner of the
property, whether such interest is based on the common law, statute or contract,
and including but not limited to the security interest lien arising from a
mortgage, encumbrance, pledge, Capitalized Lease, conditional sale or trust
receipt or a lease in which such Person is lessor, consignment or bailment for
security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances (including, with respect to
stock, stockholder agreements, voting trust agreements, buy-back agreements and
all similar arrangements) affecting property. For the purposes of this
Agreement, the Company or a Restricted Subsidiary shall be deemed to be the
owner of any property which it has acquired or holds subject to a conditional
sale agreement, Capitalized
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Lease or other arrangement pursuant to which title to the property has been
retained by or vested in some other Person for security purposes and such
retention or vesting shall constitute a Lien.
"LIKE ASSETS" shall mean, as of the date of any determination
thereof, capital assets, used or to be used by the Company or any Restricted
Subsidiary in the lines of business in which the Company or such Restricted
Subsidiary is engaged as of the Closing Date or in businesses reasonably related
thereto.
"LONG-TERM LEASE" shall mean any lease of real or personal
property (other than a Capitalized Lease) having an original term, including any
period for which the lease may be renewed or extended at the option of the
lessor, of more than three years.
"MATERIAL ADVERSE CHANGE" means a material adverse change in
the business, assets, liabilities, financial position, operating results or
business prospects of the Company or any of the Restricted Subsidiaries, or in
the ability of the Borrower or the Company to perform any of its obligations
under this Agreement or under the Guarantee;
"MATURITY DATE" means April 1, 2000.
"MATERIAL DEBT" shall mean any Debt which has or relates to,
in the aggregate, an unpaid principal amount (or aggregate liability) of more
than U.S. $15,000,000 or an equivalent amount of money in any other currency.
"MINORITY INTERESTS" shall mean any shares of stock of any
class of a Restricted Subsidiary (other than directors qualifying shares as
required by law) that are not owned by the Company and/or one or more of its
Restricted Subsidiaries. Minority Interests shall be valued by valuing Minority
Interests constituting preferred stock at the voluntary or involuntary
liquidating value of such preferred stock, whichever is greater, and by valuing
Minority Interests constituting common stock at the book value of capital and
surplus applicable thereto adjusted, if necessary, to reflect any changes from
the book value of such common stock required by the foregoing method of valuing
Minority Interests in preferred stock.
"MULTIEMPLOYER PLAN" shall have the same meaning as in ERISA.
"NET INCOME AVAILABLE FOR FIXED CHARGES" for any period shall
mean the sum of (i) Consolidated Net Income during such period plus (to the
extent deducted in determining Consolidated Net Income), (ii) all provisions for
any Federal, state or other income taxes made by the Company and its Restricted
Subsidiaries during such period, (iii) Fixed Charges of the Company and its
Restricted Subsidiaries during such period and (iv) all amortization expenses.
"NOTE AGREEMENT" means the agreements entered into by the
Company dated as of January 1, 1996, with respect to the issuance and sale of
three series of senior notes in an aggregate principal amount of US $33,000,000;
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"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"PERSON" shall mean an individual, partnership, corporation,
trust or unincorporated organization, and a government or agency or political
subdivision thereof.
"PLAN" means a "PENSION PLAN," as such term is defined in
ERISA, established or maintained by the Company or any ERISA Affiliate or as to
which the Company or any ERISA Affiliate contributed or is a member or otherwise
may have any liability.
"PRIORITY DEBT" shall mean [need current version of this
definition from New Note Agreement.
"RENTALS" shall mean and include as of the date of any
determination thereof all fixed payments (including as such all payments which
the lessee is obligated to make to the lessor on termination of the lease or
surrender of the property) payable by the Company or a Restricted Subsidiary, as
lessee or sublessee under a lease of real or personal property, but shall be
exclusive of any amounts required to be paid by the Company or a Restricted
Subsidiary (whether or not designated as rents or additional rents) on account
of maintenance, repairs, insurance, taxes and similar charges. Fixed rents
under any so-called "percentage leases" shall be computed solely on the basis of
the minimum rents, if any, required to be paid by the lessee regardless of sales
volume or gross revenues.
"REPORTABLE EVENT" shall have the same meaning as in ERISA.
"RESPONSIBLE OFFICER" shall mean any Senior Financial Officer
and any other officer of the Company with responsibility for the administration
of the relevant portion of this Agreement.
"RESTRICTED GROUP" shall mean, as of the date of determination
thereof, the Company and its Restricted Subsidiaries.
"RESTRICTED INVESTMENTS" shall mean all Investments, other
than:
(a) Investments by the Company and its Restricted Subsidiaries in
and to Restricted Subsidiaries, including, without limitation, Investments
(i) directly out of the cash proceeds to the Company of the concurrent
sale of shares of capital stock of the Company or (ii) pursuant to a
direct share exchange offer by the Company, and including any Investment
in a corporation which, after giving effect to such Investment, will
become a Restricted Subsidiary;
(b) Investments in commercial paper maturing in 270 days or less
from the date of issuance which, at the time of acquisition by the Company
or any Restricted Subsidiary, is accorded a rating of at least A-2 by
Standard & Poor's Corporation or at least Prime-2 by Moody's Investors
Service, Inc.;
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(c) Investments in (i) direct obligations of the United States of
America or any agency or instrumentality of the United States of America,
the payment or guarantee of which constitutes a full faith and credit
obligation of the United States of America or (ii) direct obligations of
Canada or any agency or instrumentality of Canada, the payment or
guarantee of which constitutes a full faith and credit obligation of
Canada, in either case, maturing in twelve months or less from the date of
acquisition thereof;
(d) Investments in certificates of deposit maturing within one
year from the date of issuance thereof, issued by a bank or trust company
organized under the laws of the United States, any state thereof or Canada
or any province thereof, having capital, surplus and undivided profits
aggregating at least U.S. $100,000,000 (or its equivalent in Canadian
currency) and whose long-term certificates of deposit are, at the time of
acquisition thereof by the Company or a Restricted Subsidiary, rated A- or
better by Standard & Poor's Corporation or A3 or better by Moody's
Investors Service, Inc. or Investments in Eurodollar Certificates of
deposit maturing within one year after the acquisition thereof and issued
by a bank in western Europe or England having capital, surplus and
undivided profits of at least U.S. $1,000,000,000 (or its equivalent in
such country's local currency); and
(e) loans or advances (including, without limitation, loans or
advances to employees of the Company for the purchase by such employee of
shares of stock of the Company by such employee) in the usual and ordinary
course of business to officers, directors and employees for expenses
(including moving expenses related to a transfer) incidental to carrying
on the business of the Company or any Restricted Subsidiary provided that
the aggregate amount of all such loans or advances shall at no time exceed
U.S. $1,000,000.
"RESTRICTED PAYMENTS" shall mean, for any period,
(i) the declaration or payment, directly or indirectly, of any
dividend either in cash or property, on any shares of capital stock of the
Company or any Restricted Subsidiary;
(ii) the purchase, redemption or retirement, directly or
indirectly, of any shares of capital stock of any class or of any
warrants, rights or options to purchase or acquire any shares of capital
stock of the Company or any Restricted Subsidiary; and
(iii) any payment or distribution, directly or indirectly, by the
Company or a Restricted Subsidiary in respect of its capital stock;
provided, however, that "Restricted Payments" shall not include any such
dividends, purchases, redemptions, retirements or other distribution by a
Restricted Subsidiary to the Company or to a Wholly-owned Restricted Subsidiary.
"RESTRICTED SUBSIDIARY" shall mean and include Intertape
Polymer Corp., Polymer International Corp., Intertape Polymer Inc., any other
Subsidiary so described in
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Exhibit ________ hereto and any other Subsidiary (i) which is organized under
the laws of the United States, Puerto Rico, Canada or any Qualifying EU
Jurisdiction or any jurisdiction thereof; (ii) which conducts substantially
all of its business and has substantially all of its assets within the United
States, Puerto Rico, Canada or any Qualifying EU Jurisdiction; (iii) of which
more than 80% (by number of votes) of the Voting Stock is beneficially owned
by the Company or any Wholly-owned Restricted Subsidiary, and (iv) which has
been designated by the Board of Directors of the Company as a Restricted
Subsidiary in accordance with Section 5.16.
"SECURITY" shall have the same meaning as in Section 2(1) of
the Securities Act of 1933, as amended.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.
"SENIOR FUNDED DEBT" shall mean Consolidated Funded Debt,
other than Subordinated Funded Debt.
"UNRESTRICTED SUBSIDIARY" shall mean any Subsidiary which is
not a Restricted Subsidiary.
"VOTING STOCK" shall mean Securities of any class or classes,
the holders of which are ordinarily, in the absence of contingencies, entitled
to elect a majority of the corporate directors (or Persons performing similar
functions).
"WHOLLY-OWNED" when used in connection with any Subsidiary
shall mean a Subsidiary of which all of the issued and outstanding shares of
stock (except shares required as directors' qualifying shares) shall be owned by
the Company and/or one or more of its Wholly-owned Restricted Subsidiaries.
ARTICLE VIII
MISCELLANEOUS
8.1 NOTICE AND COMMUNICATIONS. All communications and notices
provided for the parties hereunder shall be in writing and mailed by certified
mail, return receipt requested or delivered to:
(a) The Borrower: IPG Holdings LP
and the Company: c/o Intertape Polymer Group Inc.
Intertape Polymer Group Inc.
110E Montee de Liesse
St. Laurent, Quebec H4T 1N4
Canada
25
<PAGE>
(b) The Bank: Comerica Bank
500 Woodward Avenue
Detroit, MI 48226
Attn: Darlene Persons
International Banking
or to such other address as shall be designated by the parties in a written
notice to the other, complying as to delivery with the terms of this Agreement.
8.2 INCONSISTENCY. Whenever the provisions of the Note are
inconsistent with any of the provisions of the Agreement herein, the provisions
of the Note shall be deemed to control.
8.3 EXPENSES. The Borrower agrees to pay all costs, expenses as
well as any and all stamp and other taxes payable or determined to be payable in
connection with the preparation, execution and delivery of this Agreement, the
Note and related documents (collectively, the "Documents"), including reasonable
attorney's fees and disbursements.
8.4 CONSTRUCTION. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted principles of
good accounting practice and consistently applied.
8.5 ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
except that the Borrower may not assign or transfer its rights hereunder without
the prior written consent of the Bank.
8.6 HEADINGS. Article headings used in this Agreement are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
8.7 LAW GOVERNING AGREEMENT. The validity, performance,
interpretation and other incidents of this Agreement shall be governed by the
internal laws of the State of Michigan.
8.8 MODIFICATIONS. This Agreement may not be modified in any way
without a writing duly executed by both parties hereto.
26
<PAGE>
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
with respect to the Borrower, its seal the day and year first above written,
intending and declaring this to be a duly sealed instrument.
IPG HOLDINGS LP
By: Intertape Polymer Inc.
Its General Partner
By: /s/ Andrew M. Archibald
--------------------------------------
Name: Andrew M. Archibald
Title: CFO
COMERICA BANK
By: /s/ Darlene Persons
--------------------------------------
Name: Darlene Persons
Title: Vice President
INTERTAPE POLYMER GROUP INC.
By: /s/ Andrew M. Archibald
--------------------------------------
Name: Andrew M. Archibald
Title: CFO
27
<PAGE>
EXHIBIT "A" TO LOAN AGREEMENT
EURODOLLAR REVOLVING NOTE
TAX I.D. NO. 59-3479359
$50,000,000 Detroit, Michigan
May_____, 1998
On or before the Maturity Date, FOR VALUE RECEIVED, the undersigned, IPG
HOLDINGS LP, a Delaware limited partnership (herein called "Borrower"),
promises to pay to the order of COMERICA BANK, a Michigan banking corporation
(herein called "Bank"), in lawful currency of the United States of America at
the main office of Bank, FIFTY MILLION DOLLARS ($50,000,000), or so much of
said sum as has been advanced and is then outstanding under this Note,
together with interest thereon as hereinafter set forth.
This Note is a note under which Advances, repayments and re-Advances may
be made from time to time, subject to the terms and conditions of this Note;
provided however, in no event shall Bank be obligated to make any Advances or
re-Advances hereunder (or refunds or conversions of existing Advances) in the
event that and so long as any Event of Default, or any condition or event
which, with the giving of notice or the running of time, or both, would
constitute an Event of Default, shall have occurred and be continuing
hereunder.
Each of the Advances made hereunder shall bear interest at the
Eurodollar-based Rate or the Prime-based Rate, as elected by Borrower, or as
otherwise determined under this Note.
Interest on the unpaid balance of each outstanding Prime-based Advance
shall be payable monthly, commencing on June 1, 1998, and on the first
Business Day of each succeeding month thereafter. Interest accruing at the
Prime-based Rate shall be computed on the basis of a year of 360 days, and
shall be assessed for the actual number of days elapsed, and in such
computation, effect shall be given to any change in the Prime-based Rate as a
result of any change in the Prime-based Rate on the date of each such change.
Interest on each Eurodollar-based Advance shall be payable on the last
day of the Interest Period applicable thereto; provided, however, in the
event that the Interest Period applicable to any such Eurodollar-based
Advance is more than three (3) months, interest on such Eurodollar-based
Advance shall also be payable at intervals of three (3) months from the date
of such Advance. Interest accruing at the Eurodollar-based Rate shall be
computed on the basis of a 360 day year and shall be assessed for the actual
number of days elapsed from the first day of the Interest Period applicable
thereto but not including the last day thereof.
From and after the occurrence of any Event of Default hereunder, or any
condition or event which, with the giving of notice or the running of time,
or both, would constitute an Event of Default, and so long as any such Event
of Default or such condition or event remains unremedied or uncured
thereafter, the indebtedness outstanding under this Note shall bear interest
at a per annum rate of three percent (3%) above the otherwise Applicable
Interest Rate, which interest shall be payable upon demand.
- 1 -
<PAGE>
The amount and date of each Advance, its Applicable Interest Rate, its
Interest Period, if any, and the amount and date of any repayment shall be
noted on Bank's records, which records shall be conclusive evidence thereof,
absent manifest error; provided, however, any failure by Bank to make any
such notation, or any error in any such notation, shall not relieve Borrower
of its obligations to repay Bank the amount of any Advances, all accrued and
unpaid interest thereon, and all other amounts payable by Borrower to Bank
under or pursuant to this Note.
The Borrower may request an Advance hereunder, including the refunding
or conversion of an outstanding Advance, upon the delivery to Bank of a
Request for Advance executed by an authorized representative of Borrower,
subject to the following:
(a) no Event of Default, and no condition or event which, with the
giving of notice or the running of time, or both, would constitute
an Event of Default, shall have occurred and be continuing under
this Note;
(b) each such Request for Advance shall set forth the information
required on the Request for Advance form annexed hereto as
Exhibit "A";
(c) each such Request for Advance shall be delivered to Bank by 11:00
a.m. (Detroit, Michigan time) three (3) Business Days prior to the
proposed date of Advance in the case of Eurodollar-based Advances,
and by 11:00 a.m. (Detroit, Michigan time) on the proposed date of
Advance in the case of Prime-based Advances;
(d) the principal amount of each Eurodollar-based Advance, plus the
amount of any outstanding indebtedness to be then combined
therewith having the same Applicable Interest Rate and Interest
Period shall be at least Five Hundred Thousand Dollars ($500,000),
and if greater, in integral multiples of One Hundred Thousand
Dollars ($100,000);
(e) the proposed date of any refunding or conversion of any outstanding
Eurodollar-based Advance shall only be on the last day of the
Interest Period applicable thereto;
(f) a Request for Advance, once delivered to Bank, shall not be
revocable by Borrower.
If, as to any outstanding Eurodollar-based Advance, Bank shall not
receive a timely Request for Advance in accordance with the foregoing
requesting the refunding of such Advance as a Eurodollar-based Advance,
the principal amount of such Advance which is not then repaid shall be
automatically converted to a Prime-based Advance on the last day of the
Interest Period applicable thereto, subject in all respects to the terms and
conditions of this Note. The foregoing shall not in any way whatsoever limit
or otherwise affect any of Bank's rights or remedies under this Note upon the
occurrence of any Event of Default hereunder, or any condition or event
which, with the giving of notice or the running of time, or both, would
constitute an Event of Default.
- 2 -
<PAGE>
Borrower may prepay all or part of the outstanding balance of any
Prime-based Advance under this Note at any time. Borrower may prepay all or
part of any Eurodollar-based Advance on the last day of the Interest Period
applicable thereto, provided that the amount of any such partial prepayment
shall be at least One Hundred Thousand Dollars ($100,000), or, if greater,
in integral multiples thereof, the aggregate balance of Eurodollar-based
Advances outstanding after such prepayment shall be at least One Hundred
Thousand Dollars ($100,000), and the unpaid portion of such Eurodollar-based
Advance which is refunded or converted shall be subject to the limitations
set forth in this Note. Any prepayment made in accordance with this paragraph
shall be without premium or penalty. Any other prepayment shall be otherwise
restricted by and subject to the terms of this Note.
Subject to the definition of an "Interest Period" hereunder, in the
event that any payment under this Note becomes due and payable on any day
which is not a Business Day, the due date thereof shall be extended to the
next succeeding Business Day, and, to the extent applicable, interest shall
continue to accrue and be payable thereon during such extension at the rates
set forth in this Note.
All payments to be made by Borrower to Bank under or pursuant to this
Note shall be in immediately available funds, without setoff or counterclaim,
and in the event that any payments submitted hereunder are in funds not
available until collected, said payments shall continue to bear interest
until collected. Borrower hereby authorizes Bank to charge any account of
Borrower with Bank for all sums due hereunder when due in accordance with the
terms hereof.
If Borrower makes any payment of principal with respect to any
Eurodollar-based Advance on any day other than the last day of the Interest
Period applicable thereto (whether voluntarily, by acceleration, or
otherwise), or if Borrower fails to borrow any Eurodollar-based Advance after
notice has been given by Borrower to Bank in accordance with the terms of
this Note requesting such Advance, or if Borrower fails to make any payment
of principal or interest in respect of a Eurodollar-based Advance when due,
Borrower shall reimburse Bank on demand for any resulting loss, cost or
expense incurred by Bank as a result thereof, including, without limitation,
any such loss, cost or expense incurred in obtaining, liquidating, employing
or redeploying deposits from third parties, whether or not Bank shall have
funded or committed to fund such Advance. Such amount payable by Borrower to
Bank may include, without limitation, an amount equal to the excess, if any,
of (a) the amount of interest which would have accrued on the amount so
prepaid, or not so borrowed, refunded or converted, for the period from the
date of such prepayment or of such failure to borrow, refund or convert,
through the last day of the relevant Interest Period, at the applicable rate
of interest for said Advance(s) provided under this Note, over (b) the amount
of interest (as reasonably determined by Bank) which would have accrued to
Bank on such amount by placing such amount on deposit for a comparable period
with leading banks in the interbank eurodollar market. Calculation of any
amounts payable to Bank under this paragraph shall be made as though Bank
shall have actually funded or committed to fund the relevant Eurodollar-based
Advance through the purchase of an underlying deposit in an amount equal to
the amount of such Advance and having a maturity comparable to the relevant
Interest Period; provided, however, that Bank may fund any Eurodollar-based
Advance in any manner it deems fit and the foregoing assumptions shall be
utilized only for the purpose of the calculation of amounts payable under
this paragraph. Upon
- 3 -
<PAGE>
the written request of Borrower, Bank shall deliver to Borrower a certificate
setting forth the basis for determining such losses, costs and expenses,
which certificate shall be conclusively presumed correct, absent manifest
error.
For any Interest Period for which the Applicable Interest Rate is the
Eurodollar-based Rate, if Bank shall designate a Eurodollar Lending Office
which maintains books separate from those of the rest of Bank, Bank shall
have the option of maintaining and carrying the relevant Eurodollar-based
Advance on the books of such Eurodollar Lending Office.
If, with respect to any Interest Period, Bank determines that, (a) by
reason of circumstances affecting the foreign exchange and interbank markets
generally, deposits in Eurodollars in the applicable amounts or for the
relative maturities are not being offered to Bank for such Interest
Period, or (b) if the rate of interest referred to in the definition of
"Eurodollar-based Rate" upon the basis of which the rate of interest for a
Eurodollar-based Advance is to be determined does not accurately or fairly
cover or reflect the cost to Bank of making or maintaining a Eurodollar-based
Advance hereunder, then Bank shall forthwith give notice thereof to the
Borrower. Thereafter, until Bank notifies Borrower that such circumstances no
longer exist, the right of Borrower to request a Eurodollar-based Advance and
to convert an Advance to or refund an Advance as a Eurodollar-based Advance
shall be suspended.
If, after the date hereof, the introduction of, or any change in, any
applicable law, rule or regulation or in the interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by Bank (or its Eurodollar Lending
Office) with any request or directive (whether or not having the force of
law) of any such authority, shall make it unlawful or impossible for the Bank
(or its Eurodollar Lending Office) to make or maintain any Advance with
interest at the Eurodollar-based Rate, Bank shall forthwith give notice
thereof to Borrower. Thereafter, (a) the right of Borrower to request a
Eurodollar-based Advance and to convert an Advance to or refund an Advance as
a Eurodollar-based Advance shall be suspended, and thereafter, Borrower may
select only the Prime-based Rate as the Applicable Interest Rate hereunder,
and (b) if Bank may not lawfully continue to maintain an outstanding Advance
to the end of the then current Interest Period applicable thereto, the
Prime-based Rate shall be the Applicable Interest Rate for the remainder
of such Interest Period with respect to such outstanding Advance.
If the adoption after the date hereof, or any change after the date
hereof in, any applicable law, rule or regulation of any governmental
authority, central bank or comparable agency charged with the interpretation
or administration thereof, or compliance by Bank (or its Eurodollar Lending
Office) with any request or directive (whether or not having the force of
law) made by any such authority, central bank or comparable agency after the
date hereof:
(a) shall subject Bank (or its Eurodollar Lending Office) to any tax,
duty or other charge with respect to this Note or any Advance
hereunder or shall change the basis of taxation of payments to Bank
(or its Eurodollar Lending Office) of the principal of or interest
on any Advance or any other amounts due under this Note in respect
thereof (except for changes in the rate of tax on the overall net
income of Bank or its Eurodollar Lending Office imposed by the
jurisdiction in which Bank's principal executive office or
Eurodollar Lending Office is located); or
- 4 -
<PAGE>
(b) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the
Federal Reserve System), special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by Bank (or its Eurodollar Lending Office) or shall impose
on Bank (or its Eurodollar Lending Office) or the foreign exchange
and interbank markets any other condition affecting any Advance
under this Note;
and the result of any of the foregoing is to increase the cost to Bank of
maintaining any part of the indebtedness hereunder or to reduce the amount
of any sum received or receivable by Bank under this Note by an amount deemed
by the Bank to be material, then Borrower shall pay to Bank, within fifteen
(15) days of Borrower's receipt of written notice from Bank demanding such
compensation, such additional amount or amounts as will compensate Bank for
such increased cost or reduction. The Bank shall use reasonable efforts to
advise Borrower of any event described in this paragraph within a reasonable
time. A certificate of Bank, prepared in good faith and in reasonable detail
by Bank and submitted by the Bank to the Borrower, setting forth the basis
for determining such additional amount or amounts necessary to compensate Bank
shall be conclusive and binding for all purposes, absent manifest error in
computation.
In the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect and whether or not
presently applicable to the Bank, or any interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by the Bank with any guideline, request
or directive of any such authority (whether or not having the force of law),
including any risk-based capital guidelines, affects or would affect the
amount of capital required or expected to be maintained by the Bank (or any
corporation controlling the Bank), and the Bank determines that the amount of
such capital or any reserve requirements (including any marginal, special,
supplemental or emergency reserve requirements imposed with respect to any
category of extensions of credit or assets which include "Eurocurrency
Liabilities" as defined in Regulation D of the Federal Reserve System) to
which Bank or its Eurodollar Lending Office is increased by or based upon
the existence of any obligations of the Bank hereunder or the making or
maintaining any Advances hereunder and such increase has the effect of
reducing the rate of return on the Bank's (or such controlling corporation's)
capital as a consequence of such obligations or the making or maintaining
such Advances hereunder to a level below that which the Bank (or such
controlling corporation) could have achieved but for such circumstances
(taking into consideration its policies with respect to capital adequacy) by
an amount deemed by the Bank to be material, then the Borrower shall pay to
the Bank, within fifteen (15) days of Borrower's receipt of written notice
from Bank demanding such compensation, additional amounts sufficient to
compensate the Bank (or such controlling corporation) for any increase in
the amount of capital and reduced rate of return which the Bank reasonably
determines to be allocable to the existence of any obligations of the
Bank hereunder or to the making or maintaining any Advances hereunder.
A certificate of Bank as to the amount of such compensation, prepared in good
faith and in reasonable detail by the Bank and submitted by the Bank to the
Company, shall be conclusive and binding for all purposes absent manifest
error in computation.
- 5 -
<PAGE>
Upon the occurrence and during the continuance of any Event of Default,
Bank may at any time and from time to time, without notice to the Borrower
(any requirement for such notice being expressly waived by the Borrower), set
off and apply against any and all of the indebtedness of Borrower to Bank any
and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by Bank to or for
the credit or the account of the Borrower and any property of the Borrower
from time to time in possession of Bank, irrespective of whether or not Bank
shall have made any demand hereunder and although such obligations may be
contingent and unmatured. The rights of Bank under this paragraph are in
addition to other rights and remedies (including, without limitation, other
rights of setoff) which Bank may otherwise have.
Upon the occurrence of any Event of Default, Bank may declare this Note
due forthwith and collect, deal with and dispose of all or any part of any
security in any manner permitted or authorized by the Indiana Uniform
Commercial Code or other applicable law (including public or private sale)
and after deducting expenses (including reasonable attorneys' fees and
expenses), Bank may apply the proceeds and any deposits or credits in part or
full payment of any of said liabilities, whether due or not, in any manner or
order Bank elects.
For the purposes of this Note, the following terms have the following
meanings:
"Advance" means a borrowing requested by Borrower and made by Bank under
this Note, including any refunding or conversions of such borrowing, and
shall include a Eurodollar-based Advance and a Prime-based Advance.
"Applicable Interest Rate" means the Eurodollar-based Rate or the
Prime-based Rate, as selected by Borrower from time to time subject to the
terms and conditions of this Note.
"Business Day" means any day, other than a Saturday, Sunday or holiday,
on which Bank is open for all or substantially all of its domestic and
international business (including dealings in foreign exchange) in Detroit,
Michigan.
"Eurodollar-based Advance" means an Advance which bears interest at the
Eurodollar-based Rate.
"Eurodollar-based Rate" means a per annum interest rate which is equal
to the sum of one percent (1%), plus the per annum interest rate at which
Bank's Eurodollar Lending Office offers deposits to prime banks in the
eurodollar market in an amount comparable to the relevant Eurodollar-based
Advance and for a period equal to the relevant Interest Period at or about
11:00 a.m. (Detroit, Michigan time) (or as soon thereafter as practical)
two (2) Business Days prior to the first day of such Interest Period.
"Eurodollar Lending Office" means Bank's office located in the Grand
Cayman Islands, British West Indies, or such other branch of Bank, domestic
or foreign, as it may hereafter designate as its Eurodollar Lending Office by
notice to Borrower.
"Event of Default" means the occurrence of any one of the following:
- 6 -
<PAGE>
(a) Borrower shall fail to pay the principal or interest under any
Advance or shall fail to pay any other amount owing by Borrower
to Bank, whether under this Note or otherwise, when due in
accordance with the terms hereof or thereof;
(b) any representation, warranty, certification or statement made or
deemed to have been made by Borrower herein or in any certificate,
financial statement or other document or agreement delivered to
Bank pursuant hereto shall prove to be untrue in any material
respect;
(c) Borrower or Company shall fail to observe or perform any condition,
covenant or agreement of Borrower or Company set forth in the Loan
Agreement or any other loan or security agreement or other agreement
with Bank, other than as provided in subparagraph (a) above, and
Borrower or Company shall fail to cure such failure within any grace
or cure period provided with respect thereto;
(d) Borrower or Company shall make any assignment for the benefit of
creditors, or there shall be commenced any bankruptcy, receivership,
insolvency, reorganization, dissolution or liquidation proceedings
by or against Borrower or Company, or the entry of any judgment,
levy, attachment, garnishment or other process, or the filing of
any lien against the Borrower or Company, which proceeding, if
involuntary, judgment, levy, attachment, garnishment or other
process shall not be discharged, dismissed, vacated or otherwise
stayed by the Borrower or Company within forty-five (45) days
after the commencement or filing thereof, as applicable;
(e) Borrower or Company shall have defaulted in the payment when due
and payable (whether at maturity, by reason of acceleration or
otherwise), after the expiration of any applicable cure period,
of the principal of or interest on any indebtedness for borrowed
money, or the maturity of any such indebtedness shall have been
accelerated in accordance with the provisions of any indenture,
contract, agreement or instrument providing for the creation
of or concerning or otherwise governing or evidencing such
indebtedness, or any event or condition shall have occurred
and be continuing which, with the giving of notice or the
passage of time, or both, would permit any holder or holders
of such indebtedness, any trustee or agent acting on behalf
of such holder or holders, or any other person, to accelerate
the maturity of such indebtedness.
"Interest Period" means a period of 1, 2, 3 or 6 months; as selected
by Borrower pursuant to the terms of this Note, commencing on the day a
Eurodollar-based Advance is made, provided that:
(a) any Interest Period which would otherwise end on a day which is not
a Business Day shall be extended to the next succeeding Business
Day, except that if the next succeeding Business Day falls in
another calendar month, the Interest Period shall end on the next
preceding Business Day, and when an Interest Period begins on a day
which has no numerically corresponding day in the calendar month
during
- 7 -
<PAGE>
which such Interest Period is to end, it shall end on the last
Business Day of such calendar month, and
(b) no Interest Period shall extend beyond the maturity date of
this Note.
"Loan Agreement" shall mean that certain Restated Revolving Credit
Agreement of even date herewith among Borrower and Bank.
"Maturity Date" has the meaning given it in the Loan Agreement.
"Prime-based Advance" shall mean an Advance which bears interest at the
Prime-based Rate.
"Prime Rate" means the per annum interest rate established by Bank at
its prime rate for its borrowers, as such rate may vary from time to time,
which rate is not necessarily the lowest rate on loans made by Bank at any
such time.
"Prime-based Rate" shall mean a per annum interest rate which is equal
to the greater of (i) the Prime Rate; or (ii) the rate of interest equal to
the sum of (a) one percent (1%) and (b) the rate of interest equal to the
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers (the "Overnight
Rates"), as published by the Federal Reserve Bank of New York, or, if the
overnight Rates are not so published for any day, the average of the
quotations for the Overnight Rates received by Bank from three (3) Federal
funds brokers of recognized standing selected by Bank, as the same may be
changed from time to time. Effect shall be given to any change in the
Prime-based Rate as a result of any change in the Prime Rate or Overnight
Rates on the date of any such change in the Prime Rate or Overnight Rates,
as applicable.
"Request for Advance" means a Request for Advance issued by Borrower
under this Note in the form annexed to this Note as Exhibit "A".
Borrower agrees to make all payments to Bank of any and all amounts due
and owing by Borrower to Bank hereunder, including, without limitation, the
payment of principal and interest on any Advance, on the date provided for
such payment, in United States Dollars in immediately available funds at any
the office of Bank located in the State of Michigan, or such other address as
Bank may notify Borrower in writing.
No delay or failure of Bank in exercising any right, power or privilege
hereunder shall affect such right, power or privilege, nor shall any single
or partial exercise thereof preclude any further exercise thereof, or the
exercise of any other power, right or privilege. The rights of Bank under
this Agreement are cumulative and not exclusive of any right or remedies
which Bank would otherwise have, whether by other instruments or by law.
This Note had been deemed to have been delivered in Detroit, Michigan,
and shall be governed by and construed and enforced in accordance with the
laws of the State of Michigan. Whenever possible each provision of this Note
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Note shall be prohibited by
- 8 -
<PAGE>
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Note.
This Note constitutes replacement and renewal evidence of Borrower's
indebtedness to Bank previously evidenced by a certain $33,000,000 Revolving
Note made by Borrower to Bank as of December 15, 1997.
BORROWER AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND INVOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT
TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS
HEREUNDER.
THE BORROWER ACKNOWLEDGES THAT ANY APPROVAL OR EXTENSION OF CREDIT
PURSUANT TO THIS NOTE IS EXTENDED BY THE BANK FROM ITS PRINCIPAL OFFICE IN
DETROIT, MICHIGAN.
IPG HOLDINGS LP
By Intertape Polymer, Inc.
Its General Partner
By:
-----------------------------------
Its:
-----------------------------------
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<PAGE>
EXHIBIT "A"
REQUEST FOR ADVANCE
The undersigned hereby requests COMERICA BANK ("Bank") to make a(an)
___________________________* Advance to the undersigned on ___________________,
____, in the amount of ________________________________ Dollars ($______) under
the Promissory Note dated as of April ___, 1998, issued by the undersigned to
said Bank in the face amount of Fifty Million Dollars ($50,000,000) (herein
called "Note"). The Interest Period for the requested Advance, if applicable,
shall be __________________________**. The last day of the Interest Period for
the amount being converted or refunded hereunder, if applicable, is
_________________________, 19___.
The undersigned certified that no Event of Default, or any condition or
event which, with the giving of notice or the running of time, or both, would
constitute an Event of Default, has occurred and is continuing under the
Note, and none will exist upon the making of the Advance requested hereunder.
The undersigned further certifies that upon advancing the sum requested
hereunder, the aggregate principal amount outstanding under the Note will not
exceed the face amount thereof. If the amount advanced to the undersigned
under the Note shall at any time exceed the face amount thereof, the
undersigned will pay such excess amount on demand.
The undersigned hereby authorized said Bank to disburse the proceeds of
this Request for Advance by crediting the account of the undersigned with
Bank separately designated by the undersigned or as the undersigned may
otherwise direct, unless this Request for Advance is being submitted for a
conversion or refunding, in which case it shall refund or convert that
portion stated above of the existing outstandings under the Note.
Dated this ______ day of ____________________________, ________.
IPG HOLDINGS LP
By Intertape Polymer, Inc.
Its General Partner
By: ___________________________________
Its: __________________________________
- ---------------------
* Insert Eurodollar-based or Prime-based Advance.
** Insert one 1, 2, 3 or 6 months.
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<PAGE>
EXHIBIT 3.8
LITIGATION
- NONE -
<PAGE>
EXHIBIT 5.10 - DEBT & LIENS
1. Debt (including any collateral therefor) of the Company and its
Restricted Subsidiaries outstanding on Closing Date is as follows:
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
INTERTAPE POLYMER GROUP INC. (AS OF DECEMBER 31, 1995)
<S> <C>
Guaranty of $12,000,000. for a line of
credit for Intertape Polymer Inc. 480,000 Cdn $
Guaranty of obligations under capital leases 6,752,861 U.S. $
Guaranty of a $7,000,000. line of credit for
Intertape Polymer Corp. 0 U.S. $
Guaranty of a $3,000,000. line of credit for
Polymer International Corp. 0 U.S. $
INTERTAPE POLYMER INC.
Line of Credit
National Bank of Canada 480,000 Cdn $
INTERTAPE POLYMER CORP.
Obligations under capital leases
American National Bank 2,148,983 US$
American National Bank 3,215,830 US$
Creditanstalt American Corporation 1,388,048 US$
Line of Credit
National Canada Finance Corp. 0 US$
POLYMER INTERNATIONAL CORP.
Line of Credit
First National Bank of Lafayette 0 US$
</TABLE>
A-3
(to Exhibit B)
<PAGE>
2. Long-Term Leases of the Company and its Restricted Subsidiaries
outstanding on December 31, 1995 are as follows:
<TABLE>
<CAPTION>
LOCATION USE AREA TITLE
<S> <C> <C> <C>
Crowely, Louisiana Manufacturing, warehouse and 175,000 Leased to October
corporate offices sq. ft. 1995 with option to
renew until October
1998
St. Laurent, Quebec Warehouse and corporate offices 43,000 Leased to March
sq. ft. 1999
</TABLE>
The Company leases six sales offices, of approximately 100 to 450 square
feet of space each, pursuant to leases expiring on various dates through
December 1996. A subsidiary leases an office of approximately 3,700 square
feet for its soft drink transport and display case operations in Tampa, Florida.
3. Capitalized Leases of the Company and its Restricted Subsidiaries
outstanding on December 31, 1995 are as follows:
<TABLE>
<CAPTION>
LOCATION USE AREA TITLE
<S> <C> <C> <C>
Danville, Virginia Manufacturing 275,000 Capital lease to
sq. ft. August 2007 with
option to purchase
for nominal amount
</TABLE>
A-4
(to Exhibit B)
<PAGE>
FIRST AMENDMENT
TO RESTATED CREDIT AGREEMENT AND NOTE
This First Amendment to Restated Credit Agreement and Note dated as of
September 1, 1998 by and between IPG HOLDINGS LP, a Delaware limited
partnership ("Borrower"), INTERTAPE POLYMER GROUP INC., a Canadian
corporation ("Guarantor") and COMERICA BANK, a Michigan banking corporation
("Bank").
WHEREAS, Borrower, Guarantor and Bank entered into a Restated Revolving
Credit Agreement dated as of May 8, 1998 ("Agreement"), pursuant to which
Borrower incurred certain indebtedness and obligations to Bank and issued to
Bank a certain Eurodollar Revolving Note in the face amount of Fifty Million
Dollars ($50,000,000) made by Borrower to Bank as of May 8, 1998 ("Note");
WHEREAS, Borrower, Guarantor and Bank desire to amend certain provisions
of the Agreement on the terms and conditions hereof;
NOW, THEREFORE, it is agreed:
A. DEFINITIONS
1. Capitalized terms used herein and not defined to the contrary have the
meanings given them in the Agreement.
B. AMENDMENT TO AGREEMENT
1. Section 1.1 of the Agreement is hereby amended and restated in its
entirety as follows:
"1.1 Subject to and upon the terms and conditions herein set
forth, the Bank hereby establishes a Revolving Credit
Facility in favor of the Borrowers ("Revolving Credit")
which may be utilized by direct advances under Section 1.2
below and/or for Letters of Credit issued under Section 1.4
hereof; PROVIDED, HOWEVER that the aggregate principal
amount of advances under the Revolving Facility, plus the
aggregate face amount of Letters of Credit at any one time
outstanding, plus the aggregate principal amount of advances
outstanding under the ATC Note, shall at no time exceed the
Commitment Amount."
2. Section 7.1 of the Agreement is hereby amended by adding thereto the
following definition, immediately prior to the definition of "Affiliate"
appearing in such Section 7.1:
"`ATC Note' shall mean the Eurodollar Revolving Note made
by American Tape Co. to the order of Bank as of
September 1, 1998 in the face amount of Ten Million Dollars
<PAGE>
($10,000,000) and any extensions, renewals or replacements
thereof or amendments thereto."
C. AMENDMENT TO NOTE
1. The Note is hereby amended by (i) replacing the period appearing at
the end of the second paragraph on page 2 thereof with a semi-colon, and (ii)
inserting the following clause (g) immediately after such semicolon:
"(g) the principal amount of the requested Advance, plus the
sum of (i) the principal amount of advances outstanding
under the ATC Note (defined in the Loan Agreement), and
(ii) the face amount of the Letters of Credit (defined
in the Loan Agreement) shall not exceed the Commitment
Amount (defined in the Loan Agreement).
2. The Note is hereby amended by (i) replacing the period appearing at
the end of clause (e) on page 7 thereof with a semi-colon, and (ii) inserting
the following clause (f) immediately after such semi-colon:
"(f) the occurrence of any "Event of Default" under, and as
defined in, the ATC Note."
D. REPRESENTATIONS
Borrower hereby represents and warrants that:
1. Execution, delivery and performance of this Amendment and any other
documents and instruments required under this Amendment or the Agreement are
within Borrower's powers, have been duly authorized, are not in contravention of
law or the terms of Borrower's Certificate of Limited Partnership or Agreement
of Limited Partnership, and do not require the consent or approval of any
governmental body, agency, or authority.
2. This Amendment, and the Agreement as amended by this Amendment, and
any other documents and instruments required under this Amendment or the
Agreement, when issued and delivered under this Amendment or the Agreement, will
be valid and binding in accordance with their terms.
3. The continuing representations and warranties of Borrower set forth in
Sections 10.01 through 10.4 and 10.6 through 10.20 of the Agreement are true and
correct on and as of the date hereof with the same force and effect as made on
and as of the date hereof.
4. The continuing representations and warranties of Company set forth in
Section 10.5 of the Agreement are true and correct as of the date hereof with
respect to the most recent financial statements furnished to Bank by Company in
accordance with Section 11.13 of the Agreement.
-2-
<PAGE>
5. No Event of Default, or condition or event which, with the giving of
notice or the running of time, or both, would constitute an Event of Default
under the Agreement, has occurred and is continuing as of the date hereof.
E. MISCELLANEOUS
1. This Amendment may be executed in counterparts and shall be deemed to
become effective upon such execution and delivery hereof and delivery to Bank of
each of the other documents listed on the checklist attached hereto as Exhibit
"A", all in form and content satisfactory to Bank.
2. Borrower acknowledges and agrees that, except as specifically amended
hereby or in connection herewith, all of the terms and conditions of the
Agreement and the other loan documents, remain in full force and effect in
accordance with their original terms.
3. Except as specifically set forth herein, nothing set forth in this
Amendment shall constitute, or be interpreted or construed to constitute, a
waiver of any right or remedy of Bank, or of any default or event of default
whether now existing or hereafter arising.
4. This Amendment, and the Agreement as amended hereby, shall be
interpreted, construed and governed by the laws of the State of Michigan.
WITNESS the due execution hereof as of the day and year first above
written.
COMERICA BANK IPG HOLDINGS LP
By: Intertape Polymer Inc.
Its: General Partner
By: /s/ Darlene Persons
----------------------------------
Its: VP
----------------------------------
By: /s/ Andrew M. Archibald
----------------------------------
Its: CFO
----------------------------------
INTERTAPE POLYMER GROUP INC.
By: /s/ Andrew M. Archibald
----------------------------------
Its: CFO
----------------------------------
-3-
<PAGE>
CLOSING CHECKLIST
-----------------
AMERICAN TAPE COMPANY
$10,000,000 REVOLVING SUBLIMIT
UNDER
IPG HOLDINGS, L.P.
$50,000,000
RESTATED REVOLVING CREDIT AGREEMENT
WITH
COMERICA BANK
I. AUTHORITY DOCUMENTATION
A. American Tape Company ("ATC")
1. Articles of Incorporation
2. Unanimous Consent of Directors
3. Bylaws
4. Good Standing Certificate
B. IPG Holdings LP ("IPG")
5. Recertification of Previously Delivered Authority Documents
6. Officers Certificate
a. Exhibit "A" -- Resolution Authorizing Guaranty
C. Intertape Polymer Group Inc. ("Intertape")
7. Recertification of Previously Delivered Authority Documents
8. Officers Certificate
a. Exhibit A -- Resolution Authorizing Guaranty
II. LOAN DOCUMENTATION
A. Primary Documentation
9. Amendment to Credit Agreement
a. Exhibit A -- Checklist
10. $10,000,000 Revolving Credit Note -- ATC
a. Exhibit A -- Form of Request for Advance
11. Guaranty -- IPG
12. Amendment to Guaranty -- Intertape
B. Miscellaneous
13. Opinion of Counsel to ATC and IPG
14. Opinion of Counsel to Intertape
<PAGE>
EURODOLLAR REVOLVING NOTE
TAX I.D. NO. __________
$10,000,000 Detroit, Michigan
September 1, 1998
On or before the Maturity Date, FOR VALUE RECEIVED, the undersigned,
AMERICAN TAPE CO., a Delaware corporation (herein called "Borrower"),
promises to pay to the order of COMERICA BANK, a Michigan banking corporation
(herein called "Bank"), in lawful currency of the United States of America at
the main office of Bank, TEN MILLION DOLLARS ($10,000,000), or so much of
said sum as has been advanced and is then outstanding under this Note,
together with interest thereon as hereinafter set forth.
This Note is a note under which Advances, repayments and re-Advances may
be made from time to time, subject to the terms and conditions of this Note;
provided however, in no event shall Bank be obligated to make any Advances or
re-Advances hereunder (or refunds or conversions of existing Advances) in the
event that and so long as any Event of Default, or any condition or event
which, with the giving of notice or the running of time, or both, would
constitute an Event of Default, shall have occurred and be continuing
hereunder.
Each of the Advances made hereunder shall bear interest at the
Eurodollar-based Rate or the Prime-based Rate, as elected by Borrower, or as
otherwise determined under this Note.
Interest on the unpaid balance of each outstanding Prime-based Advance
shall be payable monthly, commencing on September 1, 1998, and on the first
Business Day of each succeeding month thereafter. Interest accruing at the
Prime-based Rate shall be computed on the basis of a year of 360 days, and
shall be assessed for the actual number of days elapsed, and in such
computation, effect shall be given to any change in the Prime-based Rate as a
result of any change in the Prime-based Rate on the date of each such change.
Interest on each Eurodollar-based Advance shall be payable on the last
day of the Interest Period applicable thereto; provided, however, in the
event that the Interest Period applicable to any such Eurodollar-based
Advance is more than three (3) months, interest on such Eurodollar-based
Advance shall also be payable at intervals of three (3) months from the date
of such Advance. Interest accruing at the Eurodollar-based Rate shall be
computed on the basis of a 360 day year and shall be assessed for the actual
number of days elapsed from the first day of the Interest Period applicable
thereto but not including the last day thereof.
From and after the occurrence of any Event of Default hereunder, or any
condition or event which, with the giving of notice or the running of time,
or both, would constitute an Event of Default, and so long as any such Event
of Default or such condition or event remains unremedied or uncured
thereafter, the indebtedness outstanding under this Note shall bear interest
at a per annum rate of three percent (3%) above the otherwise Applicable
Interest Rate, which interest shall be payable upon demand.
- 1 -
<PAGE>
The amount and date of each Advance, its Applicable Interest Rate, its
Interest Period, if any, and the amount and date of any repayment shall be
noted on Bank's records, which records shall be conclusive evidence thereof,
absent manifest error; provided, however, any failure by Bank to make any
such notation, or any error in any such notation, shall not relieve Borrower
of its obligations to repay Bank the amount of any Advances, all accrued and
unpaid interest thereon, and all other amounts payable by Borrower to Bank
under or pursuant to this Note.
The Borrower may request an Advance hereunder, including the refunding
or conversion of an outstanding Advance, upon the delivery to Bank of a
Request for Advance executed by an authorized representative of Borrower,
subject to the following:
(a) no Event of Default, and no condition or event which, with the
giving of notice or the running of time, or both, would constitute
an Event of Default, shall have occurred and be continuing under
this Note;
(b) each such Request for Advance shall set forth the information
required on the Request for Advance form annexed hereto as
Exhibit "A";
(c) each such Request for Advance shall be delivered to Bank by 11:00
a.m. (Detroit, Michigan time) three (3) Business Days prior to the
proposed date of Advance in the case of Eurodollar-based Advances,
and by 11:00 a.m. (Detroit, Michigan time) on the proposed date of
Advance in the case of Prime-based Advances;
(d) the principal amount of each Eurodollar-based Advance, plus the
amount of any outstanding indebtedness to be then combined
therewith having the same Applicable Interest Rate and Interest
Period shall be at least Five Hundred Thousand Dollars ($500,000),
and if greater, in integral multiples of One Hundred Thousand
Dollars ($100,000);
(e) the proposed date of any refunding or conversion of any outstanding
Eurodollar-based Advance shall only be on the last day of the
Interest Period applicable thereto;
(f) a Request for Advance, once delivered to Bank, shall not be
revocable by Borrower.
(g) the principal amount of the requested Advance, plus the sum of (i)
the principal amount of the Revolving Credit, and (ii) the face
amount of Letters of Credit outstanding under the Loan Agreement
shall not exceed the Commitment Amount.
If, as to any outstanding Eurodollar-based Advance, Bank shall not
receive a timely Request for Advance in accordance with the foregoing
requesting the refunding of such Advance as a Eurodollar-based Advance,
the principal amount of such Advance which is not then repaid shall be
automatically converted to a Prime-based Advance on the last day of the
Interest Period applicable thereto, subject in all respects to the terms and
conditions of this Note. The foregoing shall not in any way whatsoever limit
or otherwise affect any of Bank's rights or remedies under
- 2 -
<PAGE>
this Note upon the occurrence of any Event of Default hereunder, or any
condition or event which, with the giving of notice or the running of time,
or both, would constitute an Event of Default.
Borrower may prepay all or part of the outstanding balance of any
Prime-based Advance under this Note at any time. Borrower may prepay all or
part of any Eurodollar-based Advance on the last day of the Interest Period
applicable thereto, provided that the amount of any such partial prepayment
shall be at least One Hundred Thousand Dollars ($100,000), or, if greater,
in integral multiples thereof, the aggregate balance of Eurodollar-based
Advances outstanding after such prepayment shall be at least One Hundred
Thousand Dollars ($100,000), and the unpaid portion of such Eurodollar-based
Advance which is refunded or converted shall be subject to the limitations
set forth in this Note. Any prepayment made in accordance with this paragraph
shall be without premium or penalty. Any other prepayment shall be otherwise
restricted by and subject to the terms of this Note.
Subject to the definition of an "Interest Period" hereunder, in the
event that any payment under this Note becomes due and payable on any day
which is not a Business Day, the due date thereof shall be extended to the
next succeeding Business Day, and, to the extent applicable, interest shall
continue to accrue and be payable thereon during such extension at the rates
set forth in this Note.
All payments to be made by Borrower to Bank under or pursuant to this
Note shall be in immediately available funds, without setoff or counterclaim,
and in the event that any payments submitted hereunder are in funds not
available until collected, said payments shall continue to bear interest
until collected. Borrower hereby authorizes Bank to charge any account of
Borrower with Bank for all sums due hereunder when due in accordance with the
terms hereof.
If Borrower makes any payment of principal with respect to any
Eurodollar-based Advance on any day other than the last day of the Interest
Period applicable thereto (whether voluntarily, by acceleration, or
otherwise), or if Borrower fails to borrow any Eurodollar-based Advance after
notice has been given by Borrower to Bank in accordance with the terms of
this Note requesting such Advance, or if Borrower fails to make any payment
of principal or interest in respect of a Eurodollar-based Advance when due,
Borrower shall reimburse Bank on demand for any resulting loss, cost or
expense incurred by Bank as a result thereof, including, without limitation,
any such loss, cost or expense incurred in obtaining, liquidating, employing
or redeploying deposits from third parties, whether or not Bank shall have
funded or committed to fund such Advance. Such amount payable by Borrower to
Bank may include, without limitation, an amount equal to the excess, if any,
of (a) the amount of interest which would have accrued on the amount so
prepaid, or not so borrowed, refunded or converted, for the period from the
date of such prepayment or of such failure to borrow, refund or convert,
through the last day of the relevant Interest Period, at the applicable rate
of interest for said Advance(s) provided under this Note, over (b) the amount
of interest (as reasonably determined by Bank) which would have accrued to
Bank on such amount by placing such amount on deposit for a comparable period
with leading banks in the interbank eurodollar market. Calculation of any
amounts payable to Bank under this paragraph shall be made as though Bank
shall have actually funded or committed to fund the relevant Eurodollar-based
Advance through the purchase of an
- 3 -
<PAGE>
underlying deposit in an amount equal to the amount of such Advance and
having a maturity comparable to the relevant Interest Period; provided,
however, that Bank may fund any Eurodollar-based Advance in any manner it
deems fit and the foregoing assumptions shall be utilized only for the
purpose of the calculation of amounts payable under this paragraph. Upon the
written request of Borrower, Bank shall deliver to Borrower a certificate
setting forth the basis for determining such losses, costs and expenses,
which certificate shall be conclusively presumed correct, absent manifest
error.
For any Interest Period for which the Applicable Interest Rate is the
Eurodollar-based Rate, if Bank shall designate a Eurodollar Lending Office
which maintains books separate from those of the rest of Bank, Bank shall
have the option of maintaining and carrying the relevant Eurodollar-based
Advance on the books of such Eurodollar Lending Office.
If, with respect to any Interest Period, Bank determines that, (a) by
reason of circumstances affecting the foreign exchange and interbank markets
generally, deposits in Eurodollars in the applicable amounts or for the
relative maturities are not being offered to Bank for such Interest
Period, or (b) if the rate of interest referred to in the definition of
"Eurodollar-based Rate" upon the basis of which the rate of interest for a
Eurodollar-based Advance is to be determined does not accurately or fairly
cover or reflect the cost to Bank of making or maintaining a Eurodollar-based
Advance hereunder, then Bank shall forthwith give notice thereof to the
Borrower. Thereafter, until Bank notifies Borrower that such circumstances no
longer exist, the right of Borrower to request a Eurodollar-based Advance and
to convert an Advance to or refund an Advance as a Eurodollar-based Advance
shall be suspended.
If, after the date hereof, the introduction of, or any change in, any
applicable law, rule or regulation or in the interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by Bank (or its Eurodollar Lending
Office) with any request or directive (whether or not having the force of
law) of any such authority, shall make it unlawful or impossible for the Bank
(or its Eurodollar Lending Office) to make or maintain any Advance with
interest at the Eurodollar-based Rate, Bank shall forthwith give notice
thereof to Borrower. Thereafter, (a) the right of Borrower to request a
Eurodollar-based Advance and to convert an Advance to or refund an Advance as
a Eurodollar-based Advance shall be suspended, and thereafter, Borrower may
select only the Prime-based Rate as the Applicable Interest Rate hereunder,
and (b) if Bank may not lawfully continue to maintain an outstanding Advance
to the end of the then current Interest Period applicable thereto, the
Prime-based Rate shall be the Applicable Interest Rate for the remainder
of such Interest Period with respect to such outstanding Advance.
If the adoption after the date hereof, or any change after the date
hereof in, any applicable law, rule or regulation of any governmental
authority, central bank or comparable agency charged with the interpretation
or administration thereof, or compliance by Bank (or its Eurodollar Lending
Office) with any request or directive (whether or not having the force of
law) made by any such authority, central bank or comparable agency after the
date hereof:
(a) shall subject Bank (or its Eurodollar Lending Office) to any tax,
duty or other charge with respect to this Note or any Advance
hereunder or shall change the basis of taxation of payments to Bank
(or its Eurodollar Lending Office) of the
- 4 -
<PAGE>
principal of or interest on any Advance or any other amounts due
under this Note in respect thereof (except for changes in the rate
of tax on the overall net income of Bank or its Eurodollar Lending
Office imposed by the jurisdiction in which Bank's principal
executive office or Eurodollar Lending Office is located); or
(b) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the
Federal Reserve System), special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by Bank (or its Eurodollar Lending Office) or shall impose
on Bank (or its Eurodollar Lending Office) or the foreign exchange
and interbank markets any other condition affecting any Advance
under this Note;
and the result of any of the foregoing is to increase the cost to Bank of
maintaining any part of the indebtedness hereunder or to reduce the amount
of any sum received or receivable by Bank under this Note by an amount deemed
by the Bank to be material, then Borrower shall pay to Bank, within fifteen
(15) days of Borrower's receipt of written notice from Bank demanding such
compensation, such additional amount or amounts as will compensate Bank for
such increased cost or reduction. The Bank shall use reasonable efforts to
advise Borrower of any event described in this paragraph within a reasonable
time. A certificate of Bank, prepared in good faith and in reasonable detail
by Bank and submitted by the Bank to the Borrower, setting forth the basis
for determining such additional amount or amounts necessary to compensate Bank
shall be conclusive and binding for all purposes, absent manifest error in
computation.
In the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect and whether or not
presently applicable to the Bank, or any interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by the Bank with any guideline, request
or directive of any such authority (whether or not having the force of law),
including any risk-based capital guidelines, affects or would affect the
amount of capital required or expected to be maintained by the Bank (or any
corporation controlling the Bank), and the Bank determines that the amount of
such capital or any reserve requirements (including any marginal, special,
supplemental or emergency reserve requirements imposed with respect to any
category of extensions of credit or assets which include "Eurocurrency
Liabilities" as defined in Regulation D of the Federal Reserve System) to
which Bank or its Eurodollar Lending Office is increased by or based upon
the existence of any obligations of the Bank hereunder or the making or
maintaining any Advances hereunder and such increase has the effect of
reducing the rate of return on the Bank's (or such controlling corporation's)
capital as a consequence of such obligations or the making or maintaining
such Advances hereunder to a level below that which the Bank (or such
controlling corporation) could have achieved but for such circumstances
(taking into consideration its policies with respect to capital adequacy) by
an amount deemed by the Bank to be material, then the Borrower shall pay to
the Bank, within fifteen (15) days of Borrower's receipt of written notice
from Bank demanding such compensation, additional amounts sufficient to
compensate the Bank (or such controlling corporation) for any increase in
the amount of capital and reduced rate of return which the Bank reasonably
determines to be allocable to the existence of any obligations of the
Bank hereunder or to the making or maintaining any Advances hereunder.
A certificate of Bank as to the amount of such
- 5 -
<PAGE>
compensation, prepared in good faith and in reasonable detail by the Bank and
submitted by the Bank to the Company, shall be conclusive and binding for all
purposes absent manifest error in computation.
Upon the occurrence and during the continuance of any Event of Default,
Bank may at any time and from time to time, without notice to the Borrower
(any requirement for such notice being expressly waived by the Borrower), set
off and apply against any and all of the indebtedness of Borrower to Bank any
and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by Bank to or for
the credit or the account of the Borrower and any property of the Borrower
from time to time in possession of Bank, irrespective of whether or not Bank
shall have made any demand hereunder and although such obligations may be
contingent and unmatured. The rights of Bank under this paragraph are in
addition to other rights and remedies (including, without limitation, other
rights of setoff) which Bank may otherwise have.
Upon the occurrence of any Event of Default, Bank may declare this Note
due forthwith and collect, deal with and dispose of all or any part of any
security in any manner permitted or authorized by the Indiana Uniform
Commercial Code or other applicable law (including public or private sale)
and after deducting expenses (including reasonable attorneys' fees and
expenses), Bank may apply the proceeds and any deposits or credits in part or
full payment of any of said liabilities, whether due or not, in any manner or
order Bank elects.
For the purposes of this Note, the following terms have the following
meanings:
"Advance" means a borrowing requested by Borrower and made by Bank under
this Note, including any refunding or conversions of such borrowing, and
shall include a Eurodollar-based Advance and a Prime-based Advance.
"Applicable Interest Rate" means the Eurodollar-based Rate or the
Prime-based Rate, as selected by Borrower from time to time subject to the
terms and conditions of this Note.
"Business Day" means any day, other than a Saturday, Sunday or holiday,
on which Bank is open for all or substantially all of its domestic and
international business (including dealings in foreign exchange) in Detroit,
Michigan.
"Eurodollar-based Advance" means an Advance which bears interest at the
Eurodollar-based Rate.
"Eurodollar-based Rate" means a per annum interest rate which is equal
to the sum of one percent (1%), plus the per annum interest rate at which
Bank's Eurodollar Lending Office offers deposits to prime banks in the
eurodollar market in an amount comparable to the relevant Eurodollar-based
Advance and for a period equal to the relevant Interest Period at or about
11:00 a.m. (Detroit, Michigan time) (or as soon thereafter as practical)
two (2) Business Days prior to the first day of such Interest Period.
- 6 -
<PAGE>
"Eurodollar Lending Office" means Bank's office located in the Grand
Cayman Islands, British West Indies, or such other branch of Bank, domestic
or foreign, as it may hereafter designate as its Eurodollar Lending Office by
notice to Borrower.
"Event of Default" means the occurrence of any one of the following:
(a) Borrower shall fail to pay the principal or interest under any
Advance or shall fail to pay any other amount owing by Borrower
to Bank, whether under this Note or otherwise, when due in
accordance with the terms hereof or thereof;
(b) any representation, warranty, certification or statement made or
deemed to have been made by Borrower herein or in any certificate,
financial statement or other document or agreement delivered to
Bank pursuant hereto shall prove to be untrue in any material
respect;
(c) Borrower, IPG or Company shall fail to observe or perform any
condition, covenant or agreement of Borrower, IPG or Company set
forth in the Loan Agreement or any other loan or security agreement
or other agreement with Bank, other than as provided in subparagraph
(a) above, and Borrower, IPG or Company shall fail to cure such
failure within any grace or cure period provided with respect thereto;
(d) Borrower, IPG or Company shall make any assignment for the benefit of
creditors, or there shall be commenced any bankruptcy, receivership,
insolvency, reorganization, dissolution or liquidation proceedings
by or against Borrower, IPG or Company, or the entry of any judgment,
levy, attachment, garnishment or other process, or the filing of
any lien against the Borrower, IPG or Company, which proceeding, if
involuntary, judgment, levy, attachment, garnishment or other
process shall not be discharged, dismissed, vacated or otherwise
stayed by the Borrower, IPG or Company within forty-five (45) days
after the commencement or filing thereof, as applicable;
(e) Borrower, IPG or Company shall have defaulted in the payment when due
and payable (whether at maturity, by reason of acceleration or
otherwise), after the expiration of any applicable cure period,
of the principal of or interest on any indebtedness for borrowed
money, or the maturity of any such indebtedness shall have been
accelerated in accordance with the provisions of any indenture,
contract, agreement or instrument providing for the creation
of or concerning or otherwise governing or evidencing such
indebtedness, or any event or condition shall have occurred
and be continuing which, with the giving of notice or the
passage of time, or both, would permit any holder or holders
of such indebtedness, any trustee or agent acting on behalf
of such holder or holders, or any other person, to accelerate
the maturity of such indebtedness.
(f) occurrence of any "Event of Default" under the Loan Agreement.
- 7 -
<PAGE>
"Interest Period" means a period of 1, 2, 3 or 6 months; as selected
by Borrower pursuant to the terms of this Note, commencing on the day a
Eurodollar-based Advance is made, provided that:
(a) any Interest Period which would otherwise end on a day which is not
a Business Day shall be extended to the next succeeding Business
Day, except that if the next succeeding Business Day falls in
another calendar month, the Interest Period shall end on the next
preceding Business Day, and when an Interest Period begins on a day
which has no numerically corresponding day in the calendar month
during which such Interest Period is to end, it shall end on the
last Business Day of such calendar month, and
(b) no Interest Period shall extend beyond the maturity date of
this Note.
"IPG" shall mean IPG Holdings LP, a Delaware limited partnership.
"Loan Agreement" shall mean that certain Restated Revolving Credit
Agreement dated May 8, 1998 among IPG, Company and Bank as amended.
"Maturity Date" has the meaning given it in the Loan Agreement.
"Prime-based Advance" shall mean an Advance which bears interest at the
Prime-based Rate.
"Prime Rate" means the per annum interest rate established by Bank at
its prime rate for its borrowers, as such rate may vary from time to time,
which rate is not necessarily the lowest rate on loans made by Bank at any
such time.
"Prime-based Rate" shall mean a per annum interest rate which is equal
to the greater of (i) the Prime Rate; or (ii) the rate of interest equal to
the sum of (a) one percent (1%) and (b) the rate of interest equal to the
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers (the "Overnight
Rates"), as published by the Federal Reserve Bank of New York, or, if the
overnight Rates are not so published for any day, the average of the
quotations for the Overnight Rates received by Bank from three (3) Federal
funds brokers of recognized standing selected by Bank, as the same may be
changed from time to time. Effect shall be given to any change in the
Prime-based Rate as a result of any change in the Prime Rate or Overnight
Rates on the date of any such change in the Prime Rate or Overnight Rates,
as applicable.
"Request for Advance" means a Request for Advance issued by Borrower
under this Note in the form annexed to this Note as Exhibit "A".
Capitalized terms used herein and not defined to the contrary have
meanings given them in the Loan Agreement.
Borrower agrees to make all payments to Bank of any and all amounts due
and owing by Borrower to Bank hereunder, including, without limitation, the
payment of principal and
- 8 -
<PAGE>
interest on any Advance, on the date provided for such payment, in United
States Dollars in immediately available funds at any the office of Bank
located in the State of Michigan, or such other address as Bank may notify
Borrower in writing.
No delay or failure of Bank in exercising any right, power or privilege
hereunder shall affect such right, power or privilege, nor shall any single
or partial exercise thereof preclude any further exercise thereof, or the
exercise of any other power, right or privilege. The rights of Bank under
this Agreement are cumulative and not exclusive of any right or remedies
which Bank would otherwise have, whether by other instruments or by law.
This Note had been deemed to have been delivered in Detroit, Michigan,
and shall be governed by and construed and enforced in accordance with the
laws of the State of Michigan. Whenever possible each provision of this Note
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Note shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Note.
BORROWER AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT
TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS
HEREUNDER.
THE BORROWER ACKNOWLEDGES THAT ANY APPROVAL OR EXTENSION OF CREDIT
PURSUANT TO THIS NOTE IS EXTENDED BY THE BANK FROM ITS PRINCIPAL OFFICE IN
DETROIT, MICHIGAN.
AMERICAN TAPE CO.
By: /s/ Andrew Archibald
-----------------------------------
Its: [ILLEGIBLE]
-----------------------------------
- 9 -
<PAGE>
EXHIBIT "A"
REQUEST FOR ADVANCE
The undersigned hereby requests COMERICA BANK ("Bank") to make a(an)
___________________________* Advance to the undersigned on ___________________,
____, in the amount of ________________________________ Dollars ($______) under
the Promissory Note dated as of _________, 1998, issued by the undersigned to
said Bank in the face amount of Ten Million Dollars ($10,000,000) (herein
called "Note"). The Interest Period for the requested Advance, if applicable,
shall be __________________________**. The last day of the Interest Period for
the amount being converted or refunded hereunder, if applicable, is
_________________________, 19___.
The undersigned certifies that no Event of Default, or any condition or
event which, with the giving of notice or the running of time, or both, would
constitute an Event of Default, has occurred and is continuing under the
Note, and none will exist upon the making of the Advance requested hereunder.
The undersigned further certifies that upon advancing the sum requested
hereunder, the aggregate principal amount outstanding under the Note will not
exceed the face amount thereof. If the amount advanced to the undersigned
under the Note shall at any time exceed the face amount thereof, the
undersigned will pay such excess amount on demand.
The undersigned hereby authorizes said Bank to disburse the proceeds of
this Request for Advance by crediting the account of the undersigned with
Bank separately designated by the undersigned or as the undersigned may
otherwise direct, unless this Request for Advance is being submitted for a
conversion or refunding, in which case it shall refund or convert that
portion stated above of the existing outstandings under the Note.
Dated this ______ day of ____________________________, ________.
AMERICAN TAPE CO.
By: ___________________________________
Its: __________________________________
- ---------------------
* Insert Eurodollar-based or Prime-based Advance.
** Insert one 1, 2, 3 or 6 months.
-10-
<PAGE>
SECOND AMENDMENT
TO RESTATED CREDIT AGREEMENT
This Second Amendment to Restated Credit Agreement and Note dated as of
January 22, 1999 by and among IPG HOLDINGS LP, a Delaware limited partnership
--
("Borrower"), INTERTAPE POLYMER GROUP INC., a Canadian corporation ("Guarantor")
and COMERICA BANK, a Michigan banking corporation ("Bank").
WHEREAS, Borrower, Guarantor and Bank entered into a Restated Revolving
Credit Agreement dated as of May 8, 1998 (the "Original Agreement" and as
amended by the First Amendment (defined below) the "Agreement"), pursuant to
which Borrower incurred certain indebtedness and obligations to Bank and
issued to Bank a certain Eurodollar Revolving Note in the face amount of
Fifty Million Dollars ($50,000,000) made by Borrower to Bank as of May 8,
1998 ("Note");
WHEREAS, Borrower, Guarantor, and Bank entered into a First Amendment to
Credit Agreement dated as of September 1, 1998 (the "First Amendment"),
pursuant to which (i) a subfacility in favor of American Tape Co. ("ATC") was
established under the Agreement, and (ii) amounts available under the
Revolving Facility were limited, inter alia, by amounts outstanding under the
ATC Note.
WHEREAS, Borrower, Guarantor and Bank desire to amend certain provisions
of the Agreement on the terms and conditions hereof;
NOW, THEREFORE, it is agreed:
A. DEFINITIONS
1. Capitalized terms used herein and not defined to the contrary have the
meanings given them in the Agreement.
B. AMENDMENT TO AGREEMENT
1. Section 7.1 of the Agreement is hereby amended by restating the
definition of "ATC Note" to read, in its entirety, as follows:
"`ATC Note' shall mean the Eurodollar Revolving Note made
by American Tape Co., Intertape Polymer Corp., and Anchor
Continental, Inc., jointly and severally, to the order of
Bank as of January 22, 1999 in the face amount of Ten
--
Million Dollars ($10,000,000) and any extensions, renewals
or replacements thereof or amendments thereto."
C. REPRESENTATIONS
Borrower hereby represents and warrants that:
<PAGE>
1. Execution, delivery and performance of this Amendment and any other
documents and instruments required under this Amendment or the Agreement are
within Borrower's powers, have been duly authorized, are not in contravention
of law or the terms of Borrower's Certificate of Limited Partnership or
Agreement of Limited Partnership, and do not require the consent or approval
of any governmental body, agency, or authority.
2. This Amendment, and the Agreement as amended by this Amendment, and
any other documents and instruments required under this Amendment or the
Agreement, when issued and delivered under this Amendment or the Agreement,
will be valid and binding in accordance with their terms.
3. The continuing representations and warranties of Borrower set forth
in Sections 10.01 through 10.4 and 10.6 through 10.20 of the Agreement are
true and correct on and as of the date hereof with the same force and effect
as made on and as of the date hereof.
4. The continuing representations and warranties of Company set forth
in Section 10.5 of the Agreement are true and correct as of the date hereof
with respect to the most recent financial statements furnished to Bank by
Company in accordance with Section 11.13 of the Agreement.
5. No Event of Default, or condition or event which, with the giving of
notice or the running of time, or both, would constitute an Event of Default
under the Agreement, has occurred and is continuing as of the date hereof.
D. MISCELLANEOUS
1. This Amendment may be executed in counterparts and shall be deemed to
become effective upon such execution and delivery hereof and upon delivery to
Bank of each of the other documents listed on the checklist attached hereto as
Exhibit "A", all in form and content satisfactory to Bank.
2. Borrower acknowledges and agrees that, except as specifically amended
hereby or in connection herewith, all of the terms and conditions of the
Agreement and the other loan documents, remain in full force and effect in
accordance with their original terms.
3. Except as specifically set forth herein, nothing set forth in this
Amendment shall constitute, or be interpreted or construed to constitute, a
waiver of any right or remedy of Bank, or of any default or event of default
whether now existing or hereafter arising.
4. This Amendment, and the Agreement as amended hereby, shall be
interpreted, construed and governed by the laws of the State of Michigan.
[Signature page follows]
-2-
<PAGE>
WITNESS the due execution hereof as of the day and year first above
written.
COMERICA BANK IPG HOLDINGS LP
By: Intertape Polymer Inc.
Its: General Partner
By: /s/ Pamela R. Horn Eidt By: /s/ S. Vitale
--------------------------------------- ------------------------------
Its: ASSISTANT VICE PRESIDENT Its: ASSISTANT SECRETARY
-------------------------------------- -----------------------------
INTERTAPE POLYMER GROUP INC.
By: /s/ Andrew M. Archibald
---------------------------------------
Its: CHIEF FINANCIAL OFFICER AND SECRETARY
--------------------------------------
<PAGE>
EURODOLLAR REVOLVING NOTE
-------------------------
TAX I.D. NO. 38-2461158 (AMERICAN TAPE CO.)
TAX I.D. NO. 54-1411730 (INTERTAPE POLYMER CORP.)
TAX I.D. NO. 57-1078514 (ANCHOR CONTINENTAL, INC.)
$10,000,000 Detroit, Michigan
January 22, 1999
On or before the Maturity Date, FOR VALUE RECEIVED, the undersigned,
AMERICAN TAPE CO., a Delaware corporation ("ATC"), INTERTAPE POLYMER CORP.,
a Virginia corporation ("IPC"), and ANCHOR CONTINENTAL, INC. a Delaware
corporation ("AC", called with ATC and IPC, "Borrowers" and each referred to
herein as a "Borrower"), jointly and severally promise to pay to the order of
COMERICA BANK, a Michigan banking corporation (herein called "Bank"), in
lawful currency of the United States of America at the main office of Bank,
TEN MILLION DOLLARS ($10,000,000), or so much of said sum as has been
advanced and is then outstanding under this Note, together with interest
thereon as hereinafter set forth.
This Note is a note under which Advances, repayments and re-Advances may
be made from time to time, subject to the terms and conditions of this Note;
provided however, in no event shall Bank be obligated to make any Advances or
re-Advances hereunder (or refunds or conversions of existing Advances) in the
event that and so long as any Event of Default, or any condition or event
which, with the giving of notice or the running of time, or both, would
constitute an Event of Default, shall have occurred and be continuing
hereunder.
Each of the Advances made hereunder shall bear interest at the
Eurodollar-based Rate or the Prime-based Rate, as elected by Borrower, or as
otherwise determined under this Note.
Interest on the unpaid balance of each outstanding Prime-based Advance
shall be payable monthly, commencing on February 1, 1999, and on the first
Business Day of each succeeding month thereafter. Interest accruing at the
Prime-based Rate shall be computed on the basis of a year of 360 days, and
shall be assessed for the actual number of days elapsed, and in such
computation, effect shall be given to any change in the Prime-based Rate as a
result of any change in the Prime-based Rate on the date of each such change.
Interest on each Eurodollar-based Advance shall be payable on the last
day of the Interest Period applicable thereto; provided, however, in the
event that the Interest Period applicable to any such Eurodollar-based
Advance is more than three (3) months, interest on such Eurodollar-based
Advance shall also be payable at intervals of three (3) months from the date
of such Advance. Interest accruing at the Eurodollar-based Rate shall be
computed on the basis of a 360 day year and shall be assessed for the actual
number of days elapsed from the first day of the Interest Period applicable
thereto but not including the last day thereof.
From and after the occurrence of any Event of Default hereunder, or any
condition or event which, with the giving of notice or the running of time,
or both, would constitute an Event
- 1 -
<PAGE>
unremedied or uncured thereafter, the indebtedness outstanding under this
Note shall bear interest at a per annum rate of three percent (3%) above the
otherwise Applicable Interest Rate, which interest shall be payable upon
demand.
The amount and date of each Advance, its Applicable Interest Rate, its
Interest Period, if any, and the amount and date of any repayment shall be
noted on Bank's records, which records shall be conclusive evidence thereof,
absent manifest error; provided, however, any failure by Bank to make any
such notation, or any error in any such notation, shall not relieve Borrower
of its obligations to repay Bank the amount of any Advances, all accrued and
unpaid interest thereon, and all other amounts payable by Borrower to Bank
under or pursuant to this Note.
Any Borrower may request Advances hereunder, including the refunding or
conversion of outstanding Advances of such Borrower, by the delivery to Bank
of a Request for Advance executed by its authorized representative, subject
to the following:
(a) no Event of Default, and no condition or event which, with the
giving of notice or the running of time, or both, would constitute
an Event of Default, shall have occurred and be continuing under
this Note;
(b) each such Request for Advance shall set forth the information
required on the Request for Advance form annexed hereto as
Exhibit "A";
(c) each such Request for Advance shall be delivered to Bank by 11:00
a.m. (Detroit, Michigan time) three (3) Business Days prior to the
proposed date of Advance in the case of Eurodollar-based Advances,
and by 11:00 a.m. (Detroit, Michigan time) on the proposed date of
Advance in the case of Prime-based Advances;
(d) the principal amount of each Eurodollar-based Advance, plus the
amount of any outstanding indebtedness to be then combined
therewith having the same Applicable Interest Rate and Interest
Period shall be at least Five Hundred Thousand Dollars ($500,000),
and if greater, in integral multiples of One Hundred Thousand
Dollars ($100,000);
(e) the proposed date of any refunding or conversion of any outstanding
Eurodollar-based Advance shall only be on the last day of the
Interest Period applicable thereto;
(f) a Request for Advance, once delivered to Bank, shall not be
revocable by the Borrower making such request;
(g) the principal amount of the requested Advance, plus the sume of (i)
the principal amount of the Revolving Credit, and (ii) the face
amount of Letters of Credit outstanding under the Loan Agreement
shall not exceed the Commitment Amount;
Notwithstanding anything herein or in any other agreement between any
Borrower and Bank, each Borrower hereby agrees that, in the event that any
document of a Borrower with Bank is at any time overdrawn, Bank may, in its
sole discretion and without any requirement that any
- 2 -
<PAGE>
Borrower submit a Request for Advance and whether or not any Default or Event
of Default then exists hereunder, make a Prime-based Advance to such Borrower
in the amount necessary to restore such overdrawn account to a positive
balance and to deposit the proceeds of such Prime-based Advance in such
overdrawn account.
If, as to any outstanding Eurodollar-based Advance, Bank shall not
receive a timely Request for Advance in accordance with the foregoing
requesting the refunding of such Advance as a Eurodollar-based Advance,
the principal amount of such Advance which is not then repaid shall be
automatically converted to a Prime-based Advance on the last day of the
Interest Period applicable thereto, subject in all respects to the terms and
conditions of this Note. The foregoing shall not in any way whatsoever limit
or otherwise affect any of Bank's rights or remedies under this Note upon the
occurrence of any Event of Default hereunder, or any condition or event
which, with the giving of notice or the running of time, or both, would
constitute an Event of Default.
Any Borrower may prepay all or part of the outstanding balance of any
Prime-based Advance made to it under this Note at any time. Any Borrower may
prepay all or part of any Eurodollar-based Advance on the last day of the
Interest Period applicable thereto, provided that the amount of any such
partial prepayment shall be at least One Hundred Thousand Dollars ($100,000),
or, if greater, in integral multiples thereof, the aggregate balance of
Eurodollar-based Advances outstanding after such prepayment shall be at least
One Hundred Thousand Dollars ($100,000), and the unpaid portion of such
Eurodollar-based Advance which is refunded or converted shall be subject to
the limitations set forth in this Note. Any prepayment made in accordance
with this paragraph shall be without premium or penalty. Any other prepayment
shall be otherwise restricted by and subject to the terms of this Note.
Subject to the definition of an "Interest Period" hereunder, in the
event that any payment under this Note becomes due and payable on any day
which is not a Business Day, the due date thereof shall be extended to the
next succeeding Business Day, and, to the extent applicable, interest shall
continue to accrue and be payable thereon during such extension at the rates
set forth in this Note.
All payments to be made by Borrower to Bank under or pursuant to this
Note shall be in immediately available funds, without setoff or counterclaim,
and in the event that any payments submitted hereunder are in funds not
available until collected, said payments shall continue to bear interest
until collected. Borrower hereby authorizes Bank to charge any account of
Borrower with Bank for all sums due hereunder when due in accordance with the
terms hereof.
If Borrower makes any payment of principal with respect to any
Eurodollar-based Advance on any day other than the last day of the Interest
Period applicable thereto (whether voluntarily, by acceleration, or
otherwise), or if Borrower fails to borrow any Eurodollar-based Advance after
notice has been given to Bank in accordance with the terms of this Note
requesting such Advance, or if Borrower fails to make any payment of
principal or interest in respect of a Eurodollar-based Advance when due,
Borrowers jointly and severally agree to reimburse Bank on demand for any
resulting loss, cost or expense incurred by Bank as a result thereof,
including, without limitation, any such loss, cost or expense incurred in
obtaining, liquidating, employing or redeploying deposits from third parties,
whether or not Bank shall have
- 3 -
<PAGE>
funded or committed to fund such Advance. Such amount payable by Borrower to
Bank may include, without limitation, an amount equal to the excess, if any,
of (a) the amount of interest which would have accrued on the amount so
prepaid, or not so borrowed, refunded or converted, for the period from the
date of such prepayment or of such failure to borrow, refund or convert,
through the last day of the relevant Interest Period, at the applicable rate
of interest for said Advance(s) provided under this Note, over (b) the amount
of interest (as reasonably determined by Bank) which would have accrued to
Bank on such amount by placing such amount on deposit for a comparable period
with leading banks in the interbank eurodollar market. Calculation of any
amounts payable to Bank under this paragraph shall be made as though Bank
shall have actually funded or committed to fund the relevant Eurodollar-based
Advance through the purchase of an underlying deposit in an amount equal to
the amount of such Advance and having a maturity comparable to the relevant
Interest Period; provided, however, that Bank may fund any Eurodollar-based
Advance in any manner it deems fit and the foregoing assumptions shall be
utilized only for the purpose of the calculation of amounts payable under
this paragraph. Upon the written request of Borrowers, Bank shall deliver to
Borrowers a certificate setting forth the basis for determining such losses,
costs and expenses, which certificate shall be conclusively presumed correct,
absent manifest error.
For any Interest Period for which the Applicable Interest Rate is the
Eurodollar-based Rate, if Bank shall designate a Eurodollar Lending Office
which maintains books separate from those of the rest of Bank, Bank shall
have the option of maintaining and carrying the relevant Eurodollar-based
Advance on the books of such Eurodollar Lending Office.
If, with respect to any Interest Period, Bank determines that, (a) by
reason of circumstances affecting the foreign exchange and interbank markets
generally, deposits in Eurodollars in the applicable amounts or for the
relative maturities are not being offered to Bank for such Interest
Period, or (b) if the rate of interest referred to in the definition of
"Eurodollar-based Rate" upon the basis of which the rate of interest for a
Eurodollar-based Advance is to be determined does not accurately or fairly
cover or reflect the cost to Bank of making or maintaining a Eurodollar-based
Advance hereunder, then Bank shall forthwith give notice thereof to the
Borrower. Thereafter, until Bank notifies Borrowers that such circumstances no
longer exist, the right of Borrowers to request a Eurodollar-based Advance and
to convert an Advance to or refund an Advance as a Eurodollar-based Advance
shall be suspended.
If, after the date hereof, the introduction of, or any change in, any
applicable law, rule or regulation or in the interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by Bank (or its Eurodollar Lending
Office) with any request or directive (whether or not having the force of
law) of any such authority, shall make it unlawful or impossible for the Bank
(or its Eurodollar Lending Office) to make or maintain any Advance with
interest at the Eurodollar-based Rate, Bank shall forthwith give notice
thereof to Borrowers. Thereafter, (a) the right of Borrowers to request a
Eurodollar-based Advance and to convert an Advance to or refund an Advance as
a Eurodollar-based Advance shall be suspended, and thereafter, Borrowers may
select only the Prime-based Rate as the Applicable Interest Rate hereunder,
and (b) if Bank may not lawfully continue to maintain an outstanding Advance
to the end of the then current Interest Period applicable thereto, the
Prime-based Rate shall be the Applicable Interest Rate for the remainder
of such Interest Period with respect to such outstanding Advance.
- 4 -
<PAGE>
If the adoption after the date hereof, or any change after the date
hereof in, any applicable law, rule or regulation of any governmental
authority, central bank or comparable agency charged with the interpretation
or administration thereof, or compliance by Bank (or its Eurodollar Lending
Office) with any request or directive (whether or not having the force of
law) made by any such authority, central bank or comparable agency after the
date hereof:
(a) shall subject Bank (or its Eurodollar Lending Office) to any tax,
duty or other charge with respect to this Note or any Advance
hereunder or shall change the basis of taxation of payments to Bank
(or its Eurodollar Lending Office) of the principal of or interest
on any Advance or any other amounts due under this Note in respect
thereof (except for changes in the rate of tax on the overall net
income of Bank or its Eurodollar Lending Office imposed by the
jurisdiction in which Bank's principal executive office or
Eurodollar Lending Office is located); or
(b) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the
Federal Reserve System), special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by Bank (or its Eurodollar Lending Office) or shall impose
on Bank (or its Eurodollar Lending Office) or the foreign exchange
and interbank markets any other condition affecting any Advance
under this Note;
and the result of any of the foregoing is to increase the cost to Bank of
maintaining any part of the indebtedness hereunder or to reduce the amount of
any sum received or receivable by Bank under this Note by an amount deemed by
the Bank to be material, then Borrowers jointly and severally agree to pay to
Bank, within fifteen (15) days of receipt of written notice from Bank
demanding such compensation, such additional amount or amounts as will
compensate Bank for such increased cost or reduction. The Bank shall use
reasonable efforts to advise Borrowers of any event described in this
paragraph within a reasonable time. A certificate of Bank, prepared in good
faith and in reasonable detail by Bank and submitted by the Bank to the
Borrowers, setting forth the basis for determining such additional amount or
amounts necessary to compensate Bank shall be conclusive and binding for all
purposes, absent manifest error in computation.
In the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect and whether or not
presently applicable to the Bank, or any interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by the Bank with any guideline, request
or directive of any such authority (whether or not having the force of law),
including any risk-based capital guidelines, affects or would affect the
amount of capital required or expected to be maintained by the Bank (or any
corporation controlling the Bank), and the Bank determines that the amount of
such capital or any reserve requirements (including any marginal, special,
supplemental or emergency reserve requirements imposed with respect to any
category of extensions of credit or assets which include "Eurocurrency
Liabilities" as defined in Regulation D of the Federal Reserve System) to
which Bank or its Eurodollar Lending Office is increased by or based upon
the existence of any obligations of the Bank hereunder or the making or
maintaining any Advances hereunder and such increase has the effect of
reducing the rate of
- 5 -
<PAGE>
return on the Bank's (or such controlling corporation's) capital as a
consequence of such obligations or the making or maintaining such Advances
hereunder to a level below that which the Bank (or such controlling
corporation) could have achieved but for such circumstances (taking into
consideration its policies with respect to capital adequacy) by an amount
deemed by the Bank to be material, then the Borrower shall pay to the Bank,
within fifteen (15) days of Borrower's receipt of written notice from Bank
demanding such compensation, additional amounts sufficient to compensate the
Bank (or such controlling corporation) for any increase in the amount of
capital and reduced rate of return which the Bank reasonably determines to be
allocable to the existence of any obligations of the Bank hereunder or to the
making or maintaining any Advances hereunder. A certificate of Bank as to the
amount of such compensation, prepared in good faith and in reasonable detail
by the Bank and submitted by the Bank to the Company, shall be conclusive and
binding for all purposes absent manifest error in computation.
Upon the occurrence and during the continuance of any Event of Default,
Bank may at any time and from time to time, without notice to the Borrower
(any requirement for such notice being expressly waived by the Borrowers), set
off and apply against any and all of the indebtedness of Borrowers to Bank any
and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by Bank to or for
the credit or the account of the Borrower and any property of the Borrower
from time to time in possession of Bank, irrespective of whether or not Bank
shall have made any demand hereunder and although such obligations may be
contingent and unmatured. The rights of Bank under this paragraph are in
addition to other rights and remedies (including, without limitation, other
rights of setoff) which Bank may otherwise have.
Upon the occurrence of any Event of Default, Bank may declare this Note
due forthwith and collect, deal with and dispose of all or any part of any
security in any manner permitted or authorized by the Indiana Uniform
Commercial Code or other applicable law (including public or private sale)
and after deducting expenses (including reasonable attorneys' fees and
expenses), Bank may apply the proceeds and any deposits or credits in part or
full payment of any of said liabilities, whether due or not, in any manner or
order Bank elects.
For the purposes of this Note, the following terms have the following
meanings:
"Advance" means a borrowing requested by Borrower and made by Bank under
this Note, including any refunding or conversions of such borrowing, and
shall include a Eurodollar-based Advance and a Prime-based Advance.
"Applicable Interest Rate" means the Eurodollar-based Rate or the
Prime-based Rate, as selected by Borrower from time to time subject to the
terms and conditions of this Note.
"Business Day" means any day, other than a Saturday, Sunday or holiday,
on which Bank is open for all or substantially all of its domestic and
international business (including dealings in foreign exchange) in Detroit,
Michigan.
"Eurodollar-based Advance" means an Advance which bears interest at the
Eurodollar-based Rate.
- 6 -
<PAGE>
"Eurodollar-based Rate" means a per annum interest rate which is equal
to the sum of one percent (1%), plus the per annum interest rate at which
Bank's Eurodollar Lending Office offers deposits to prime banks in the
eurodollar market in an amount comparable to the relevant Eurodollar-based
Advance and for a period equal to the relevant Interest Period at or about
11:00 a.m. (Detroit, Michigan time) (or as soon thereafter as practical)
two (2) Business Days prior to the first day of such Interest Period.
"Eurodollar Lending Office" means Bank's office located in the Grand
Cayman Islands, British West Indies, or such other branch of Bank, domestic
or foreign, as it may hereafter designate as its Eurodollar Lending Office by
notice to Borrowers.
"Event of Default" means the occurrence of any one of the following:
(a) Borrowers shall fail to pay the principal or interest under any
Advance or shall fail to pay any other amount owing by Borrower
to Bank, whether under this Note or otherwise, when due in
accordance with the terms hereof or thereof;
(b) any representation, warranty, certification or statement made or
deemed to have been made by Borrower herein or in any certificate,
financial statement or other document or agreement delivered to
Bank pursuant hereto shall prove to be untrue in any material
respect;
(c) any Borrower, IPG or Company shall fail to observe or perform any
condition, covenant or agreement of Borrowers, IPG or Company set
forth in the Loan Agreement or any other loan or security agreement
or other agreement with Bank, other than as provided in
subparagraph (a) above, and Borrowers, IPG or Company shall fail to
cure such failure within any grace or cure period provided with
respect thereto;
(d) any Borrower, IPG or Company shall make any assignment for the
benefit of creditors, or there shall be commenced any bankruptcy,
receivership, insolvency, reorganization, dissolution or
liquidation proceedings by or against any Borrower, IPG or Company,
or the entry of any judgment, levy, attachment, garnishment or
other process, or the filing of any lien against any Borrower, IPG
or Company, which proceeding, if involuntary, judgment, levy,
attachment, garnishment or other process shall not be discharged,
dismissed, vacated or otherwise stayed by the relevant Borrower,
IPG or Company within forty-five (45) days after the commencement
or filing thereof, as applicable;
(e) any Borrower, IPG or Company shall have defaulted in the payment
when due and payable (whether at maturity, by reason of
acceleration or otherwise), after the expiration of any applicable
cure period, of the principal of or interest on any indebtedness
for borrowed money, or the maturity of any such indebtedness shall
have been accelerated in accordance with the provisions of any
indenture, contract, agreement or instrument providing for the
creation of or concerning or otherwise governing or evidencing such
indebtedness, or any event or condition shall have occurred and be
continuing which, with the giving of notice or the
- 7 -
<PAGE>
passage of time, or both, would permit any holder or holders
of such indebtedness, any trustee or agent acting on behalf
of such holder or holders, or any other person, to accelerate
the maturity of such indebtedness;
(f) occurrence of any "Event of Default" under the Loan Agreement.
"Interest Period" means a period of 1, 2, 3 or 6 months; as selected
by a Borrower pursuant to the terms of this Note, commencing on the day a
Eurodollar-based Advance is made, provided that:
(a) any Interest Period which would otherwise end on a day which is not
a Business Day shall be extended to the next succeeding Business
Day, except that if the next succeeding Business Day falls in
another calendar month, the Interest Period shall end on the next
preceding Business Day, and when an Interest Period begins on a day
which has no numerically corresponding day in the calendar month
during which such Interest Period is to end, it shall end on the
last Business Day of such calendar month, and
(b) no Interest Period shall extend beyond the maturity date of
this Note.
"IPG" shall mean IPG Holdings LP, a Delaware limited partnership.
"Loan Agreement" shall mean that certain Restated Revolving Credit
Agreement dated May 8, 1998 among IPG, Company and Bank as amended.
"Maturity Date" has the meaning given it in the Loan Agreement.
"Prime-based Advance" shall mean an Advance which bears interest at the
Prime-based Rate.
"Prime Rate" means the per annum interest rate established by Bank at
its prime rate for its borrowers, as such rate may vary from time to time,
which rate is not necessarily the lowest rate on loans made by Bank at any
such time.
"Prime-based Rate" shall mean a per annum interest rate which is equal
to the greater of (i) the Prime Rate; or (ii) the rate of interest equal to
the sum of (a) one percent (1%) and (b) the rate of interest equal to the
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers (the "Overnight
Rates"), as published by the Federal Reserve Bank of New York, or, if the
overnight Rates are not so published for any day, the average of the
quotations for the Overnight Rates received by Bank from three (3) Federal
funds brokers of recognized standing selected by Bank, as the same may be
changed from time to time. Effect shall be given to any change in the
Prime-based Rate as a result of any change in the Prime Rate or Overnight
Rates on the date of any such change in the Prime Rate or Overnight Rates,
as applicable.
"Request for Advance" means a Request for Advance issued by any Borrower
under this Note in the form annexed to this Note as Exhibit "A".
- 8 -
<PAGE>
Capitalized terms used herein and not defined to the contrary have
meanings given them in the Loan Agreement.
Borrowers agree to make all payments to Bank of any and all amounts due
and owing to Bank hereunder, including, without limitation, the payment of
principal and interest on any Advance, on the date provided for such payment,
in United States Dollars in immediately available funds at any the office of
Bank located in the State of Michigan, or such other address as Bank may
notify Borrowers in writing.
No delay or failure of Bank in exercising any right, power or privilege
hereunder shall affect such right, power or privilege, nor shall any single
or partial exercise thereof preclude any further exercise thereof, or the
exercise of any other power, right or privilege. The rights of Bank under
this Agreement are cumulative and not exclusive of any right or remedies
which Bank would otherwise have, whether by other instruments or by law.
This Note had been deemed to have been delivered in Detroit, Michigan,
and shall be governed by and construed and enforced in accordance with the
laws of the State of Michigan. Whenever possible each provision of this Note
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Note shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Note.
BORROWER AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT
TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS
HEREUNDER.
THE BORROWERS ACKNOWLEDGE THAT ANY APPROVAL OR EXTENSION OF CREDIT
PURSUANT TO THIS NOTE IS EXTENDED BY THE BANK FROM ITS PRINCIPAL OFFICE IN
DETROIT, MICHIGAN.
[Signature page follows]
- 9 -
<PAGE>
AMERICAN TAPE CO.
By: /s/ Cliff Adamson
-----------------------------------
Its: Controller
-----------------------------------
INTERTAPE POLYMER CORP.
By: /s/ S. Vitale
-----------------------------------
Its: V.P. Finance
-----------------------------------
ANCHOR CONTINENTAL, INC.
By: /s/ S. Vitale
-----------------------------------
Its: V.P. Finance
-----------------------------------
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<PAGE>
EXHIBIT "A"
REQUEST FOR ADVANCE
-------------------
The undersigned hereby requests COMERICA BANK ("Bank") to make a(an)
___________________________* Advance to the undersigned on ___________________,
____, in the amount of ________________________________ Dollars ($______) under
the Promissory Note dated as of January ___, 1999, issued by the undersigned to
said Bank in the face amount of Ten Million Dollars ($10,000,000) (herein
called "Note"). The Interest Period for the requested Advance, if applicable,
shall be __________________________**. The last day of the Interest Period for
the amount being converted or refunded hereunder, if applicable, is
_________________________, 19___.
The undersigned certifies that no Event of Default, or any condition or
event which, with the giving of notice or the running of time, or both, would
constitute an Event of Default, has occurred and is continuing under the
Note, and none will exist upon the making of the Advance requested hereunder.
The undersigned further certifies that upon advancing the sum requested
hereunder, the aggregate principal amount outstanding under the Note will not
exceed the face amount thereof. If the amount advanced to the undersigned
under the Note shall at any time exceed the face amount thereof, the
undersigned will pay such excess amount on demand.
The undersigned hereby authorizes said Bank to disburse the proceeds of
this Request for Advance by crediting the account of the undersigned with
Bank separately designated by the undersigned or as the undersigned may
otherwise direct, unless this Request for Advance is being submitted for a
conversion or refunding, in which case it shall refund or convert that
portion stated above of the existing outstandings under the Note.
Dated this ______ day of ____________________________, ________.
*** __________________________________
By: ___________________________________
Its: __________________________________
- ---------------------
* Insert Eurodollar-based or Prime-based Advance.
** Insert one 1, 2, 3 or 6 months.
*** Insert "American Tape Co.", "Intertape Polymer Corp.", or "Anchor
Continental, Inc."
-11-
<PAGE>
STOCK PURCHASE AGREEMENT
BY AND AMONG
INTERTAPE POLYMER GROUP INC.,
COATING TECHNOLOGIES INTERNATIONAL, INC.
AND
ANCHOR CONTINENTAL HOLDINGS, INC.
DATED AS OF AUGUST 19, 1998
<PAGE>
TABLE OF CONTENTS
Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purchase and Sale. . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Time and Place of Closing. . . . . . . . . . . . . . . . . . . . 2
1.3 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Purchase Price Payment; Closing Consolidated Stockholders'
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Funded Indebtedness. . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER AND CTI . . . . . . . . 7
2.1 Organization, Standing, and Power. . . . . . . . . . . . . . . . 7
2.2 Authority of Seller and CTI; No Breach By Agreement. . . . . . . 7
2.3 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.4 Target Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 9
2.6 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . 9
2.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . 10
2.8 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.9 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.10 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . 12
2.11 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.12 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . 12
2.13 Labor Relations. . . . . . . . . . . . . . . . . . . . . . . . . 13
2.14 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . 13
2.15 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . 15
2.16 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 16
2.17 Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . 16
2.18 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.19 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . 16
2.20 Substantial Customers and Suppliers. . . . . . . . . . . . . . . 16
2.21 Accounting Practices . . . . . . . . . . . . . . . . . . . . . . 17
2.22 Corporate Name . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.23 Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.24 Air Quality. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.25 No Other Representations or Warranties . . . . . . . . . . . . . 17
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . . 18
3.1 Organization, Standing, and Power. . . . . . . . . . . . . . . . 18
3.2 Authority; No Breach By Agreement. . . . . . . . . . . . . . . . 18
3.3 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 19
3.4 Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . 19
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<PAGE>
3.5 Investment Intent. . . . . . . . . . . . . . . . . . . . . . . . 19
3.6 No Other Representations or Warranties . . . . . . . . . . . . . 19
ARTICLE 4 CONDUCT OF BUSINESS PENDING CONSUMMATION . . . . . . . . . . . . 19
4.1 Affirmative Covenants With Respect to Target . . . . . . . . . . 19
4.2 Negative Covenants With Respect to Target. . . . . . . . . . . . 20
4.3 Covenants of Buyer . . . . . . . . . . . . . . . . . . . . . . . 22
4.4 Adverse Changes in Condition . . . . . . . . . . . . . . . . . . 22
ARTICLE 5 ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . 23
5.1 Applications; Antitrust Notification . . . . . . . . . . . . . . 23
5.2 Agreement as to Efforts to Consummate. . . . . . . . . . . . . . 23
5.3 No Solicitation of Offers. . . . . . . . . . . . . . . . . . . . 23
5.4 Investigation and Confidentiality. . . . . . . . . . . . . . . . 24
5.5 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.6 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.7 Employee Benefits and Contracts. . . . . . . . . . . . . . . . . 25
5.8 PostClosing Access By Seller and CTI . . . . . . . . . . . . . . 26
5.9 Office Space and Equipment for Seller and CTI. . . . . . . . . . 26
5.10 Resignation of Directors . . . . . . . . . . . . . . . . . . . . 27
5.11 NonCompetition . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.12 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE. . . . . . . . 31
6.1 Conditions to Obligations of Each Party. . . . . . . . . . . . . 31
6.2 Conditions to Obligations of Buyer . . . . . . . . . . . . . . . 32
6.3 Conditions to Obligations of CTI and Seller. . . . . . . . . . . 33
ARTICLE 7 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 34
7.1 Agreements to Indemnify. . . . . . . . . . . . . . . . . . . . . 34
7.2 Procedures for Indemnification . . . . . . . . . . . . . . . . . 36
7.3 Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . 37
7.4 Indemnification Exclusive Remedy . . . . . . . . . . . . . . . . 38
7.5 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.6 Time Limitations . . . . . . . . . . . . . . . . . . . . . . . . 38
7.7 Limitations as to Amount . . . . . . . . . . . . . . . . . . . . 39
7.8 Tax Effect and Insurance . . . . . . . . . . . . . . . . . . . . 39
7.9 Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.10 Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.11 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 8 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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<PAGE>
8.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 9 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.3 Brokers and Finders. . . . . . . . . . . . . . . . . . . . . . . 49
9.4 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . 49
9.5 No Third Party Beneficiary . . . . . . . . . . . . . . . . . . . 50
9.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 50
9.7 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.8 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.10 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.11 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.13 Captions; Articles and Sections. . . . . . . . . . . . . . . . . 52
9.14 Interpretations. . . . . . . . . . . . . . . . . . . . . . . . . 52
9.15 Enforcement of Agreement . . . . . . . . . . . . . . . . . . . . 52
9.16 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.17 Updating Target Disclosure Memorandum. . . . . . . . . . . . . . 53
9.18 NonCompetition Agreements. . . . . . . . . . . . . . . . . . . . 53
-iii-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of August 19, 1998, by and among INTERTAPE POLYMER GROUP INC. ("Buyer"), a
Canadian corporation; COATING TECHNOLOGIES INTERNATIONAL, INC., a Delaware
corporation ("CTI"); and ANCHOR CONTINENTAL HOLDINGS, INC. ("Seller"), a
Delaware corporation.
PREAMBLE
CTI is the record and beneficial owner of all of the issued and
outstanding shares of Common Stock of Seller, and Seller is the record and
beneficial owner of all of the issued and outstanding shares of Common Stock of
Anchor Continental, Inc. ("Anchor Continental"), a Delaware corporation (the
shares of Anchor Continental referred to herein as the "Shares"). Anchor
Continental is the record and beneficial owner of all of the issued and
outstanding shares of Common Stock of Anchor Continental (Canada), Inc. ("Anchor
Canada"), a company organized under the laws of the Province of Ontario (the
"Anchor Canada Shares"). Seller desires to sell all of the Shares to Buyer, and
Buyer desires to purchase the Shares from Seller, upon the terms and subject to
the conditions set forth in this Agreement. The transactions described in this
Agreement are subject to the expiration of the required waiting period under the
HSR Act, and the satisfaction of certain other conditions described in this
Agreement. Unless referred to individually, Anchor Canada and Anchor
Continental are collectively referred to as "Target".
Certain terms used in this Agreement are defined in Section 9.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the parties agree
as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 PURCHASE AND SALE. Upon the terms and subject to the conditions of
this Agreement:
(a) Seller shall sell to Buyer, and Buyer shall purchase from
Seller, the Shares at the Closing (such transaction referred to herein as the
"Stock Purchase").
(b) Buyer shall acquire from CTI the intercompany indebtedness
owed by Anchor Canada to CTI as of the Closing, such amount being approximately
$2,000,000 as of the date of this Agreement, for the amount of such indebtedness
due at the Closing Date and Buyer shall pay such amount to CTI at the Closing.
<PAGE>
(c) The aggregate purchase price for the Shares and the agreement
set forth in Section 5.11 (the "Purchase Price") is One Hundred Five Million
United States Dollars (U.S. $105,000,000) in cash less (i) the intercompany
indebtedness owed by Anchor Canada to CTI as described in Section 1.1(b) and
(ii) the consideration to be paid to D. Thomas Divird and Daniel E. Stansky for
the non-competition agreements described in Section 9.18 below. The Purchase
Price, which shall be subject to adjustment as provided in Section 1.4 below,
shall be paid as provided in Section 1.2(b).
1.2 TIME AND PLACE OF CLOSING.
(a) The closing of the transactions contemplated hereby (the
"Closing") will take place at 9:00 a.m. Eastern Standard Time, on the Closing
Date (defined below), or at such other time as the Parties, acting through their
authorized officers, may mutually agree. The Closing shall be held at the law
offices of Morgan, Lewis & Bockius LLP located at 101 Park Avenue, New York, New
York 10178 or such location as may be mutually agreed upon by the Parties. The
Parties shall use their reasonable efforts to cause the Closing to occur on the
first business day following the later to occur of (i) the effective date
(including expiration of any applicable waiting period) of the last required
Consent of any Regulatory Authority having authority over and approving or
exempting the Stock Purchase and (ii) after all the remaining conditions set
forth in Article 6 are satisfied or waived (such day referred to herein as the
"Closing Date").
(b) At the Closing:
(i) Buyer shall deliver (v) to each of D. Thomas Divird and
Daniel E. Stansky, the consideration for the non-competition agreements
described in Section 9.18 below, (w) to CTI, prior to 1:00 p.m. Eastern
Standard Time, immediately available funds by wire transfer to an account
specified by CTI in the amount required to acquire the principal and
accrued and unpaid interest on the intercompany indebtedness described in
Section 1.1(b), (x) to Seller, prior to 1:00 p.m. Eastern Standard Time,
immediately available funds by wire transfer to an account specified by
Seller in an amount equal to the Purchase Price MINUS the Escrow Amount
(described below), (y) to Seller the opinion, certificates and other
documents set forth in Section 6.3, (z) to SunTrust Bank, Atlanta, a
Georgia banking corporation (the "Escrow Agent"), prior to 1:00 p.m.
Eastern Standard Time, in immediately available funds by wire transfer to
the escrow account established pursuant to the Escrow Agreement (defined
below) an amount equal to the Escrow Amount. For purposes of this
Agreement, the Escrow Amount shall mean $5,250,000 LESS any amount that
CTI is required, pursuant to an agreement involving the recent sale of its
former subsidiary, The Holliston-Mills, Inc., to place in an escrow or a
letter of credit (with a maximum dollar amount of $3,500,000) for
potential consolidated federal and state income Taxes for periods prior to
Closing (the "Tax Escrow Amount"); and
(ii) CTI and Seller shall deliver to Buyer (v) the
certificate or certificates representing the Shares, either duly endorsed
for transfer to Buyer or accompanied by
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<PAGE>
appropriate stock powers, (w) the promissory note evidencing the
intercompany debt described in Section 1.1(b) duly endorsed for
transfer to Buyer or accompanied by an appropriate note power, (x) the
opinion, certificates and other documents set forth in Section 6.2, (y)
resignations from each member of Target's Board of Directors, and (z)
sufficient evidence to reasonably satisfy Buyer that CTI and Seller
have paid the Tax Escrow Amount to an escrow agent or established a
letter of credit for such amount.
1.3 ESCROW AGREEMENT. In connection with the Closing, Buyer, Seller and
CTI shall have executed and delivered to the other an escrow agreement (the
"Escrow Agreement"), which shall be in the form of Exhibit 1.3.
1.4 PURCHASE PRICE PAYMENT; CLOSING CONSOLIDATED STOCKHOLDERS' EQUITY.
(a) At the Closing, Buyer shall pay to Seller the Purchase
Price. The Purchase Price shall be subject to post-Closing adjustment as
provided in subsection (b) below. Payment of the Purchase Price and any
post-Closing adjustments thereto in favor of Seller shall be made by Buyer on
the due date therefor by wire transfer of immediately available funds to
accounts designated in writing by Seller. Payment of any post-Closing
adjustment to the Purchase Price in favor of Buyer shall be made on the due
date therefor by Seller to Buyer by wire transfer of immediately available
funds to an account designated in writing by Buyer.
(b) The Purchase Price shall be adjusted up or down after the
Closing based on the difference, if any, between the "Estimated Consolidated
Stockholders' Equity" of Target and the actual Consolidated Stockholders' Equity
of Target, in each instance as of the Closing Date.
(i) The Estimated Consolidated Stockholders' Equity will be
calculated using $6,795,000 as the base, such amount being the Estimated
Consolidated Stockholders' Equity as at August 29, 1998. If the Closing
occurs on or before September 6, 1998, the Estimated Consolidated
Stockholders' Equity will be $6,795,000. For each day after September 6,
1998 up to and including September 27, 1998 that the Closing does not
occur, the Estimated Consolidated Stockholders' Equity will be increased
by $8,571. For each day after September 27, 1998 up to and including
October 3, 1998 that the Closing does not occur, the Estimated
Consolidated Stockholders' Equity will be increased by $17,143. No
further increases will occur through October 10, 1998. For each day after
October 10, 1998 up to and including October 31, 1998 that the Closing
does not occur, the Estimated Consolidated Stockholders' Equity will be
increased by $8,571. For each day after October 31, 1998 up to and
including November 7, 1998 that the Closing does not occur, the Estimated
Consolidated Stockholders' Equity will be increased by $17,143. Further
increases in the Estimated Consolidated Stockholders' Equity will be based
on repeating 28 day cycles: nil for the first seven days, $8,571 per day
for each of the next 14 days and $17,143 for each of the final seven days
of the 28 day cycle.
-3-
<PAGE>
(ii)(a) Promptly following the Closing Date, Buyer shall
cause Target to fully cooperate with Seller in the preparation of a
balance sheet of the Target Entities as of the Closing Date (the
"Closing Balance Sheet"). For purpose of the Closing Balance Sheet (and
notwithstanding the provisions of Section 1.5 of this Agreement) Funded
Indebtedness shall not be eliminated but shall be reflected on the
Closing Balance Sheet. Seller shall engage PricewaterhouseCoopers
("Seller's Accountants") to audit the Closing Balance Sheet, at
Seller's sole expense. Seller shall instruct Seller's Accountants to
prepare the Closing Date Financial Statements (defined below) in
accordance with GAAP on a basis consistent with previous years and to
audit the Closing Balance Sheet and related statement of income and
stockholders' equity in accordance with U.S. generally accepted
auditing standards. Seller shall prepare all letters and reports
reasonably requested by Seller's Accountants in connection with the
preparation of the Closing Date Financial Statements. During the
course of the audit, Seller shall instruct Seller's Accountants to keep
Ernst & Young LLP ("Buyer's Accountants") regularly informed as to
progress and to make available to Buyer's Accountants the working
papers of Seller's Accountants, subject to such customary requirements
as Seller's Accountants may impose with respect to access to its
working papers. As soon as practicable, but no later than 60 days
after the Closing, Seller shall cause Seller's Accountants to deliver
to Buyer the draft audited Closing Balance Sheet, related statements of
income and stockholders' equity, together with the draft opinion
thereon of Seller's Accountants (all such documents, collectively the
"Closing Date Financial Statements"). Target's actual Consolidated
Stockholders' Equity as indicated in the draft audited Closing Balance
Sheet shall become final and binding on the Parties on the thirtieth
(30th) day following delivery thereof to Buyer unless Seller or CTI, on
the one hand, or Buyer, on the other hand, gives written notice to the
other of its dispute thereof (a "Notice of Disagreement"). Any Notice
of Disagreement shall specify in reasonable detail the nature of any
disagreement so asserted. If a timely Notice of Disagreement is
delivered by Buyer, on the one hand, or Seller or CTI, on the other
hand, as the case may be, to the other, then the draft audited Closing
Balance Sheet shall become final and binding on the Parties on the
earlier of: (1) the date Buyer, on the one hand, and Seller or CTI, on
the other hand, resolve in writing any differences they have with
respect to any matter specified in a Notice of Disagreement; and (2)
the date any matters properly in dispute are finally resolved by the
Settlement Accountants (as defined below). Whichever Party delivers a
Notice of Disagreement, the other Party and its accountants shall be
entitled to review the Notice of Disagreement and the other Party's
accountants' working papers relating thereto. During the thirty (30)
days immediately following the delivery of any Notice of Disagreement,
the Parties shall in good faith seek to resolve in writing any
differences which they may have with respect to any matter specified in
such Notice of Disagreement. In the event any Party proposes any
adjustments during such thirty (30) day period, all Parties shall use
their reasonable efforts to resolve by written agreement (the "Agreed
Adjustments") any differences and, in the event and to the extent the
Parties so resolve any such differences, then such difference so
resolved shall be final and binding on the Parties, and, if all such
differences are resolved by Agreed Adjustments, the amount of actual
Consolidated Stockholders' Equity at the Closing Date thereby
determined shall be final and binding on
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the Parties. At the end of such 30-day period, either Seller or CTI,
on the one hand, or Buyer, on the other hand, may submit to the
Settlement Accountants for resolution any and all matters which remain
in dispute and which were included in any Notice of Disagreement, and
instruct the Settlement Accountants to review and resolve (in
accordance with GAAP and this Agreement) all matters which remain in
dispute. The resolution of any such disputed matters by the Settlement
Accountants shall be final and binding on the Parties. The Settlement
Accountants' resolution of any matters in dispute, shall become final
and binding on the Parties on the date the Settlement Accountants
deliver their final resolution to the Parties or the date on which
Buyer, on the one hand, and Seller and CTI, on the other hand, agree in
writing on the resolution of any remaining unresolved matters. As used
herein, the term "Settlement Accountants" shall mean a nationally
recognized firm of independent certified accountants (who have not
performed services for any of the Parties or their respective
Affiliates within the last five (5) years), selected by mutual
agreement of Seller and CTI, on the one hand, and Buyer, on the other
hand. The costs and expenses of the Settlement Accountants shall be
borne 50% by Buyer and 50% by Seller and CTI.
(ii)(b) The actual Consolidated Stockholders' Equity as of
the Closing Date shall be the shareholders' consolidated equity reflected
on the draft audited Closing Balance Sheet, adjusted as follows:
(1) downward by the amount that provisions for return on
gross asset bonus plans falls below $661,000;
(2) upward in the amount that the combined net state and
federal income tax provision exceeds $605,422, or
downwards in the amount that the combined net state and
federal income tax provision is less than $605,422;
(3) downward for any reduction in the total of the bad debt
reserves, vacation accruals, medical accruals,
obsolete/slow moving inventory provisions and impaired
asset reserves (which aggregate reserves are estimated
to be $2,593,000) to the extent such reduction exceeds
the total inventory revaluation adjustment required
after August 1, 1998; and
(4) downward for any business interruption claims
receivable.
(iii) In the event the actual Consolidated Stockholders'
Equity, as finally determined, is greater than the Estimated Consolidated
Stockholders' Equity, Buyer shall pay Seller the difference. In the event
the amount of the actual Consolidated Stockholders' Equity, as finally
determined, is less than the Estimated Consolidated Stockholders' Equity,
Seller shall pay the difference to Buyer. Any payments owing under this
clause (iii) shall be due and payable three (3) Business Days after the
actual Consolidated Stockholders'
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Equity has been finally determined in accordance with the procedures
outlined in clauses (i) and (ii) above and shall include interest
thereon at the Prime Rate as reported on the Closing Date for the
period of time beginning with the day after the Closing Date and ending
on the payment date.
(iv) In addition, Buyer shall pay to Seller immediately upon
receipt by Anchor Continental any net proceeds with respect to Anchor
Continental's business interruption insurance and the lightening strike
referred to in Section 2.7 of the Target Disclosure Memorandum. Seller
shall retain the complete authority to negotiate, collect and settle such
insurance claim. Buyer agrees to cooperate in good faith with Seller in
Seller's negotiations, collection efforts and settlement of any such
claim.
1.5 FUNDED INDEBTEDNESS.
(a) On the Closing Date, CTI or Seller shall deliver to the
holders of Funded Indebtedness an amount sufficient to repay all Funded
Indebtedness outstanding as of the Closing Date, or otherwise eliminate such
Funded Indebtedness, provided any action taken by CTI or Seller to eliminate
such Funded Indebtedness shall be reasonably acceptable to Buyer, with the
result that immediately following Closing, there will be no further monetary
obligations of Target with respect to any Funded Indebtedness outstanding
immediately prior to the Closing, and provided further, that neither Seller nor
CTI shall pay the indebtedness referred to in Section 1.1(b). Seller and CTI
may direct Buyer to direct part of the Purchase Price to repay such Funded
Indebtedness, with a concomitant reduction in the Purchase Price to be received
by Seller.
(b) In the event Funded Indebtedness reflected on the audited
Closing Balance Sheet exceeds $31,024,000 (which amount is the sum of a
revolving loan of $1,049,000, a term loan of $5,549,000, an Anchor Continental
note payable to CTI in the amount of $22,494,000 and an Anchor Canada note
payable to CTI in the amount of $1,932,000), Buyer will pay to Seller an amount
equal to the difference between such amount and the actual amount of Funded
Indebtedness (as reflected on the audited Closing Balance Sheet). Similarly, in
the event Funded Indebtedness reflected on the audited Closing Balance Sheet is
less than $31,024,000, Seller will pay to Buyer an amount equal to the
difference between such amount and the actual amount of Funded Indebtedness (as
reflected on the audited Closing Balance Sheet).
(c) Buyer agrees to, and will, reimburse Seller dollar for dollar
for all capital expenditure disbursements made by Target during the period
commencing on August 17, 1998 and continuing through the date immediately
preceding the Closing Date, which disbursements are actually cleared by Target's
banks during such period.
(d) Payments under (b) and (c) above will be paid at Closing or
within two (2) working days following the Closing.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER AND CTI
Seller and CTI, jointly and severally, represent and warrant to Buyer as
follows:
2.1 ORGANIZATION, STANDING, AND POWER. Anchor Continental is a
corporation duly organized, validly existing, and in good standing under the
Laws of the State of Delaware and Anchor Canada is duly incorporated and validly
existing under the laws of the Province of Ontario, and each Target has the
corporate power and authority to carry on its business as now conducted and to
own, lease and operate its material Assets. Each Target is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Target Material Adverse Effect. The minute books and other
organizational documents for each Target have been made available to Buyer for
its review and, except as disclosed in Section 2.1 of the Target Disclosure
Memorandum, are correct and complete in all material respects as in effect as of
the date of this Agreement.
2.2 AUTHORITY OF SELLER AND CTI; NO BREACH BY AGREEMENT.
(a) Each of Seller and CTI has the right, power, authority, and
capacity to execute and deliver this Agreement and Seller's Closing Documents,
as applicable, and to perform its obligations under this Agreement and Seller's
Closing Documents and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance by each of Seller and CTI of
this Agreement and, except for the CTI shareholder approval referenced below,
Seller's Closing Documents, and the consummation by each of Seller and CTI of
the transactions contemplated hereby and thereby have been duly and validly
approved by each of Seller and CTI and, except for the CTI shareholder approval
referenced below, no other action on the part of either Seller or CTI is
necessary to authorize the execution, delivery and performance of this Agreement
and Seller's Closing Documents and the consummation of the transactions
contemplated hereby and thereby. This Agreement has been duly executed and
delivered by each of Seller and CTI and represents a legal, valid, and binding
obligation of each of Seller and CTI, enforceable against each of Seller and CTI
in accordance with its terms (except in all cases as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought). Subject to CTI
shareholder approval, upon the execution and delivery by CTI and Seller of
Seller's Closing Documents, Seller's Closing Documents will constitute the
legal, valid, and binding obligations of CTI and Seller, enforceable against CTI
and Seller, as applicable, in accordance with their respective terms.
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(b) Neither the execution and delivery of this Agreement by CTI or
Seller, nor the consummation by CTI or Seller of the transactions contemplated
hereby, nor compliance by Seller and CTI with any of the provisions hereof, will
(i) conflict with or result in a breach of any provision of Target's Certificate
of Incorporation or Bylaws or the certificate or articles of incorporation or
bylaws of any Target Subsidiary or the governing instruments of Seller or CTI,
or (ii) except as disclosed in Section 2.2 of the Target Disclosure Memorandum,
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of any Target Entity under, any
Contract or Permit of any Target Entity, where such Default or Lien, or any
failure to obtain such Consent, is reasonably likely to have, individually or in
the aggregate, a Target Material Adverse Effect, or (iii) subject to receipt of
the requisite Consents referred to in Section 6.1(b), violate any Law or Order
applicable to Seller, CTI or to any Target Entity or any of their respective
material Assets.
(c) Other than notices to or filings with the Internal Revenue
Service with respect to any employee benefit plans, or under the HSR Act, and
other than Consents, filings, or notifications which, if not obtained or made,
are not reasonably likely to have, individually or in the aggregate, a Target
Material Adverse Effect, no notice to, filing with, or Consent of, any public
body or authority is necessary for the consummation by CTI or Seller of the
transactions contemplated in this Agreement.
2.3 CAPITAL STOCK.
(a) The authorized capital stock of Anchor Continental consists of
1,500 shares of Common Stock, of which 1,010 shares are issued and outstanding
as of the date of this Agreement and not more than 1,010 shares will be issued
and outstanding on the Closing Date. The authorized capital stock of Anchor
Canada consists of an unlimited amount of shares of Common Stock, of which
426 shares are issued and outstanding as of the date of this Agreement and not
more than 426 shares will be issued and outstanding on the Closing Date. All of
the issued and outstanding shares of capital stock of Target are duly and
validly issued and outstanding and are fully paid and nonassessable under, the
DGCL in the case of Anchor Continental and the laws of the Province of Ontario,
in the case of Anchor Canada. None of the outstanding shares of capital stock
of Target has been issued in violation of any preemptive rights of the current
or past stockholders of Target.
(b) Except for the Shares and the Anchor Canada Shares, there are
no shares of capital stock or other equity securities of Target outstanding and
no outstanding Equity Rights relating to the capital stock of Target. Seller is
the owner of all right, title and interest (legal and beneficial) in and to the
Shares free and clear of all Liens other than Funded Indebtedness. The Shares
represent all of the issued and outstanding shares of Anchor Continental's
capital stock. Except as specifically contemplated by this Agreement, no Person
has any Contract or any right or privilege (whether pre-emptive or contractual)
capable of becoming a Contract for the purchase from Seller of any of the
Shares, or any Contract or Equity Right for the purchase, subscription or
issuance of any securities of Target.
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2.4 TARGET SUBSIDIARIES. Target has disclosed in Section 2.4 of the
Target Disclosure Memorandum all of the Target Subsidiaries (identifying its
jurisdiction of incorporation, each jurisdiction in which it is qualified and/or
licensed to transact business, and the number of shares owned and percentage
ownership interest represented by such share ownership). Anchor Continental
owns all of the issued and outstanding shares of capital stock (or other equity
interests) of each Target Subsidiary. No capital stock (or other equity
interest) of any Target Subsidiary is or may become required to be issued (other
than to another Target Entity) by reason of any Equity Rights, and there are no
Contracts by which any Target Subsidiary is bound to issue (other than to
another Target Entity) additional shares of its capital stock (or other equity
interests) or Equity Rights or by which any Target Entity is or may be bound to
transfer any shares of the capital stock (or other equity interests) of any
Target Subsidiary. There are no Contracts relating to the rights of any Target
Entity to vote or to dispose of any shares of the capital stock (or other equity
interests) of any Target Subsidiary. All of the shares of capital stock (or
other equity interests) of each Target Subsidiary held by a Target Entity are
fully paid and nonassessable and are owned by the Target Entity free and clear
of any Lien. Except as disclosed in Section 2.4 of the Target Disclosure
Memorandum, each Target Subsidiary is a corporation, and each such Subsidiary is
duly organized, validly existing, and in good standing under the Laws of the
jurisdiction in which it is incorporated or organized, and has the corporate
power and authority necessary for it to own, lease, and operate its material
Assets and to carry on its business as now conducted. Each Target Subsidiary is
duly qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or condct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Target Material Adverse Effect. The minute book and other
organizational documents for each Target Subsidiary have been made available to
Buyer for its review, and, except as disclosed in Section 2.4 of the Target
Disclosure Memorandum, are correct and complete in all material respects as in
effect as of the date of this Agreement.
2.5 FINANCIAL STATEMENTS. Prior to the execution of this Agreement, CTI
or Seller has delivered to Buyer complete and correct copies of the Target
Financial Statements. All such Target Financial Statements are complete and
correct in all material respects and were (i) prepared from the books of account
or other financial records of Target and the Target Subsidiaries, (ii) prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements),
and (iii) fairly present in all material respects the consolidated financial
position of Target and its Subsidiaries as at the respective dates and the
consolidated results of operations and cash flows for the periods indicated,
except that the interim consolidated financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount or effect and do not have any footnote disclosures.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in Section
2.6 of the Target Disclosure Memorandum, no Target Entity has any Liabilities
that are reasonably likely to have, individually or in the aggregate, a Target
Material Adverse Effect, except Liabilities which are
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accrued or reserved against in the consolidated balance sheets of Target as of
September 27, 1997 and June 30, 1998, included in the Target Financial
Statements delivered prior to the date of this Agreement or reflected
specifically in the notes thereto. No Target Entity has incurred or paid any
Liability since June 30, 1998, except for (i) Liabilities incurred or paid in
the ordinary course of business consistent with past practice, (ii)
Liabilities that in the aggregate would not have a Target Material Adverse
Effect or (iii) Liabilities in connection with the transactions contemplated
by this Agreement.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1998, except
as disclosed in the Target Financial Statements delivered prior to the date of
this Agreement or as disclosed in Section 2.7 of the Target Disclosure
Memorandum, (i) the Target Entities have been operated in the ordinary course of
business consistent with past practice, (ii) there have been no events, changes,
or occurrences which have had, or are reasonably likely to have, individually or
in the aggregate, a Target Material Adverse Effect, and (iii) the Target
Entities have not taken any action, or failed to take any action, prior to the
date of this Agreement, which action or failure, if taken after the date of this
Agreement, would represent or result in a material breach or violation of any of
the covenants and agreements of Target provided in Article 4.
2.8 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of any of
the Target Entities or any affiliated, combined, consolidated, unitary or
similar group of which any of the Target Entities is or was a member (a
"Relevant Group") have been timely filed or requests for extensions have been
timely filed, granted, and have not expired, except to the extent that all such
failures to file, taken together, are not reasonably likely to have a Target
Material Adverse Effect. All Tax Returns filed are complete and accurate in all
material respects. All Taxes due and owing by any of the Target Entities or by
any member of a Relevant Group (whether or not shown on filed Tax Returns) have
been paid. As of the date of this Agreement, there is no audit examination,
deficiency, or refund Litigation with respect to any Taxes and, to the Knowledge
of Target or any chief tax officer or tax director of any Target Entity, there
is no dispute or claim concerning any Tax Liability of any of the Target
Entities claimed or raised by any taxing authority, except as disclosed in
Section 2.8 of the Target Disclosure Memorandum. The three year statute of
limitations on assessment and collection of federal income taxes has expired
with respect to the fiscal year ended on October 1, 1994 and all prior fiscal
years. All Taxes and other Liabilities due with respect to completed and
settled examinations or concluded Litigation have been paid. There are no Liens
with respect to Taxes upon any of the Assets of the Target Entities.
(b) Except as otherwise disclosed in Section 2.8 of the Target
Disclosure Memorandum, none of the Target Entities has executed an extension or
waiver of any statute of limitations on the assessment or collection of any Tax
due that is currently in effect.
(c) The provision for any Taxes due or to become due for any of
the Target Entities (as opposed to any reserve for deferred Taxes established to
reflect differences between book
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and Tax income) for the period or periods through and including the date of
the respective Target Financial Statements that has been made and is
reflected on such Target Financial Statements is sufficient to cover all such
Taxes in all material respects. As of the Closing Date, such provisions, as
adjusted for the passage of time, will be sufficient for the then-unpaid
Taxes of each such Target Entity.
(d) Each of the Target Entities is in compliance with, and its
records contain all information and documents (including properly completed IRS
Forms W-9) necessary to comply with, all applicable information reporting and
Tax withholding requirements (including, without limitation, in connection with
amounts paid or owing to any employee, creditor, independent contractor or other
third party) under federal, state, and local Tax Laws, and such records identify
with specificity all accounts subject to backup withholding under Section 3406
of the Code.
(e) Except as disclosed in Section 2.8 of the Target Disclosure
Memorandum, none of the Target Entities has made any payments, is obligated to
make any payments, or is a party to any Contract that could obligate it to make
any payments that would be disallowed as a deduction under Section 280G or
162(m) of the Code.
(f) Except as disclosed in Section 2.8 of the Target Disclosure
Memorandum none of the Target Entities (i) is a party to or is bound by any
obligations under any tax sharing, tax indemnity or similar agreement or
arrangement, (ii) has agreed to, is required to make, or reasonably expects that
it might have to make, any adjustment under section 481 of the Code (or any
comparable provision of state, local or foreign law) by reason of a change in
accounting method or otherwise, (iii) is a party to any joint venture,
partnership or other arrangement that is treated as a partnership for federal
income Tax purposes, (iv) has ever been a member of any Relevant Group for any
Tax purpose, other than the U.S. federal consolidated group of which Seller or
CTI is the parent, (v) is a "United States real property holding company" within
the meaning of Section 897 of the Code, (vi) is a "consenting corporation"
within the meaning of Section 341(f)(1) of the Code, or comparable provisions of
any state or local statutes, and none of the assets of any such Target Entity is
subject to an election under section 341(f) of the Code or comparable provisions
of any state or local statutes, or (vii) has any liability for Taxes of any
Person other than a Target Entity (W) under Section 1.1502-6 of the U.S.
Treasury Regulations (or any similar provision of state, local or foreign law),
(X) as a transferee or successor, (Y) by contract or (Z) otherwise.
2.9 ASSETS.
(a) Except as disclosed in Section 2.9 of the Target Disclosure
Memorandum or as disclosed or reserved against in the Target Financial
Statements, the Target Entities have good and marketable title, free and clear
of all Liens, to all of their respective Assets, except for any such Liens or
other defects of title which are not reasonably likely to have a Target Material
Adverse Effect. All tangible properties material to the businesses of the
Target Entities are in good condition, reasonable wear and tear excepted, and
are usable in the ordinary course of business consistent with Target's past
practices.
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(b) All Assets which are material to Target's business on a
consolidated basis, held under leases or subleases by any of the Target
Entities, are held under valid Contracts enforceable in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought), and
each such Contract is in full force and effect.
2.10 INTELLECTUAL PROPERTY. To the Knowledge of Target, each Target
Entity was or has valid and subsisting rights to use all of the Intellectual
Property used by such Target Entity in the course of its business. No Target
Entity is in, and the consummation of the transactions contemplated therein will
not result in, a Default under any of its Intellectual Property licenses.
Section 2.10 of the Target Disclosure Memorandum sets forth all registrations
and applications with respect to such Intellectual Property and each such
Intellectual Property license (other than "shrink-wrap" software licenses). All
of the registrations and applications set forth in Section 2.10 of the Target
Disclosure Memorandum are valid and in full force and effect and all necessary
registration, maintenance and renewal fees in connection therewith have been
made and all necessary documents and certificates in connection therewith have
been filed with the relevant patent, copyright, trademark or other authority in
the United States or foreign jurisdictions, as the case may be, for the purpose
of maintaining the registrations or applications for registration of such
Intellectual Property. All of the Intellectual Property owned or used by each
Target Entity is free and clear of any and all Liens (other than Funded
Indebtedness). Target has taken reasonable and adequate security measures to
protect the secrecy, confidentiality and value of its trade secrets and
proprietary information.
2.11 RESERVED.
2.12 COMPLIANCE WITH LAWS. Section 2.12 of the Target Disclosure
Memorandum contains a true and complete list of all material Permits issued to
or used in the business of the Target Entities. Each Target Entity has in
effect all material Permits necessary for it to own, lease, or operate its
material Assets and to carry on its business as now conducted, and there has
occurred no Default under any such Permit, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a Target Material
Adverse Effect. Except as disclosed in Section 2.12 of the Target Disclosure
Memorandum, none of the Target Entities:
(a) is in Default under any of the provisions of its Certificate
of Incorporation or Bylaws (or other governing instruments);
(b) is in Default under any Laws, Orders, or Permits applicable to
its business or employees conducting its business, except for Defaults
which are not reasonably likely to have, individually or in the aggregate,
a Target Material Adverse Effect;
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(c) except for environmental matters, since September 27, 1997,
has received any notification or communication from any agency or
department of federal, state, or local government or any Regulatory
Authority or the staff thereof (i) asserting that any Target Entity is not
in compliance with any of the Laws or Orders which such governmental
authority or Regulatory Authority enforces, where such noncompliance is
reasonably likely to have, individually or in the aggregate, a Target
Material Adverse Effect, (ii) threatening to revoke any Permits, or
(iii) requiring any Target Entity to enter into or consent to the issuance
of a cease and desist order, formal agreement, directive, commitment, or
memorandum of understanding, or to adopt any Board resolution or similar
undertaking; or
(d) are, to the Knowledge of Target, in non-compliance, in any
material respects, with any applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and
hours, including but not limited to Title VII of the Civil Rights Act of
1964, the Age Discrimination in Employment Act, the Americans with
Disability Act, the Family and Medical Leave Act, the Fair Labor Standards
Act, the Occupational Safety and Health Act and the Worker Adjustment and
Retraining Notification Act.
2.13 LABOR RELATIONS. No Target Entity is the subject of any Litigation
asserting that it or any other Target Entity has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other Target Entity to bargain with
any labor organization as to wages or conditions of employment. No Target
Entity is or has been within the last three years a party to any collective
bargaining agreement, nor is there any strike, slow down, picketing or other
labor dispute involving any Target Entity, pending or threatened, or to the
Knowledge of Target, is there any activity involving any Target Entity's
employees seeking to certify a collective bargaining unit or engaging in any
other organization activity.
2.14 EMPLOYEE BENEFIT PLANS.
(a) Target has disclosed in Section 2.14 of the Target
Disclosure Memorandum, and has delivered or made available to Buyer prior to
the execution of this Agreement copies, in each case, of all pension,
retirement, profit-sharing, deferred compensation, stock option, employee
stock ownership, severance pay, vacation, bonus, or other incentive plan, all
other written employee programs, arrangements, or agreements, all medical,
vision, dental, or other health plans, all life insurance plans, and all
other employee benefit plans or fringe benefit plans, including "employee
benefit plans" as that term is defined in Section 3(3) of ERISA, currently
adopted, maintained by, sponsored in whole or in part by, or contributed to
by any Target Entity or ERISA Affiliate thereof for the benefit of employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries of any Target Entity and under which employees, retirees,
dependents, spouses, directors, independent contractors, or other
beneficiaries of any Target Entity are eligible to participate (collectively,
the "Target Benefit Plans"). Any of the Target Benefit Plans which is an
"employee pension benefit plan," as that term is defined in Section 3(2) of
ERISA, is referred to
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herein as a "Target ERISA Plan." Each Target ERISA Plan which is also a
"defined benefit plan" (as defined in Section 414(j) of the Code) is referred
to herein as a "Target Pension Plan." No Target Pension Plan is or has been
a multiemployer plan within the meaning of Section 3(37) of ERISA.
(b) To the Knowledge of Target, all Target Benefit Plans are in
compliance with the applicable terms of ERISA, the Code, and any other
applicable Laws. Each Target ERISA Plan which is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service, and Target is not aware of any circumstances
likely to result in revocation of any such favorable determination letter. No
Target Entity has engaged in a transaction with respect to any Target Benefit
Plan that, assuming the taxable period of such transaction expired as of the
date hereof, would subject any Target Entity to a Tax imposed under Sections
4971 through 4980B of the Code or Section 502(i) or (l) of ERISA.
(c) No Target ERISA Plan has any "unfunded current liability," as
that term is defined in Section 302(d)(8)(A) of ERISA, and the fair market value
of the assets of any such plan exceeds the plan's "benefit liabilities," as that
term is defined in Section 4001(a)(16) of ERISA. Since the date of the most
recent actuarial valuation, there has been (i) no material change in the
financial position of any Target Pension Plan, (ii) no material change in the
material actuarial assumptions with respect to any Target Pension Plan, and
(iii) no increase in benefits under any Target Pension Plan as a result of plan
amendments or changes in applicable Law which is reasonably likely to have,
individually or in the aggregate, a Target Material Adverse Effect or materially
adversely affect the funding status of any such plan. Neither any Target
Pension Plan nor any "single-employer plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by any Target Entity, or
the single-employer plan of any entity which is considered one employer with
Target under Section 4001 of ERISA or Section 414 of the Code or Section 302 of
ERISA (whether or not waived) (an "ERISA Affiliate") has an "accumulated funding
deficiency" within the meaning of Section 412 of the Code or Section 302 of
ERISA. No Target Entity has provided, or is required to provide, security to a
Target Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Code.
(d) Within the six-year period preceding the Closing Date, no
Liability under Subtitle C or D of Title IV of ERISA has been or is expected to
be incurred by any Target Entity with respect to any ongoing, frozen, or
terminated single-employer plan or the single-employer plan of any ERISA
Affiliate. No Target Entity has incurred any withdrawal Liability with respect
to a multiemployer plan under Subtitle E of Title IV of ERISA (regardless of
whether based on contributions of an ERISA Affiliate). No "reportable event,"
within the meaning of Section 4043 of ERISA has occurred with respect to any
Target Pension Plan or by any ERISA Affiliate within the 12-month period ending
on the date hereof.
(e) Except as disclosed in Section 2.14 of the Target Disclosure
Memorandum, no Target Entity has any Liability for retiree health and life
benefits under any of the Target Benefit Plans and there are no restrictions on
the rights of such Target Entity to amend or terminate any such retiree health
or benefit Plan without incurring any Liability thereunder.
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(f) Except as disclosed in Section 2.14 of the Target Disclosure
Memorandum, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of any Target Entity
from any Target Entity under any Target Benefit Plan or otherwise, (ii) increase
any benefits otherwise payable under any Target Benefit Plan, or (iii) result in
any acceleration of the time of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred
compensation entitlements (including entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of any Target Entity and their respective beneficiaries, other
than entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Code or Section 302 of ERISA, have been fully
reflected on the Target Financial Statements to the extent required by and in
accordance with GAAP.
2.15 MATERIAL CONTRACTS. Except as disclosed in Section 2.15 of the
Target Disclosure Memorandum or otherwise reflected in the Target Financial
Statements, none of the Target Entities, nor any of their respective Assets,
businesses, or operations, is a party to, or is bound by, or receives benefits
under, (i) any employment, severance, termination, consulting, or retirement
Contract, (ii) any Contract relating to the borrowing of money by any Target
Entity or the guarantee by any Target Entity of any such obligation (other than
Contracts evidencing trade payables and Contracts relating to borrowings or
guarantees made in the ordinary course of business), (iii) any Contract which
prohibits or restricts any Target Entity from engaging in any business
activities in any geographic area, line of business or otherwise in competition
with any other Person, (iv) any Contract involving Intellectual Property (other
than "shrink-wrap" software licenses), (v) any Contract relating to the purchase
or sale of any goods or services (other than Contracts entered into in the
ordinary course of business and involving payments under any individual Contract
not in excess of $100,000), (vi) any Contract with independent contractors,
railroads, shipping companies, distributors, dealers, manufacturers'
representatives, sales agents or franchisees involving an annual payment to or
from Target of $100,000 or more, (vii) any Contract relating to any (1) merger,
consolidation or combination with any Person, (2) any sale, dividend, split or
other disposition of any capital stock or other equity interests of any Person,
(3) any tender offer (including without limitation a self-tender), exchange
offer, recapitalization, liquidation, dissolution or similar transaction, (4)
any sale, dividend or other disposition of all or a material portion of the
Assets and Operating Properties of any Person or (5) the entering into of any
agreement or understanding, or the granting of any rights or options, with
respect to any of the foregoing ((1) through (5) collectively referred to herein
as a "Business Combination"), (viii) any Contract between or among Target, on
the one hand, and any current or former officer, director, stockholder
(including Seller or CTI) or Affiliate of any Target Entity, and (ix) any other
Contract or amendment thereto that would be required to be filed as an exhibit
to a Form 10-K filed by Target with the SEC as of the date of this Agreement
(together with all Contracts referred to in Sections 2.9 and 2.14(a), the
"Target Contracts"). With respect to each Target Contract and except as
disclosed in Section 2.15 of the Target Disclosure Memorandum: (i) the Contract
is in full force and effect; (ii) no Target
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Entity is in Default in any material respect thereunder; (iii) no Target
Entity has repudiated or waived any material provision of any such Contract;
and (iv) no other party to any such Contract is, to the Knowledge of Target,
in Default in any material respect, or has repudiated or waived any material
provision thereunder. All of the indebtedness of any Target Entity for money
borrowed is prepayable at any time by such Target Entity without penalty or
premium.
2.16 LEGAL PROCEEDINGS. There is no Litigation pending or, to the
Knowledge of Target, threatened against any Target Entity, or against any
director, employee or employee benefit plan of any Target Entity, or against any
Asset, interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Target Material Adverse Effect, nor are
there any Orders of any Regulatory Authorities, court, or arbitrators
outstanding against any Target Entity. Section 2.16 of the Target Disclosure
Memorandum contains a summary of all Litigation as of the date of this Agreement
to which any Target Entity or Employee Benefit Plan is a party or for which any
Target Entity has any potential Liability.
2.17 REGULATORY MATTERS. No Target Entity, CTI or Seller has taken or
agreed to take any action or has any Knowledge of any fact or circumstance that
is reasonably likely to materially impede or delay receipt of any Consents of
Regulatory Authorities referred to in Section 6.1(b).
2.18 INSURANCE. Section 2.18 of the Target Disclosure Memorandum
contains a correct and complete list of all liability, property, workers'
compensation, fidelity, directors' and officers' liability, welfare pension and
other insurance policies currently in effect that insure the business,
operations or employees of the Target Entities or affect or relate to the
ownership, use or operation of any of the Assets and Operating Properties of the
Target Entities and that (i) have been issued to the Target Entities or (ii)
have been issued to any Person (other than the Target Entities) for the benefit
of the Target Entities. Each policy listed in Section 2.18 of the Target
Disclosure Memorandum is valid and binding and in full force and effect and all
premiums due thereunder have been paid when due and neither the Target Entities,
Seller nor CTI knows of any reason or state of facts that could reasonably lead
to the cancellation of such policies prior to the Closing Date. Except as set
forth in Section 2.18 of the Target Disclosure Memorandum, none of the Target
Entities, Seller or CTI has received notice that any insurer under any policy
referred to in this Section is denying liability with respect to a claim
thereunder or defending under a reservation of rights clause.
2.19 AFFILIATE TRANSACTIONS. Except as set forth in Section 2.19 of the
Target Disclosure Memorandum, the Target Entities are not party to any Contract
with any Affiliate, and except as disclosed in Section 2.19 of the Target
Disclosure Memorandum, each Contract identified in said Section 2.19 is on an
arm's-length basis.
2.20 SUBSTANTIAL CUSTOMERS AND SUPPLIERS. Section 2.20(a) of the Target
Disclosure Memorandum lists the 10 largest customers or clients of the Target
Entities on the basis of revenues for goods sold or services provided in 1996,
1997 and the first six months of 1998. Section 2.20(b) of the Target Disclosure
Memorandum lists the 10 largest suppliers of the Target Entities on the basis of
cost of goods or services purchased in 1996, 1997 and the first six months of
1998. No such
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customer, client or supplier has ceased or materially reduced its purchases
from or sales or provision of services to the Target Entities since June 30,
1998, or to the Knowledge of the Target Entities, Seller or CTI, has
threatened to cease or materially reduce such purchases or sales or provision
of services after the date hereof. To the Knowledge of the Target Entities,
Seller or CTI, no such customer or supplier is threatened with bankruptcy or
insolvency. Except as set forth in Section 2.20(a) of the Target Disclosure
Memorandum and except for deposits or other non-material amounts paid in the
ordinary course of business consistent with past practice, the Target
Entities have not accepted any prepayment of any sales price or fee or
license fee from any client or customer that relates to products not yet
delivered or services not yet performed by the Target Entities.
2.21 ACCOUNTING PRACTICES. The Target Entities make and keep accurate
books and records reflecting their respective assets and maintain internal
accounting controls that provide reasonable assurance that (i) transactions are
executed with management's authorization, (ii) transactions are recorded as
necessary to permit preparation of the Target Entities' financial statements and
to maintain accountability for the assets of the Target Entities, and (iii)
access to the banking and investment accounts of the Target Entities is
permitted only in accordance with management's authorization.
2.22 CORPORATE NAME. The Target Entities (i) have the exclusive right to
use their respective names as the name of a corporation or other business entity
in each jurisdiction in which the Target Entities do business, and (ii) have not
received or given any notice of conflict during the past five years with respect
to the rights of others regarding the names of the Target Entities. To the
Knowledge of Seller and CTI, no Person is presently authorized to use the name
of any Target Entity.
2.23 WARRANTIES. Section 2.23 of the Target Disclosure Memorandum sets
forth a list of all written warranties, guarantees and warranty policies of the
Target Entities with respect to their products and services (the "Warranty
Obligations") which are subject to any dispute or, to the Knowledge of the
Target Entities, Seller or CTI, threatened dispute.
2.24 AIR QUALITY. Target and its Operating Properties are in compliance
with air quality standards to which Target and its Operating Properties are
subject and with respect to the Air Operating Permit issued July 31, 1998 by the
South Carolina Department of Health and Environmental Control, and all air
compliance materials provided to Buyer by Target accurately describe the air
compliance status of Target (the "Seller's Air Quality Representation").
2.25 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Agreement, neither CTI, Seller
nor any other Person makes any express or implied representation or warranty on
behalf of CTI, Seller or Target, and Seller and CTI hereby disclaim any such
representation or warranty whether by Seller, CTI or any of their respective
Affiliates, officers, directors, employees, agents or representatives or any
other Person (including the Confidential Offering Memorandum provided by
Schroder & Co. Inc., dated June 1998).
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to CTI and Seller as follows:
3.1 ORGANIZATION, STANDING, AND POWER. Buyer is a corporation duly
organized, validly existing, and in good standing under the Laws of Canada, and
has the corporate power and authority to carry on its business as now conducted
and to own, lease and operate its material Assets. Buyer is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Buyer Material Adverse Effect.
3.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) Buyer has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Stock Purchase, have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
Buyer. This Agreement represents a legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms (except in all
cases as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, conservatorship, moratorium, or
similar Laws affecting the enforcement of creditors' rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by Buyer,
nor the consummation by Buyer of the transactions contemplated hereby, nor
compliance by Buyer with any of the provisions hereof, will (i) conflict with or
result in a breach of any provision of Buyer's Certificate of Incorporation or
Bylaws, or (ii) constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any Buyer
Entity under, any Contract or Permit of any Buyer Entity, where such Default or
Lien, or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a Buyer Material Adverse Effect, or,
(iii) subject to receipt of the requisite Consents referred to in Section
6.1(b), constitute or result in a Default under, or require any Consent pursuant
to, any Law or Order applicable to any Buyer Entity or any of their respective
material Assets.
(c) Other than in connection or compliance with the provisions of
the Securities Laws, applicable state corporate and securities Laws, and rules
of the American Stock Exchange, Inc. and Toronto Stock Exchange, and other than
Consents required from Regulatory Authorities, and other than notices to or
filings with the Internal Revenue Service or the Pension Benefit
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Guaranty Corporation with respect to any employee benefit plans, or under the
HSR Act, and other than Consents, filings, or notifications which, if not
obtained or made, are not reasonably likely to have, individually or in the
aggregate, a Buyer Material Adverse Effect, no notice to, filing with, or
Consent of, any public body or authority is necessary for the consummation by
Buyer of the Stock Purchase and the other transactions contemplated in this
Agreement.
3.3 LEGAL PROCEEDINGS. There is no Litigation pending, or, to the
Knowledge of Buyer, threatened against any Buyer Entity, or against any
director, employee or employee benefit plan of any Buyer Entity, or against any
Asset, interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Buyer Material Adverse Effect, nor are there
any Orders of any Regulatory Authorities, other governmental authorities, or
arbitrators outstanding against any Buyer Entity, that are reasonably likely to
have, individually or in the aggregate, a Buyer Material Adverse Effect.
3.4 REGULATORY MATTERS. No Buyer Entity or any Affiliate thereof has
taken or agreed to take any action or has any Knowledge of any fact or
circumstance that is reasonably likely to materially impede or delay receipt of
any Consents of Regulatory Authorities referred to in Section 6.1(b).
3.5 INVESTMENT INTENT. Buyer is acquiring the Shares for its own
account for investment purposes only and not with a view to, or for sale or
resale in connection with, any public distribution thereof or with any present
intention of selling, distributing or otherwise disposing of the Shares.
3.6 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Agreement, neither Buyer nor
any other Person makes any express or implied representation or warranty on
behalf of Buyer, and Buyer hereby disclaims any such representation or warranty
whether by Buyer or any of its Affiliates, officers, directors, employees,
agents or representatives or any other Person.
ARTICLE 4
CONDUCT OF BUSINESS PENDING CONSUMMATION
4.1 AFFIRMATIVE COVENANTS WITH RESPECT TO TARGET. From the date of this
Agreement until the earlier of the Closing Date or the termination of this
Agreement, unless the prior written consent of Buyer shall have been obtained,
and except as otherwise expressly contemplated herein, CTI and Seller shall
cause Target and each of its Subsidiaries to (a) operate its business only in
the usual, regular, and ordinary course, consistent with past practice, (b) use
commercially reasonable efforts to preserve intact its business organization, to
keep available to Buyer the services of Target's employees and to preserve the
current relationships of Target with its customers, suppliers and other persons
with which Target has significant business relationships, (c) maintain its books
and records in the usual, regular and ordinary manner consistent with past
practice, (d) use all reasonable efforts to continue to the Closing Date in full
force and effect its policies of insurance, (e) use all reasonable
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efforts to maintain all of the Target Entities' Assets and Operating
Properties in good repair, working order and operating condition (subject
only to ordinary wear and tear), (f) comply with all material applicable
Laws, (g) file all Tax Returns required to be filed and make timely payments
of applicable Taxes when due (taking into account any duly obtained
extensions), (h) take all reasonable actions necessary to be in compliance
with, and to maintain the effectiveness of, all material Permits and (i) take
no action which would (1) materially adversely affect the ability of any
Party to obtain any Consents required for the transactions contemplated
hereby, or (2) materially adversely affect the ability of any Party to
perform its covenants and agreements under this Agreement.
4.2 NEGATIVE COVENANTS WITH RESPECT TO TARGET. From the date of this
Agreement until the earlier of the Closing Date or the termination of this
Agreement, unless the approval of Buyer shall have been obtained, which Buyer
will not unreasonably withhold or delay, and except as otherwise expressly
contemplated herein, CTI and Seller shall not permit Target to do or agree or
commit to do, or any of its Subsidiaries to do or agree or commit to do, any of
the following:
(a) amend the Certificate of Incorporation, Bylaws or other
governing instruments of any Target Entity; or
(b) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of a Target Entity to another
Target Entity or third party indebtedness, all of which indebtedness will
be paid out of the Purchase Price at Closing) except in the ordinary
course of the business of Target Entities consistent with past practices,
or impose, or suffer the imposition, on any Asset of any Target Entity of
any Lien or permit any such Lien to exist (other than in connection with
Liens in effect as of the date hereof that are disclosed in the Target
Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange, directly
or indirectly, any shares, or any securities convertible into any shares,
of the capital stock of any Target Entity, or declare or pay any dividend
or make any other distribution in respect of Target's capital stock; or
(d) except for this Agreement, issue, sell, pledge, encumber,
authorize the issuance of, enter into any Contract to issue, sell, pledge,
encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of Target Common Stock or any other
capital stock of any Target Entity, or any stock appreciation rights, or
any option, warrant, or other Equity Right; or
(e) adjust, split, combine or reclassify any capital stock of any
Target Entity or issue or authorize the issuance of any other securities
in respect of or in substitution for shares of Target Common Stock, or
sell, lease, mortgage or otherwise dispose of or otherwise encumber
(y) any shares of capital stock of any Target Subsidiary (unless any such
shares of stock are sold or otherwise transferred to another Target
Entity) or (z) any Asset
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having a book value in excess of $10,000 other than in the ordinary course
of business for reasonable and adequate consideration; or
(f) except for purchases of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of
three years or less, purchase any securities or make any material
investment, either by purchase of stock of securities, contributions to
capital, Asset transfers, or purchase of any Assets, in any Person other
than a wholly owned Target Subsidiary, or otherwise acquire direct or
indirect control over any Person, other than in connection with
foreclosures in the ordinary course of business; or
(g) grant any increase in compensation or benefits to the
employees or officers of any Target Entity, except in accordance with past
practice disclosed in Section 4.2(g) of the Target Disclosure Memorandum
or as required by Law; pay any severance or termination pay or any bonus
other than pursuant to written policies or written Contracts in effect on
the date of this Agreement and disclosed in Section 4.2(g) of the Target
Disclosure Memorandum; grant any material increase in fees or other
increases in compensation or other benefits to directors of any Target
Entity, except in accordance with past practice disclosed in Section
4.2(g) of the Target Disclosure Memorandum; or
(h) enter into or amend any employment Contract between any Target
Entity and any Person having a salary thereunder in excess of $100,000 per
year (unless such amendment is required by Law) that the Target Entity
does not have the unconditional right to terminate without Liability
(other than Liability for services already rendered), at any time on or
after the Closing Date; or
(i) adopt any new employee benefit plan of any Target Entity or
terminate or withdraw from, or make any material change in or to, any
existing employee benefit plans of any Target Entity other than any such
change that is required by Law or that, in the opinion of counsel, is
necessary or advisable to maintain the tax qualified status of any such
plan, or make any distributions from such employee benefit plans, except
as required by Law, the terms of such plans or consistent with past
practice; or
(j) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of any Target
Entity for material money damages or restrictions upon the operations of
any Target Entity; or
(k) except in the ordinary course of business, enter into, modify,
amend or terminate any material Contract or waive, release, compromise or
assign any material rights or claims; or
(l) revalue any of its Assets, including, without limitation,
writing off notes or accounts receivable, other than in the ordinary
course of business consistent with past practice; or
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(m) pay or discharge any material claim, Liability or Lien
(whether absolute, accrued, contingent or otherwise) or waive any right,
other than in the ordinary course of business consistent with past
practice or pursuant to binding contractual obligations of Target in
existence on the date hereof; or
(n) hire any new employees, except employees earning less than
$100,000 per annum to replace employees who have left the employ of
Target; or
(o) sell, lease, license or otherwise dispose of any fixed asset
or item of Intellectual Property having an individual value of $100,000 or
more; or
(p) change its accounting, financial reporting or Tax methods,
principles or practices, or make or change any material election in
respect of Taxes, adopt or change any accounting method in respect of
Taxes, enter into any Tax closing agreement, withhold any claim or
assessment in respect of Taxes or consent to any extension or waiver of
the limitation period applicable to any claim or assessment in respect of
Taxes; or
(q) abandon, modify, waive, terminate or otherwise change any of
the Permits described in Section 2.12 of the Target Disclosure Memorandum;
or
(r) take any action or course of action inconsistent with
compliance with the covenants and agreements contained in this Agreement.
4.3 COVENANTS OF BUYER. From the date of this Agreement until the
earlier of the Closing Date or the termination of this Agreement, unless the
prior written consent of CTI and Seller shall have been obtained, and except as
otherwise expressly contemplated herein, Buyer covenants and agrees that it
shall take no action which would (i) materially adversely affect the ability of
any Party to obtain any Consents required for the transactions contemplated
hereby, or (ii) materially adversely affect the ability of any Party to perform
its covenants and agreements under this Agreement; provided, that the foregoing
shall not prevent any Buyer Entity from acquiring any Assets or other businesses
or from discontinuing or disposing of any of its Assets or business if such
action is, in the reasonable judgment of Buyer, desirable in the conduct of the
business of Buyer and its Subsidiaries, provided that such actions shall not
materially delay the Closing Date or materially hinder consummation of the Stock
Purchase.
4.4 ADVERSE CHANGES IN CONDITION. Each Party agrees to give written
notice promptly to the other Party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Target Material Adverse Effect or a Buyer Material Adverse Effect,
as applicable, or (ii) would cause or constitute a material breach of any of its
representations, warranties, or covenants contained herein, and to use its
reasonable efforts to prevent or promptly to remedy the same. The giving of any
such notice under this Section 4.4 shall in no way change or modify the
representations or warranties of the Party giving such notice or the conditions
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precedent to the other Party's obligations hereunder or otherwise affect the
remedies available to the other Party hereunder.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 APPLICATIONS; ANTITRUST NOTIFICATION. CTI and Seller and, to the
extent necessary or appropriate, Buyer, shall prepare and file, or cause to be
filed, and CTI, Seller and Buyer shall cooperate in the preparation and, where
appropriate, filing of, applications with all Regulatory Authorities having
jurisdiction over the transactions contemplated by this Agreement seeking the
requisite Consents necessary to consummate the transactions contemplated by this
Agreement. To the extent required by the HSR Act, each of the Parties will
promptly file with the United States Federal Trade Commission and the United
States Department of Justice the notification and report form required for the
transactions contemplated hereby and any supplemental or additional information
which may reasonably be requested in connection therewith pursuant to the HSR
Act and will comply in all material respects with the requirements of the HSR
Act. The Parties shall deliver to each other copies of all filings,
correspondence and orders to and from all Regulatory Authorities in connection
with the transactions contemplated hereby.
5.2 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable efforts to lift
or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 6; provided, that nothing herein shall preclude either
Party from exercising its rights under this Agreement. Each Party shall use,
and shall cause each of its Subsidiaries to use, its reasonable efforts to
obtain all Consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
5.3 NO SOLICITATION OF OFFERS.
(a) Prior to the termination of this Agreement in accordance with
its terms, CTI, Seller and their respective Affiliates, including Target, shall
not, nor shall they authorize or permit any Representative or other Person
retained by them to, directly or indirectly, take any action to solicit,
encourage or facilitate any action that might lead to, or accept any offers,
initiate or participate in negotiations or discussions with, or provide any
non-public information to, or enter into any letter of intent, preliminary
agreement or definitive agreement with any Person with respect to, any possible
merger, acquisition, reorganization, exchange offer or any sale of all or
substantially all of the Assets and Operating Properties, purchase or sale of
capital stock (whether outstanding shares, treasury or other shares) or change
in control of or any similar transaction or transactions
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involving, directly or indirectly, Target. Seller, CTI and Target shall
promptly notify Buyer orally and in writing of any such inquiries or
proposals. Seller, CTI and Target shall immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing.
(b) Seller and CTI each acknowledge and agree that a violation by
it of Section 5.3(a) resulting in the termination of this Agreement will cause
irreparable damage to Buyer. Accordingly, Seller and CTI each agree that, in
the event of a breach of Section 5.3(a), Buyer shall be entitled to a temporary
or permanent injunction or restraining order to prevent breaches of Section
5.3(a) and to specifically enforce the terms and provisions thereof, such rights
to be cumulative and in addition to whatever other remedies at law or in equity
or otherwise Buyer may have pursuant to this Agreement.
5.4 INVESTIGATION AND CONFIDENTIALITY.
(a) From and after the date hereof until the Closing, Seller and
CTI shall cause Target to give Buyer and its authorized Representatives access
upon reasonable notice and during normal business hours to employees and
Representatives of Target and to Target's business and to key customers and
vendors, and subject to the Confidentiality Agreement, Seller and CTI shall
provide Buyer with such information concerning Target, the employees of Target,
and the business Buyer may reasonably request in order to review the legal,
financial and business condition and affairs of Target, for the purposes of
conducting Buyer's due diligence; provided, however, that (i) any disclosure of
this Agreement or the transactions contemplated hereby to key customers or key
vendors of Target or any discussions with such customers or vendors of Target
about Target shall only occur when Representatives of CTI or Seller, on the one
hand, and Buyer, on the other hand, are present, and (ii) all such due diligence
shall be reasonable in amount and conducted at mutually convenient times under
the supervision of CTI, Seller or their Representatives. After the date hereof
until Closing, Buyer shall not conduct a "Phase II" environmental assessment or
other intrusive investigation of Target's Operating Property without CTI's or
Seller's prior written consent.
(b) In addition to Buyer's obligations under the Confidentiality
Agreement, which is hereby reaffirmed and adopted, and incorporated by reference
herein, Buyer shall, and shall cause its advisers and agents to, maintain the
confidentiality of all confidential information furnished to it by Target
concerning Target and Target's Subsidiaries' businesses, operations, and
financial positions and shall not use such information for any purpose except in
furtherance of the transactions contemplated by this Agreement. If this
Agreement is terminated prior to the Closing Date, Buyer shall promptly return
or certify the destruction of all documents and copies thereof, and all work
papers containing confidential information received from Target.
(c) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence relating to
the other Party which it has discovered through the course of its investigation
and which represents, or is reasonably likely to represent, either a material
breach of any representation, warranty, covenant or agreement of the other Party
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or which has had or is reasonably likely to have a Target Material Adverse
Effect or a Buyer Material Adverse Effect, as applicable.
5.5 PRESS RELEASES. Prior to the Closing Date, CTI, Seller and Buyer
shall consult with each other as to the form and substance of any press release
or other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 5.5
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
5.6 RESERVED.
5.7 EMPLOYEE BENEFITS AND CONTRACTS.
(a) GENERAL. Following the Closing Date, Buyer shall provide
generally to officers and employees of the Target Entities employee benefits
under employee benefit and welfare plans (other than stock option or other plans
involving the potential issuance of Buyer Common Stock and other than the Sale
Bonus Plan (as defined in Section 5.7(b) hereof)), on terms and conditions which
when taken as a whole are substantially similar to those currently provided by
the Buyer Entities to their similarly situated officers and employees. For
purposes of participation and vesting under Buyer's employee benefit plans, the
service of the employees of the Target Entities prior to the Closing Date shall
be treated as service with a Buyer Entity participating in such employee benefit
plans. Buyer also shall cause Target and its Subsidiaries to honor in
accordance with their terms all employment, severance, consulting and other
compensation Contracts disclosed in Section 5.7 of the Target Disclosure
Memorandum to Buyer between any Target Entity and any current or former
director, officer, or employee thereof, and all provisions for vested benefits
or other vested amounts earned or accrued through the Closing Date under the
Target Benefit Plans (other than with respect to the Sale Bonus Plan, as defined
in Section 5.7(b) hereof. At Closing, CTI and Seller shall transfer its
employees (other than D. Thomas Divird) listed in Section 5.7 of the Target
Disclosure Memorandum (including compensation levels) to Target and Buyer agrees
to cause Target to provide, at a minimum, comparable positions and compensation
to such employees (other than with respect to the Sale Bonus Plan, as defined in
Section 5.7(b) hereof. For purposes of this Section, such employees will be
deemed employees of Target.
(b) SALE BONUS PLAN. Notwithstanding anything which may be construed to
the, contrary herein, with respect to the Coating Technologies International
Inc. Sale Bonus Plan (the "Sale Bonus Plan"), Seller and CTI shall retain all
direct or indirect duties, liabilities, obligations and costs relating or with
respect to the Sale Bonus Plan, including, without limitation, and for purposes
of example only, the duties, liabilities, obligations and costs with respect to
the payment of any awards payable or claimed payable under the terms of the Sale
Bonus Plan (including but not limited to participant benefit claims arising out
of the Sale Bonus Plan), and the payment of any Taxes with respect to such
awards, including without limitation, withholding taxes (including but not
limited to excise taxes, if applicable, and Taxes relating to the
employer-portion of FICA taxes owing with respect to such awards), including any
costs or liabilities relating to the loss of Tax deductions with
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respect to all or any portion of such awards to the extent applicable,
including to the extent such awards are subject to the provisions of Sections
280G or 4999 of the Code, and neither Buyer nor Target shall adopt, nor
become or be considered a sponsoring employer of, nor have or incur any
duties, liabilities, obligations and costs relating or with respect to, the
Sale Bonus Plan.
(c) SEVERANCE PAY. For a period of six months after the Closing Date,
Buyer shall provide Target's employees, not already a party to a written
severance agreement, in the event of the involuntary termination of any such
employee's employment not for "Cause", severance pay equal to one week for each
year of employment with Target ("Severance Pay"); provided, however, during such
six-month period, any Severance Pay actually paid to any employee shall not be
less than one month of Severance Pay. In calculating Severance Pay, Buyer shall
use the employee's weekly salary amount at the time of such severance. For
purposes of this paragraph, "Cause" shall be defined as (i) personal misconduct,
inability or refusal by the employee to perform his or her job duties for
Target and/or Buyer; (ii) engaging in any action or inaction which has the
potential for material injury to Target and/or Buyer; (iii) commission of a
willful act of dishonesty in the course of the employee's job duties for Target
and/or Buyer; (iv) conviction of a crime, other than a traffic violation; (v)
habitual drunkenness, or performance under the influence or with systemic
presence of illegal drugs or controlled substances (or their metabolites) except
as may be prescribed by the employee's treating physician; (vi) excessive
absenteeism other than for illness or disability; or (vii) failure to adhere to
the policies or standards of conduct of Target and/or Buyer.
5.8 POST-CLOSING ACCESS BY SELLER AND CTI. Buyer shall cause Target to
cooperate with Seller and CTI to make available to Seller and CTI all financial,
tax and other information (including the books and records of Target) reasonably
required by Seller or CTI in connection with (i) any audit or other
investigation by any taxing authority or any required reports or submissions to
any Regulatory Authority with respect to Target related to periods prior to the
Closing Date or (ii) matters relating to insurance coverage of Target, Third
Party Claim, proceedings and investigations. Buyer shall cause Target to
preserve such information and the books and records for at least six years after
the Closing Date, and thereafter to dispose thereof only after it shall have
given Seller and CTI 90 days' prior notice of such disposition and the
opportunity (at Seller's and CTI's expense) to remove and retain such
information and the books and records.
5.9 OFFICE SPACE AND EQUIPMENT FOR SELLER AND CTI. The Parties agree
that Buyer will cause Target to provide to Seller and CTI, for its operations, a
reasonable amount of office space (including filing, storage and such ancillary
facilities) and office equipment in each case comparable in quality to the same
as presently used by Seller and CTI for a period of up to one year following
Closing. Seller and CTI will have no obligations with respect to such space or
equipment and Target shall be responsible for all maintenance, taxes, insurance,
operational expenses related to the facilities and equipment, including the
replacement of such equipment with comparable equipment. Furthermore, Seller
and CTI will retain the personal computers that are currently being used in the
executive offices of Seller and CTI but any other computers, software or office
equipment being used by Seller and CTI in connection with Target's business will
be transferred to Target at Closing.
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5.10 RESIGNATION OF DIRECTORS. CTI and Seller will cause the members of
the board of directors of Target to tender, effective at the Closing, their
resignations.
5.11 NON-COMPETITION.
(a) For a period commencing on the Closing Date and terminating on
the third anniversary thereof (the "Period"), as an inducement to Buyer to
execute this Agreement and complete the transactions contemplated hereby,
and in order to preserve the goodwill associated with the business of
Target being acquired pursuant to this Agreement, CTI and Seller will not,
and will cause its Subsidiaries not to, directly or indirectly, (1) engage
in, continue in, participate in or have any interest in any sole
proprietorship, partnership, corporation or business or any other Person
(whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that is engaged primarily or in
any material respect in the business of the manufacture, sale or
distribution of pressure sensitive tape and stencils serving either the
retail or industrial end markets (the "Business") in the United States of
America, Canada, Europe, South America and Asia (the "Territory"); (2)
consult with, advise or assist in any way, whether or not for
consideration, any corporation, partnership, firm or other business
organization which is now or becomes a competitor of the Target Entities
or Buyer in any aspect with respect to the Business, including, but not
limited to, advertising or otherwise endorsing the products of any such
competitor, soliciting customers or otherwise serving as an intermediary
for any such competitor or engaging in any form of business transaction on
other than an arm's length basis with any such competitor; or (3) offer
employment to or solicit for employment any employee of the Target,
without the prior written consent of Buyer; PROVIDED, HOWEVER, that
nothing herein shall be deemed to prevent (i) CTI or Seller from acquiring
through market purchases and owning, solely as an investment, less than
five percent of the equity securities of any class of any issuer whose
shares are registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, and are listed or admitted for trading
on any United States national securities exchange or are quoted on the
Nasdaq National Market, or any similar system of automated dissemination
of quotations of securities prices in common use, so long as CTI or Seller
is not a member of any "control group" (within the meaning of the rules
and regulations of the United States Securities and Exchange Commission)
of any such issuer, (ii) any offer by CTI or Seller to employ a person in
a business which does not compete with the business of Buyer or Target or
which is for a position outside the Territory, or (iii) CTI or Seller from
being acquired by a Person engaged in any business in competition with the
Business as long as both (a) such Person's gross revenues (as shown on its
income statement for the most recent year end), and (b) such Person does
not cause or permit CTI or Seller or any of CTI's or Seller's other
Affiliates to violate the terms of this Section 5.11.
The Parties agree that Buyer may sell, assign or otherwise
transfer this covenant not to compete, in whole or in part, to any person,
corporation, firm or entity that purchases all or substantially all of the
business of Target. The Parties further agree that the geographic scope
of this covenant not to compete shall extend to any city, county or other
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political subdivision of any country in the Territory, each of which is
deemed to be separately named herein. Recognizing the specialized nature
of the business transferred to Buyer and the scope of competition, Seller
and CTI each acknowledges the geographic scope of this covenant not to
compete to be reasonable. The parties intend that the covenant contained
in this Section 5.11(a) shall be construed as a series of separate
covenants, one for each city, county or political subdivision of each
country in the Territory, each of which is deemed to be separately named
herein, each for a series of one-year periods within the Period. Except
for geographic coverage and periods of effectiveness, each such separate
covenant shall be identical in terms. If in any judicial proceeding a
court shall refuse to enforce any of the separate covenants deemed
included in this Section 5.11(a), then such unenforceable covenant shall
be deemed eliminated for the purpose of that proceeding to the extent
necessary to permit the remaining separate covenants to be enforced.
In the event a court of competent jurisdiction determines that
the provisions of this covenant not to compete are excessively broad as to
duration, geographic scope or activity, it is expressly agreed that this
covenant not to compete shall be construed so that the remaining
provisions shall not be affected, but shall remain in full force and
effect, and any such over broad provisions shall be deemed, without
further action on the part of any person, to be modified, amended and/or
limited, but only to the extent necessary to render the same valid and
enforceable in such jurisdiction.
(b) CTI and Seller each agrees that the provisions and
restrictions contained in this Section 5.11 are necessary to protect the
legitimate continuing interests of Buyer in acquiring Target, and that any
violation or breach of these provisions will result in irreparable injury
to Buyer for which a remedy at law would be inadequate. Seller, CTI and
Buyer agree that in the event of a violation or breach and regardless of
any other provision contained in this Agreement, Buyer shall be entitled
to injunctive and other equitable relief as a court may grant after
considering the intent of this Section 5.11, and Buyer shall not be
entitled to any other form of relief from such violation or breach.
5.12 TAX MATTERS.
(a) PREPARATION AND FILING OF TAX RETURNS.
(i) CTI and Seller shall file or cause to be filed all Tax Returns
of the Target Entities for all taxable periods that end on or before the Closing
Date. CTI and Seller shall pay or cause to be paid all Tax liabilities shown by
such Tax Returns to be due (other than income Taxes to the extent specifically
reserved for on the Closing Balance Sheet and any schedules thereto.)
(ii) Buyer shall file or cause to be filed all Tax Returns of the
Target Entities for all taxable periods ending after the Closing Date.
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(iii) With respect to any Tax Return of a Target Entity for a
taxable period that begins on or before and ends after the Closing Date (a
"Straddle Period Return"), Buyer shall deliver a copy of such Tax Return to CTI
at least 45 calendar days prior to the due date therefore (giving effect to any
extension thereof), accompanied by an allocation between the Pre-Closing Period
and the Post-Closing Period of any Taxes shown to be due on such Tax Return
based on sub-paragraph (v) of this Section 5.12(a). Such Tax Return and
allocation shall be final and binding on CTI, unless, within 20 calendar days
after the date of receipt by CTI of such Tax Return and allocation, CTI delivers
to Buyer a written request for changes to such Tax Return or allocation. Buyer
shall adopt and incorporate in said returns changes reasonably requested by CTI.
In the event that Buyer disagrees with CTI's written request for changes, it
shall notify CTI in writing no more than five calendar days after its receipt of
CTI's written request for changes. If CTI shall, within five calendar days
after its receipt of notification of Buyer's disagreement, provide Buyer with an
opinion of an independent accounting firm reasonably satisfactory to CTI and
Buyer that substantial authority exists for the position advocated by CTI, Buyer
shall prepare the Tax Return consistent with the changes suggested by CTI.
(iv) In the case of each Straddle Period Return, not later than (i)
five Business Days before the due date (including any extension thereof) for
payment of Taxes with respect to such Tax Return or (ii) in the event of a
dispute, five Business Days after the resolution thereof either by mutual
agreement of the parties or by a determination of an independent accounting firm
reasonably satisfactory to CTI and Buyer, CTI shall pay or cause to be paid to
Buyer the portion of the Taxes set forth on such Tax Return that are allocable
to the Pre-Closing Period that has not been previously paid by CTI to Buyer or
to the appropriate taxing authority, after giving effect to any agreement of the
parties or any determination by the independent accounting firm, net of any
payments made prior to the Closing Date in respect of such Taxes, whether as
estimated Taxes or otherwise, and net of any income Taxes to the extent
specifically reserved for on the Closing Balance Sheet and any schedules
thereto.
(v) Taxes arising in a taxable period of a Target Entity that
includes but does not end on the Closing Date shall be allocated between the
Pre-Closing Period and the Post-Closing Period on the basis of an interim
closing of the books method as of the end of the Closing Date. For purposes of
this Agreement, any Tax resulting from the departure of a Target Entity from a
Relevant Group prior to the Closing Date is attributable to the Pre-Closing
Period.
(vi) With respect to any Tax Return of CTI or Seller for a taxable
period that ends before or which includes the Closing Date, CTI or Seller,
respectively, shall deliver a copy of such Tax Return to Buyer at least
45 calendar days prior to the due date therefor (giving effect to any extension
thereof). Buyer may review such Tax Return and deliver to CTI or Seller,
respectively, any comments it may have with respect to such Tax Return within
20 calendar days after the date of receipt by Buyer of such Tax Return.
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(b) SECTION 338(h)(10) ELECTION.
At the election of Buyer with sixty (60) days of Closing (but not
later), Buyer and Seller will join in making elections under Section 338(h)(10)
or Section 338(g) of the Code with respect to the acquisition of Target and any
of the Target Subsidiaries, in which case CTI and Seller will indemnify Buyer
for any Tax arising from such Section 338(h)(10) or Section 338(g) elections and
Buyer will indemnify Seller, and its successors and assigns, from and against
any and all Taxes incurred by Seller to the extent such Taxes exceed the Taxes
that would be incurred by Seller upon a sale of the stock of Target without a
Section 338(h)(10) or Section 338(g) election, including any Taxes incurred by
Seller as a result of the payments to Seller with respect to this indemnity and
any Losses related to all such Taxes. Subject to the last sentence of this
paragraph, no such elections shall be made unless and until Buyer and Seller
agree in writing as to the amount covered by this indemnity as a result of the
Tax Returns to be filed by Buyer and Seller as a result of the elections, and
Buyer pays to Seller such amount as a part of Seller's delivering such elections
to Buyer. Any subsequent obligations of Buyer, CTI and Seller pursuant to this
indemnity shall be covered by Section 7.1. CTI, Seller and Buyer agree to
cooperate and not to unreasonably withhold or delay any information, approvals
or consents reasonably requested by the other party with respect to the matters
covered in this paragraph.
(c) CARRYOVERS, REFUNDS AND RELATED MATTERS.
(i) All refunds of Taxes (including interest thereon) attributable
to a Pre-Closing Period and relating to a Target Entity, except for refunds
attributable to items shown on the Closing Balance Sheet as assets shall be paid
over to Seller within ten (10) calendar days after receipt thereof by Buyer or a
Target Entity (or retained by Seller if paid to them).
(ii) Any refund of Taxes (including any interest thereon) that
relates to a Target Entity and that is attributable to a Post-Closing Period or
to items shown on the Closing Balance Sheet as assets shall be the property of
such Target Entity (or, if applicable, promptly paid by CTI or Seller to the
Target Entity if any such refund (or interest thereon) is received by CTI or
Seller or any of its subsidiaries or affiliates).
(iii) In the event of the realization of any loss or credit for Tax
purposes by a party for any Post-Closing Period, the party realizing such loss
or credit may, in its sole discretion, carry forward such loss or credit.
(iv) CTI will not elect to retain any loss carryover of any Target
Entity or any subsidiary under Section 1.1502-20(g) of the Treasury Regulations.
(v) Buyer may, at its option, cause any Target Entity to elect,
where permitted by law, to carry forward any net operating loss or other item
that would, absent such elections, be carried back to a Pre-Closing period in
which such Target Entity filed a consolidated Tax Return.
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(vi) No Target Entity shall reserve any amount for or make any
payment of Taxes to (i) CTI or any affiliate of CTI, or (ii) any other person or
any taxing authority, except for such Taxes as are due or payable or have been
estimated in accordance with applicable law and GAAP as applied in a manner
consistent with past practices of CTI and each Target Entity.
(d) COOPERATION.
(i) Each Party shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other Parties such cooperation and
information as any of them reasonably may request in filing any Tax Return,
amended Tax Return or claim for refund, determining a liability for Taxes or a
right to refund of Taxes or in conducting any audit or other proceeding in
respect of Taxes. Such cooperation and information shall include (A) the
retention of all returns, schedules and work papers, material records or other
documents relating to any tax matters of Target for the first taxable period
after the Closing Date, and all prior taxable periods until the later of (i) the
expiration of the applicable statute of limitations or (ii) six years after the
due date without extension for such returns and, providing copies of all
relevant portions of relevant Tax Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by taxing authorities and relevant record concerning the
ownership and Tax basis of property, which any such party may possess; and (B)
(upon the other party's request) the provision of such returns, schedules, work
papers, records or other documents. Seller agrees (A) to abide by all record
retention agreements entered into with any taxing authority; and (B) to give
Buyer reasonable written notice prior to transferring, destroying or discarding
any such books and records, and if Buyer so requests to allow Buyer to take
possession of such books and records. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to provide
explanation of any documents or information so provided. Subject to the
preceding sentence, each party required to file Tax Return pursuant to this
Agreement shall bear all costs of such Tax Return.
(ii) CTI and Seller each agrees, upon request, to use its best
efforts to obtain any certificate or other documents from any governmental
authority or customer or of Target as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby).
(e) ALLOCATION OF PURCHASE PRICE.
The Purchase Price shall be allocated for United States federal
income tax purposes 90% to the purchase of the Shares and 10% to the agreement
described in Section 5.11 hereunder.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations
of each Party to perform this Agreement and consummate the Stock Purchase and
the other transactions
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contemplated hereby are subject to the satisfaction of the following
conditions, unless waived by both Parties pursuant to Section 9.8:
(a) REGULATORY APPROVALS. All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities
required for consummation of the Stock Purchase shall have been obtained
or made and shall be in full force and effect and all waiting periods
required by Law shall have expired.
(b) CONSENTS AND APPROVALS. Each Party shall have obtained the
Consents required for consummation of the Stock Purchase (other than those
referred to in Section 6.1(a)) or for the preventing of any Default under
any Contract or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a Target
Material Adverse Effect or a Buyer Material Adverse Effect, as applicable.
(c) LEGAL PROCEEDINGS. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) or taken any other action which prohibits,
restricts or makes illegal consummation of the transactions contemplated
by this Agreement.
6.2 CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to
perform this Agreement and consummate the Stock Purchase and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by Buyer pursuant to Section 9.8(a):
(a) REPRESENTATIONS AND WARRANTIES. For purposes of this Section
6.2(a), the accuracy of the representations and warranties of CTI and
Seller set forth in this Agreement shall be assessed as of the date of
this Agreement and as of the Closing Date with the same effect as though
all such representations and warranties had been made on and as of the
Closing Date (provided that representations and warranties which are
confined to a specified date shall speak only as of such date). The
representations and warranties of CTI and Seller set forth in Section 2.3
(Capital Stock) shall be true and correct in all material respects (except
for inaccuracies which are de minimis in amount). There shall not exist
inaccuracies in the representations and warranties of CTI and Seller set
forth in this Agreement (including the representations and warranties set
forth in Section 2.3) such that the aggregate effect of such inaccuracies
has, or is reasonably likely to have, a Target Material Adverse Effect;
provided that, for purposes of this sentence only, those representations
and warranties which are qualified by references to "material" or
"Material Adverse Effect" or to the "Knowledge" of any Person shall be
deemed not to include such qualifications.
(b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
agreements and covenants of CTI and Seller to be performed and complied
with pursuant to
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this Agreement and the other agreements contemplated hereby prior to the
Closing Date shall have been duly performed and complied with in all
material respects.
(c) LEGAL OPINION. Buyer shall have received from Alston & Bird
LLP, counsel to CTI, Seller and Target, a legal opinion addressed to Buyer
and dated the Closing Date in form and substance reasonably satisfactory
to Buyer.
(d) FIRPTA CERTIFICATE. CTI and Seller shall each deliver to
Buyer on the Closing Date duly completed and executed certifications of
non-foreign status pursuant to Section 1.1445-2(b)(2) of the U.S. Treasury
Regulations.
(e) CERTIFICATES. CTI and Seller shall each have delivered to
Buyer a (i) certificate, dated as of the Closing Date, and signed on its
behalf by its chief executive officer and its chief financial officer to
the effect that the conditions set forth in Section 6.1 as relates to
Seller and CTI and in Section 6.2(a) and 6.2(b) have been satisfied and
(ii) certified copies of resolutions duly adopted by CTI's and Seller's
Board of Directors evidencing the taking of all corporate actions
necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby,
all in such reasonable detail as Buyer and its counsel shall request.
6.3 CONDITIONS TO OBLIGATIONS OF CTI AND SELLER. The obligations of CTI
and Seller to perform this Agreement and consummate the Stock Purchase and the
other transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by CTI and Seller pursuant to Section 9.8:
(a) REPRESENTATIONS AND WARRANTIES. For purposes of this Section
6.3(a), the accuracy of the representations and warranties of Buyer set
forth in this Agreement shall be assessed as of the date of this Agreement
and as of the Closing Date with the same effect as though all such
representations and warranties had been made on and as of the Closing Date
(provided that representations and warranties which are confined to a
specified date shall speak only as of such date). The representations and
warranties of Buyer in this Agreement shall be true and correct in all
material respects. There shall not exist inaccuracies in the
representations and warranties of Buyer set forth in this Agreement such
that the aggregate effect of such inaccuracies has, or is reasonably
likely to have, a Buyer Material Adverse Effect; provided that, for
purposes of this sentence only, those representations and warranties which
are qualified by references to "material" or "Material Adverse Effect" or
to the "Knowledge" of any Person shall be deemed not to include such
qualifications.
(b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
agreements and covenants of Buyer to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Closing Date shall have been duly performed and complied with
in all material respects.
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(c) CERTIFICATES. Buyer shall have delivered to CTI and Seller
(i) a certificate, dated as of the Closing Date and signed on its behalf
by its chief executive officer and its chief financial officer, to the
effect that the conditions set forth in Section 6.1 as relates to Buyer
and in Section 6.3(a) and 6.3(b) have been satisfied, and (ii) certified
copies of resolutions duly adopted by Buyer's Board of Directors
evidencing the taking of all corporate action necessary to authorize the
execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, all in such
reasonable detail as CTI and Seller and its counsel shall request.
(d) LEGAL OPINION. CTI and Seller shall have received from
Stikeman Elliott, Canadian counsel to Buyer, and Morgan, Lewis & Bockius
LLP, U.S. counsel to Buyer, legal opinions addressed to CTI and Seller and
dated the Closing Date in form and substance reasonably satisfactory to
CTI and Seller.
(e) SHAREHOLDER APPROVAL. CTI shall have received approval of
this transaction from its shareholders; provided that the Board of
Directors of CTI shall recommend approval of this transaction to its
shareholders and shall use commercially reasonable efforts to obtain the
same.
ARTICLE 7
INDEMNIFICATION
7.1 AGREEMENTS TO INDEMNIFY.
(a) Subject to the terms and conditions of this Article 7, CTI and
Seller shall jointly and severally indemnify, defend, and hold harmless Buyer
from, against, for and in respect of any and all Losses asserted against, or
paid, suffered or incurred by, Buyer and resulting from, based upon, or arising
out of:
(i) the inaccuracy, untruthfulness, or breach of any
representation or warranty of CTI or Seller contained in this Agreement or
in any agreement delivered pursuant to this Agreement;
(ii) a failure to perform any covenant or agreement of CTI or
Seller made in this Agreement;
(iii) any Losses for Taxes (x) imposed on CTI or Seller or
any of its Affiliates (other than the Target Entities) for any period,
(y) imposed on or relating to any Target Entity for any period or portion
thereof ending on or before the Closing Date, including, without
limitation (i) Taxes imposed on any member of a Relevant Group
attributable to any Pre-Closing Period, including any such Tax for which
a Target Entity may be liable under Section 1.1502-6 of the Treasury
Regulations (or any similar provision of
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state, local or foreign tax law), other than income Taxes to the
extent specifically reserved for on the Closing Balance Sheet and any
schedules thereto, and (ii) any Tax resulting from the departure on
or before the Closing Date of any of the Target Entities from any
Relevant Group (resulting from the transferring into income of
deferred intercompany transactions under Section 1.1502-13 of the
Treasury Regulations or excess loss accounts under Section 1.1502-19
of the Treasury Regulations or otherwise), and (z) any Tax arising
directly or indirectly from a breach of a representation or warranty
set out in Section 2.8 of this Agreement;
(iv) any Losses, other than the actual payment of Severance
Pay in accordance with Section 5.7(c), arising out of Buyer's payment of
Severance Pay in accordance with Section 5.7(c);
(v) any Losses incurred by Buyer as a result of the
inaccuracy, untruthfulness, or breach of CTI's and Seller's Air Quality
Representation; and
(vi) any obligation to Buyer pursuant to Section 5.12 hereof.
(b) Subject to the terms and conditions of this Article 7, Buyer
agrees to indemnify, defend, and hold harmless CTI and Seller from, against, for
and in respect of any and all Losses asserted against, or paid, suffered or
incurred by, CTI or Seller and resulting from, based upon, or arising out of:
(i) the inaccuracy, untruthfulness, or breach of any
representation or warranty of Buyer contained in this Agreement or in any
agreement delivered pursuant to this Agreement;
(ii) a failure to perform any covenant or agreement of Buyer
made in this Agreement;
(iii) all liabilities of Target Entities, except to the extent
such liabilities of the Target Entities give rise to an indemnity claim
against CTI or Seller under this Agreement;
(iv) any obligation to CTI or Seller pursuant to Section 5.12
hereof;
(v) the Tax liability resulting to Seller from the
allocation set forth in Section 5.12(e) (except that any indemnity
pursuant to this clause (v) shall be limited to the amount by which the
Tax liability resulting to Seller from the allocation set forth in
Section 5.12(e) exceeded the Tax liability that would have resulted to
Seller if the payment of the Purchase Price had been allocated 100% to the
purchase of the Shares); and
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(vi) any liabilities of CTI arising under or pursuant to that
certain Asset Sale Agreement, dated June 28, 1997 among CTI, Anchor
Continental and Base-Line, Inc.
7.2 PROCEDURES FOR INDEMNIFICATION. All claims for indemnification by
any party entitled to indemnification hereunder (an "Indemnitee") from any other
party hereunder (an "Indemnitor") under this Article 7 shall be asserted and
resolved as follows:
(a) An Indemnification Claim shall be made by an Indemnitee by
delivery of a two written notices (the first such notice to be delivered
promptly after receipt by the Indemnitee of notice thereof and the second such
notice to be delivered by the Indemnitee ten (10) days thereafter) to the
Indemnitor requesting indemnification and specifying the basis on which
indemnification is sought and the amount of asserted Losses and, in the case of
a Third Party Claim, containing (by attachment or otherwise) such other
information as such Indemnitee shall have concerning such Third Party Claim.
(b) If the Indemnification Claim involves a Third Party Claim the
procedures set forth in Section 7.3 shall be observed by the Indemnitee and the
Indemnitor.
(c) If the Indemnification Claim involves a matter other than a
Third Party Claim, the Indemnitor shall have 30 days after the date on which the
Indemnitor receives the notice of an Indemnification Claim to object to such
Indemnification Claim by delivery of a written notice of such objection to the
Indemnitee specifying in reasonable detail the basis for such objection. If
within 30 days after the date on which the Indemnitor receives the second notice
of the Indemnification Claim, the Indemnitor has not delivered to the Indemnitee
a notice objecting to all or any portion of the claimed Loss and setting forth
the amount of such claimed Loss objected to and the reasons for such objection,
the Indemnitee shall be entitled to indemnification for such Loss, and the
Indemnitor shall promptly pay the full amount of such Loss. If, within 30 days
after the date on which the Indemnitor receives the second notice of an
Indemnification Claim, the Indemnitor delivers to the Indemnitee an objection to
all or any portion of the claimed Loss, setting forth the amount of such Loss
objected to and the reasons for such objection, the Indemnitee shall be entitled
to reimbursement for the portion of such Loss not objected to by the Indemnitor
and the Indemnitor shall promptly pay the full amount of so much of the Loss as
to which the Indemnitor did not object. The Indemnitee shall be entitled to
indemnification for the portion of such claimed Loss to which the Indemnitor
objected to upon the earlier of (i) the Indemnitor's and Indemnitee's written
agreement with respect to the indemnification of such Loss, or (ii) a final
determination or award of an arbitrator as provided for in Section 7.11 hereof.
(d) Upon determination of the amount of an Indemnification Claim,
whether by agreement between the Indemnitor and the Indemnitee or by an
arbitration award or by any other final adjudication, the Indemnitor shall pay
the amount of such Indemnification Claim within ten days of the date such amount
is determined.
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7.3 THIRD PARTY CLAIMS. The obligations and liabilities of the parties
hereunder with respect to a Third Party Claim shall be subject to the following
terms and conditions:
(a) The Indemnitee shall give the Indemnitor written notice of a
Third Party Claim promptly after receipt by the Indemnitee of notice thereof and
a second written notice ten (10) days after the Indemnitee's first written
notice to the Indemnitor, and the Indemnitor may undertake the defense,
compromise and settlement thereof by representatives of its own choosing
reasonably acceptable to the Indemnitee. The failure of the Indemnitee to
notify the Indemnitor of such claim shall not relieve the Indemnitor of any
liability that it may have with respect to such claim except to the extent the
Indemnitor is prejudiced by such failure. The assumption of the defense,
compromise and settlement of any such Third Party Claim by the Indemnitor shall
not be an acknowledgment of the obligation of the Indemnitor to indemnify the
Indemnitee with respect to such claim hereunder. If the Indemnitee desires to
participate in, but not control, any such defense, compromise and settlement, it
may do so at its sole cost and expense. If, however, the Indemnitor fails or
refuses to undertake the defense of such Third Party Claim within fifteen (15)
days after the second written notice of such claim has been given to the
Indemnitor by the Indemnitee, the Indemnitee shall have the right to undertake
the defense, compromise and settlement of such claim with counsel of its own
choosing. In the circumstances described in the preceding sentence, the
Indemnitee shall, promptly upon its assumption of the defense of such claim,
make an Indemnification Claim as specified in Section 7.2 which shall be deemed
an Indemnification Claim that is not a Third Party Claim for the purposes of the
procedures set forth herein.
(b) No settlement of a Third Party Claim involving the asserted
liability of the Indemnitor under this Article shall be made without the prior
written consent by or on behalf of the Indemnitor, which consent shall not be
unreasonably withheld or delayed. Notwithstanding the immediately preceding
sentences, consent shall be presumed in the case of settlements of $20,000 or
less where the Indemnitor has not responded within ten (10) business days of the
second notice of a proposed settlement, such second notice to be given ten (10)
days after the first notice. If the Indemnitor assumes the defense of a Third
Party Claim, (a) no compromise or settlement thereof may be effected by the
Indemnitor without the Indemnitee's consent (which consent shall not be
unreasonably withheld or delayed) unless (i) there is no finding or admission of
any violation of law and no effect on any other claim that may be made against
the Indemnitee, (ii) the sole relief provided is monetary damages that are paid
in full by the Indemnitor, and (iii) the compromise or settlement includes, as
an unconditional term thereof, the giving by the claimant or the plaintiff to
the Indemnitee of a release, in form and substance satisfactory to the
Indemnitee, from all liability in respect of such Third Party Claim, and (b) the
Indemnitee shall have no liability with respect to any compromise or settlement
thereof effected without its consent.
(c) In connection with the defense, compromise or settlement of
any Third Party Claim, the parties to this Agreement shall execute such powers
of attorney as may reasonably be necessary or appropriate to permit
participation of counsel selected by any party hereto and, as may reasonably be
related to any such claim or action, shall provide access to (i) the counsel,
accountants and other representatives of each party and to (ii) the properties,
personnel, books, tax records,
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contracts, commitments and all other business records of such other party
during normal business hours and will furnish to such other party copies of
all such documents, in each case as may reasonably be requested (certified,
if requested).
7.4 INDEMNIFICATION EXCLUSIVE REMEDY. Absent fraud, if the Closing
occurs, except for remedies based upon fraud and except for equitable remedies,
the remedies provided in this Article 7 and in the Escrow Agreement constitute
the sole and exclusive remedies for recovery against a party to this Agreement
based upon the inaccuracy, untruth or breach of any representation or warranty
of such party contained herein or in any certificate, Target Disclosure
Memorandum or Exhibit furnished by such party in connection herewith, or based
upon the failure of such party to perform any covenant, agreement or undertaking
required by the terms hereof to be performed by such party, or based upon any
claim arising from any action of any party to this Agreement prior to the
Closing Date.
7.5 SURVIVAL. All representations, warranties and agreements contained
in this Agreement or in any certificate delivered pursuant to this Agreement
shall survive the Closing notwithstanding any investigation conducted with
respect thereto or any knowledge acquired as to the accuracy or inaccuracy of
any such representation or warranty.
7.6 TIME LIMITATIONS.
(a) Neither CTI nor Seller will have any liability to Buyer under
or in connection with: (i) a breach of any of the representations or warranties
made, or the failure to perform any covenants or agreements (other than the
representations and warranties set forth in Sections 2.3 and 2.8 and those
covenants and agreements made by CTI and/or Seller in Sections 5.12,
7.1(a)(iii), 7.1(a)(vi) and 7.8) by CTI or Seller contained in this Agreement
unless written notice asserting an Indemnification Claim based thereon is given
to CTI or Seller prior to March 31, 2000; and (ii) a breach of any
representation or warranty made, or the failure to perform any covenant or
agreement made or to be performed by Seller or CTI contained in this Agreement
related to any Taxes, including without limitation, those representations and
warranties made by Seller and CTI in Section 2.8 and those covenants and
agreements made by Seller and/or CTI in Sections 5.12, 7.1(a)(iii), 7.1(a)(vi)
and 7.8, unless written notice asserting an Indemnification Claim based thereon
is given to Seller or CTI prior to the thirtieth (30th) day after the date upon
which the liability to which any such claim may relate is barred by all
applicable statutes of limitation; provided however that the representations and
warranties set forth in Section 2.3 shall survive indefinitely.
(b) Buyer will have no liability to CTI or Seller under or in
connection with a breach of any of the representations or warranties made, or
the failure to perform any covenants or agreements to be performed, by Buyer
contained in this Agreement unless written notice asserting an Indemnification
Claim based thereon is given to Buyer prior to March 31, 2000, except the
indemnities contained in Section 5.12 and clauses 7.1(b)(iii) and (b)(iv), and
Section 7.8, for which there shall be no time limit.
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7.7 LIMITATIONS AS TO AMOUNT.
(a) Indemnitor shall have no liability with respect to the matters
described in clauses (a) or (b) of Section 7.1 until the total of all Losses
with respect thereto exceeds $400,000 (the "Basket") and then only for the
amount by which such Losses exceed the Basket; PROVIDED, HOWEVER, that the
limitation set forth in this sentence shall not apply to the matters described
in Section 2.8, 5.12, 7.1(a)(iii), 7.1(a)(v), 7.1(a)(vi), 7.1(b)(iii),
7.1(b)(iv), 7.1(b)(v) or 7.1(b)(vi), which Losses shall be reimbursed dollar for
dollar. No single Loss shall be applied toward the Basket or be subject to
indemnity unless such Loss exceeds $10,000 prior to claims exceeding the Basket
or $5,000 after claims exceed the Basket ("Threshold Amounts"); PROVIDED,
FURTHER, HOWEVER, Losses arising out of the same transaction or occurrence may
be aggregated in determining any such Threshold Amounts. Claims shall be deemed
to have occurred when the matter first arises. The limitations set forth in
this Section shall not apply to any intentional misrepresentation or breach of
warranty of Indemnitor or any intentional failure to perform or comply with any
covenant or agreement of Indemnitor, and Indemnitor shall be liable for all
Losses with respect thereto.
(b) In no event shall the aggregate liability of an Indemnitor
under this Article 7 exceed $5,250,000, except that this limitation shall not
apply to any Tax for which a Target Entity may be liable under Section 1.1502-6
of the Treasury Regulations (or similar provision of state, local or foreign
law) that are not attributable to the income or operations of the Target
Entities.
7.8 TAX EFFECT AND INSURANCE. The liability of the Indemnitor with
respect to any Indemnification Claim shall be reduced by the tax benefit
actually received and any insurance proceeds received by the Indemnitees as a
result of any losses upon which such Indemnification Claim is based. For
purposes of this Section 7.8, a tax benefit is actually realized by an
Indemnitee (or a tax detriment suffered) as a result of Losses upon which in
Indemnification Claim is based only to the extent that the tax liability of such
Indemnitee is lower during any taxable year (or higher, in the case of a tax
detriment) as a result of Losses upon which an Indemnification Claim is based
than the tax liability of such Indemnitee would have been had there been no
Losses of this nature. Any reduction or increase in the liability of the
Indemnitor with respect to a Loss as a result of this Section 7.8 shall not be
reflected in a set-off or other direct adjustment to an Indemnitor's payment
obligation with respect to such Loss under this Article 7 but shall instead
result in a separate payment made only when and if the conditions of the second
sentence of this Section 7.8 are satisfied. Any dispute as to the amount of the
tax benefit actually realized (or the tax detriment actually suffered) shall be
resolved by arbitration as provided in Section 7.11 of this Agreement. Except
as otherwise required by law, the Parties shall treat any indemnification
payment made hereunder as an adjustment to Purchase Price.
7.9 ESCROW. Upon notice to CTI or Seller specifying in reasonable
detail the basis therefor, Buyer may give notice of a Claim under the Escrow
Agreement for any amount to which it may be entitled under this Article 7.
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7.10 SUBROGATION. Upon payment in full of any Indemnification Claim or
the payment of any judgment or settlement with respect to a Third Party Claim,
the Indemnitor shall be subrogated to the extent of such payment to the rights
of the Indemnitee against any person or entity with respect to the subject
matter of such Indemnification Claim or Third Party Claim.
7.11 ARBITRATION. All disputes arising under this Article 7 (other than
claims in equity) shall be resolved by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
Arbitration shall be by three arbitrators experienced in the matters at issue
and selected by CTI, Seller and Buyer in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitration
shall be held in such place in New York, New York as may be specified by the
arbitrator (or any place agreed to by CTI, Seller, Buyer and the arbitrator).
The decision of the arbitrator shall be final and binding as to any matters
submitted under this Article 7; provided, however, if necessary, such decision
and satisfaction procedure may be enforced by either Seller or CTI, on the one
hand, or Buyer, on the other hand, in any court of record having jurisdiction
over the subject matter or over any of the parties to this Agreement. The
Parties hereby waive any right to a jury trial in any action to enforce such
decision and satisfaction procedure. All costs and expenses incurred in
connection with any such arbitration proceeding (including reasonable attorneys
fees) shall be borne by the party against which the decision is rendered, or, if
no decision is rendered, such costs and expenses shall be borne equally by the
Indemnitor as one party and the Indemnitee as the other party. If the
arbitrator's decision is a compromise, the determination of which party or
parties bears the costs and expenses incurred in connection with any such
arbitration proceeding shall be made by the arbitrator on the basis of the
arbitrator's assessment of the relative merits of the parties' positions.
ARTICLE 8
TERMINATION
8.1 TERMINATION. Notwithstanding any other provision of this Agreement,
this Agreement may be terminated and the Stock Purchase abandoned at any time
prior to the Closing Date:
(a) By mutual consent of Buyer, on the one hand, and Seller and
CTI, on the other hand; or
(b) By either Party (provided that the terminating Party is not
then in material breach of any representation, warranty, covenant, or
other agreement contained in this Agreement) in the event of a material
breach by the other Party of any representation or warranty contained in
this Agreement which cannot be or has not been cured within 30 days after
the giving of written notice to the breaching Party of such breach and
which breach is reasonably likely, in the reasonable opinion of the
non-breaching Party, to have, individually or in the aggregate, a Target
Material Adverse Effect or a Buyer Material Adverse Effect, as applicable,
on the breaching Party; or
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(c) By either Party (provided that the terminating Party is not
then in material breach of any representation, warranty, covenant, or
other agreement contained in this Agreement) in the event of a material
nonperformance by the other Party of any covenant or agreement contained
in this Agreement which cannot be or has not been cured within 30 days
after the giving of written notice to the breaching Party of such breach;
or
(d) By either Party (provided that the terminating Party is not
then in material breach of any representation, warranty, covenant, or
other agreement contained in this Agreement) in the event any Consent of
any Regulatory Authority required for consummation of the Stock Purchase
and the other transactions contemplated hereby shall have been denied by
final nonappealable action of such authority or if any action taken by
such authority is not appealed within the time limit for appeal; or
(e) By either Party in the event that the Stock Purchase shall not
have been consummated by October 31, 1998, if the failure to consummate
the transactions contemplated hereby on or before such date is not caused
by any breach of this Agreement by the Party electing to terminate
pursuant to this Section 8.1(e).
The Party desiring to terminate this Agreement pursuant to clauses
(b) through (e) shall give written notice of such termination to the other
Party.
8.2 EFFECT OF TERMINATION.
(a) In the event of the termination and abandonment of this
Agreement pursuant to clauses (a) through (e) of Section 8.1, this Agreement
shall become void and have no effect, except that (i) the provisions of this
Section 8.2 and Article 9 and Section 5.4(b) shall survive any such termination
and abandonment, and (ii) a termination pursuant to Sections 8.1(b) or 8.1(c)
shall not relieve the breaching Party from Liability for an uncured willful
breach of a representation, warranty, covenant, or agreement giving rise to such
termination.
(b) In the event of (i) the approval of this Agreement by CTI's
Board of Directors, (ii) CTI's shareholders have not approved the Agreement and
(iii) Seller or CTI closes within six (6) months of the date of this Agreement
another transaction involving the sale of Shares, then CTI or Seller shall
promptly pay, or shall cause Target to promptly pay, Buyer the sum of
$4,000,000, which amount represents the Parties' best estimate of the value of
the management time, overhead, opportunity costs and other unallocated costs of
Buyer incurred by or on behalf of Buyer in connection with the transactions
contemplated by this Agreement which cannot be calculated with certainty.
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ARTICLE 9
MISCELLANEOUS
9.1 DEFINITIONS.
(a) Except as otherwise provided herein, the capitalized terms set
forth below shall have the following meanings:
"AFFILIATE" of a Person shall mean: (i) any other Person directly,
or indirectly through one or more intermediaries, controlling, controlled
by or under common control with such Person; (ii) any officer, director,
partner, employer, or direct or indirect beneficial owner of any 10% or
greater equity or voting interest of such Person; or (iii) any other
Person for which a Person described in clause (ii) acts in any such
capacity; provided however, that no shareholder of Seller shall be an
Affiliate for purposes of this Agreement.
"AGREEMENT" shall mean this Stock Purchase Agreement, including the
Exhibits and Target Disclosure Memorandum or Buyer Disclosure Memorandum
delivered pursuant hereto and incorporated herein by reference.
"ASSETS" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character
and description, whether real, personal or mixed, tangible or
intangible, accrued or contingent, or otherwise relating to or
utilized in such Person's business, directly or indirectly, in whole
or in part, whether or not carried on the books and records of such
Person, and whether or not owned in the name of such Person or any
Affiliate of such Person and wherever located.
"BUSINESS DAYS" means any day that is not a Saturday, Sunday or a
day on which banking institutions in New York, New York, are not required
to be open.
"BUYER DISCLOSURE MEMORANDUM" shall mean the written information
entitled "Buyer Disclosure Memorandum" delivered prior to the date of this
Agreement to Target describing in reasonable detail the matters contained
therein and, with respect to each disclosure made therein, specifically
referencing each Section of this Agreement under which such disclosure is
being made.
"BUYER ENTITIES" shall mean, collectively, Buyer and all Buyer
Subsidiaries.
"BUYER MATERIAL ADVERSE EFFECT" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on the ability of Buyer to
perform its obligations under this Agreement or to consummate the Stock
Purchase or the other transactions contemplated by this Agreement.
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"BUYER SUBSIDIARIES" shall mean the Subsidiaries of Buyer, which
shall include any corporation or other organization acquired as a
Subsidiary of Buyer in the future and held as a Subsidiary by Buyer on the
Closing Date.
"CLOSING DATE" shall mean the date on which the Closing occurs.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
"CONFIDENTIALITY AGREEMENT" shall mean that certain Confidentiality
Agreement, dated June 9, 1998, between Buyer and Schroder & Co. Inc. (as
agent for Seller, CTI and Target).
"CONSENT" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person
pursuant to any Contract, Law, Order, or Permit.
"CONTRACT" shall mean any written agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, restriction, understanding, or undertaking of any kind or
character, or other document to which any Person is a party or that is
binding on any Person or its capital stock, Assets or business.
"DEFAULT" shall mean (i) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit,
(ii) any occurrence of any event that with the passage of time or the
giving of notice or both would constitute a breach or violation of,
default under, contravention of, or conflict with, any Contract, Law,
Order, or Permit, or (iii) any occurrence of any event that with or
without the passage of time or the giving of notice would give rise to a
right of any Person to exercise any remedy or obtain any relief under,
terminate or revoke, suspend, cancel, or modify or change the current
terms of, or renegotiate, or to accelerate the maturity or performance of,
or to increase or impose any Liability under, any Contract, Law, Order, or
Permit.
"DGCL" shall mean the Delaware General Corporation Law.
"EQUITY RIGHTS" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings,
warrants, or other binding obligations of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of a Person or by which a Person is or may be
bound to issue additional shares of its capital stock or other Equity
Rights.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
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"EXHIBITS" shall mean the Exhibits so marked, copies of which are
attached to this Agreement.
"FUNDED INDEBTEDNESS" shall mean any interest bearing debt on a
consolidated basis owed by Target to a third party or The CIT
Group/Business Credit, Inc.
"GAAP" shall mean United States generally accepted accounting
principles, consistently applied during the periods involved.
"HSR ACT" shall mean Section 7A of the Clayton Act, as added by
Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.
"INDEMNIFICATION CLAIM" shall mean a claim for indemnification under
Article 7.
"INTELLECTUAL PROPERTY" shall mean (i) copyrights, patents,
trademarks, service marks, service names and trade names, (ii)
applications and registrations therefor, (iii) technology rights and
licenses, computer software (including any source or object codes therefor
or documentation relating thereto), trade secrets, franchises, know-how,
inventions, and (iv) other intellectual property rights.
"KNOWLEDGE" as used with respect to a Person (including references
to such Person being aware of a particular matter) shall mean those facts
that are known by the president, chief financial officer, chief accounting
officer, chief operating officer, or any senior, or executive vice
president of such Person.
"LAW" shall mean any code, law (including common law), ordinance,
regulation, reporting or licensing requirement, rule, or statute
applicable to a Person or its Assets, Liabilities, or business, including
those promulgated, interpreted or enforced by any Regulatory Authority.
"LIABILITY" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including
costs of investigation, collection and defense), claim, deficiency,
guaranty or endorsement of or by any Person (other than endorsements of
notes, bills, checks, and drafts presented for collection or deposit in
the ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or
otherwise, but excluding any liability with respect to environmental
matters.
"LIEN" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge, or claim of any nature whatsoever of, on, or with respect to any
property or property interest, other than (i) Liens for current property
Taxes not yet due
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and payable, and (ii) Liens which do not materially impair the use of, or
title to, or value of the Assets subject to such Lien.
"LITIGATION" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, governmental or other examination,
hearing, administrative or other proceeding relating to or affecting a
Party, its business, its Assets (including Contracts related to it), or
the transactions contemplated by this Agreement.
"LOSSES" shall mean any and all demands, claims, actions or causes
of action, assessments, losses, damages, Liabilities, costs, and expenses,
including interest, penalties, cost of investigation and defense, and
reasonable attorneys' and other professional fees and expenses relating
thereto.
"MATERIAL" for purposes of this Agreement shall be determined in
light of the facts and circumstances of the matter in question; provided
that any specific monetary amount stated in this Agreement shall determine
materiality in that instance.
"OPERATING PROPERTY" shall mean any property owned, leased, or
operated by the Party in question or by any of its Subsidiaries, and,
where required by the context, includes the owner or operator of such
property, but only with respect to such property.
"ORDER" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
"PARTY" shall mean either Seller, CTI or Buyer, and "PARTIES" shall
mean Seller, CTI and Buyer, collectively.
"PERMIT" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a
party or that is or may be binding upon or inure to the benefit of any
Person or its securities, Assets, or business.
"PERSON" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability
company, trust, business association, group acting in concert, or any
person acting in a representative capacity.
"POST CLOSING PERIOD" means any taxable period or portion thereof
beginning after the Closing Date. If a taxable period begins on or before
the Closing Date and ends after the Closing Date, then the portion of the
taxable period that begins on the day following the Closing date shall
constitute a Post-Closing Period. Notwithstanding the foregoing,
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<PAGE>
Post-Closing Period shall not include any taxable period or portion
thereof to which any Tax attributable to the transactions contemplated by
this Agreement is attributable.
"PRE-CLOSING PERIOD" means any taxable period or portion thereof
that is not a Post-Closing Period.
"PRIME RATE" shall mean the prime rate as published in the "Money
Rate" column of THE WALL STREET JOURNAL, Eastern Edition; in the event
that more than one such rate is reported, the Prime Rate shall equal the
average of such rates. Use of the term Prime Rate in this Agreement shall
mean per annum rate, simple interest.
"REGULATORY AUTHORITIES" shall mean, collectively, the SEC, the
NYSE, the NASD, the Federal Trade Commission, the United States Department
of Justice, and all other federal, state, county, local or other
governmental or regulatory agencies, authorities (including
self-regulatory authorities), instrumentalities, commissions, boards
or bodies having jurisdiction over the Parties and their respective
Subsidiaries.
"REPRESENTATIVE" shall mean any investment banker, financial
advisor, attorney, accountant, consultant, or other representative engaged
by a Person.
"SECURITIES LAWS" shall mean the Securities Act of 1933, as amended,
the Exchange Act of 1934, as amended, the Investment Company Act of 1940,
as amended, the Investment Advisors Act of 1940, as amended, the Trust
Indenture Act of 1939, as amended, and the rules and regulations of any
Regulatory Authority promulgated thereunder.
"SELLER'S CLOSING DOCUMENTS" shall mean the Escrow Agreement and all
certificates and other documents contemplated by this Agreement to be
delivered by Seller and/or CTI at Closing.
"STRADDLE PERIOD RETURN" has the meaning ascribed to such term in
Section 5.12(a)(iii) of this Agreement.
"SUBSIDIARIES" shall mean all those corporations, associations, or
other business entities of which the entity in question either (i) owns or
controls 50% or more of the outstanding equity securities either directly
or through an unbroken chain of entities as to each of which 50% or more
of the outstanding equity securities is owned directly or indirectly by
its parent (provided, there shall not be included any such entity the
equity securities of which are owned or controlled in a fiduciary
capacity), (ii) in the case of partnerships, serves as a general partner,
(iii) in the case of a limited liability company, serves as a managing
member, or (iv) otherwise has the ability to elect a majority of the
directors, trustees or managing members thereof.
"TARGET COMMON STOCK" shall mean the common stock of Target.
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<PAGE>
"TARGET DISCLOSURE MEMORANDUM" shall mean the written information
entitled "Target Disclosure Memorandum" delivered prior to the date of
this Agreement to Buyer describing in reasonable detail the matters
contained therein and, with respect to each disclosure made therein,
specifically referencing each Section of this Agreement under which such
disclosure is being made.
"TARGET ENTITIES" shall mean, collectively, Target and all Target
Subsidiaries.
"TARGET FINANCIAL STATEMENTS" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of Target
and the related statements of income, changes in stockholders' equity, and
cash flows (including related notes and schedules, if any) for each of the
three fiscal years ended September 27, 1997, September 28, 1996 and
September 30, 1995, and the unaudited consolidated balance sheet
(including related notes and schedules, if any) of Target and the related
statements of income, changes in stockholders' equity and cash flows
(including related notes and schedules, if any) for the nine (9) months
ended July 27, 1998, and (ii) the consolidated statements of condition of
Target (including related notes and schedules, if any) and related
statements of income, changes in stockholders' equity, and cash flows
(including related notes and schedules, if any) with respect to periods
ended subsequent to June 27, 1998 (subject to normal recurring year-end
adjustments which are not material in the aggregate and the absence of any
or all footnote disclosures).
"TARGET MATERIAL ADVERSE EFFECT" shall mean a material adverse
effect on the business, assets, liabilities, operations, or results of
operations of Target and its Subsidiary; provided however that a Target
Material Adverse Effect shall not include the effect of any matter which
has or may have an industry-wide effect, or any general economic
conditions.
"TARGET SUBSIDIARIES" shall mean the Subsidiaries of Target,
which shall include the Target Subsidiaries described in Section 2.4
and any corporation or other organization acquired as a Subsidiary of
Target in the future and held as a Subsidiary by Target on the Closing
Date.
"TAX" or "TAXES" shall mean any federal, state, county, local, or
foreign taxes, charges, fees, levies, imposts, duties, or other
assessments, including income, gross receipts, excise, employment, sales,
use, transfer, license, payroll, franchise, severance, stamp, occupation,
windfall profits, environmental, federal highway use, commercial rent,
customs duties, capital stock, paid-up capital, profits, withholding,
Social Security, single business and unemployment, disability, real
property, personal property, registration, ad valorem, value added,
alternative or add-on minimum, estimated, or other tax or governmental fee
of any kind whatsoever, imposes or required to be withheld by the United
States or any state, county, local or foreign government or subdivision or
agency thereof, including any interest, penalties, and additions imposed
thereon or with respect thereto.
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<PAGE>
"TAX RETURN" shall mean any report, return, information return, or
other information required to be supplied to a taxing authority in
connection with Taxes, including any return of an affiliated or combined
or unitary group that includes a Party or its Subsidiaries.
(b) The terms set forth below shall have the meanings ascribed thereto
in the referenced sections:
Agreed Adjustments Section 1.4(b)
Buyer's Accountants Section 1.4(b)
Closing Section 1.2(a)
Closing Balance Sheet Section 1.4(b)
ERISA Affiliate Section 2.14(c)
Escrow Agent Section 1.2(b)
Escrow Agreement Section 1.3
Escrow Amount Section 1.2(b)
Estimated Consolidated Stockholders' Equity Section 1.4(a)
Stockholders' Equity Adjustment Section 1.4(b)
Notice of Disagreement Section 1.4(b)
Purchase Price Section 1.1(c)
Relevant Group Section 2.8
Seller's Accountants Section 1.4(b)
Settlement Accountants Section 1.4(b)
Stock Purchase Section 1.1(a)
Target Benefit Plans Section 2.14(a)
Target Contracts Section 2.15
Target ERISA Plan Section 2.14(a)
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<PAGE>
Target Pension Plan Section 2.14(a)
Tax Escrow Amount Section 1.2(b)
(c) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
9.2 EXPENSES.
(a) Except as otherwise provided in this Section 9.2, each of the
Parties shall bear and pay all direct costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
filing, registration and application fees, printing fees, and fees and expenses
of its own financial or other consultants, investment bankers, accountants, and
counsel.
(b) Nothing contained in this Section 9.2 shall constitute or shall be
deemed to constitute liquidated damages for the willful breach by a Party of the
terms of this Agreement or otherwise limit the rights of the nonbreaching Party.
9.3 BROKERS AND FINDERS. Except for Schroder & Co. Inc. as to Seller
and CTI and except for Downer & Co. as to Buyer, each of the Parties represents
and warrants to the other Party that neither it nor any of its officers,
directors, employees, or Affiliates has employed any broker or finder or
incurred any Liability for any financial advisory fees, investment bankers'
fees, brokerage fees, commissions, or finders' fees in connection with this
Agreement or the transactions contemplated hereby. In the event of a claim by
any broker or finder based upon his or its representing or being retained by or
allegedly representing or being retained by Target, Seller or CTI, on the one
hand, or by Buyer, on the other hand, each of Seller and CTI, on the one hand,
and Buyer, on the other hand, as the case may be, agrees to indemnify and hold
the other Party harmless of and from any Liability in respect of any such claim.
9.4 CONFIDENTIALITY. From and after the Closing Date, Seller and CTI
shall keep confidential any information relating to Target and its Assets and
Operating Properties, except for any such information that (i) is available to
the public on the Closing Date, (ii) thereafter becomes available to the public
other than as a result of a disclosure by Seller or CTI or (iii) is or becomes
available to Seller or CTI on a non-confidential basis from a source that to
CTI's or Seller's knowledge is not prohibited from disclosing such information
to Seller or CTI by a legal, contractual or fiduciary obligation to any other
Person. Should Seller or CTI be required to disclose any such information in
response to a court order or as otherwise required by Law or administrative
process, it shall inform Buyer in writing of such request or obligation as soon
as possible after Seller or CTI is informed of it and, if possible, before any
information is disclosed, so that a protective order or other appropriate remedy
may be obtained. If Seller or CTI is obliged to make the disclosure, it shall
only make the disclosure to the extent to which it is so obliged but not further
or otherwise.
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9.5 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns. It is not the intention of the
parties to confer third-party beneficiary rights, and this Agreement does not
confer any such rights, upon any other Person other than any Person entitled to
indemnity under Article 7 except with respect to employees pursuant to Section
5.7.
9.6 ENTIRE AGREEMENT. Except as otherwise expressly provided herein,
this Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral (except, as to Section
5.4(b), for the Confidentiality Agreement). Nothing in this Agreement expressed
or implied, is intended to confer upon any Person, other than the Parties or
their respective successors, any rights, remedies, obligations, or liabilities
under or by reason of this Agreement.
9.7 AMENDMENTS. To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the Parties upon the approval
of each of the Parties.
9.8 WAIVERS.
(a) Prior to or on the Closing Date, Buyer, acting through its
Board of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by Seller or CTI, to waive or extend the time for the compliance or
fulfillment by Seller or CTI of any and all of its obligations under this
Agreement, and to waive any or all of the conditions precedent to the
obligations of Buyer under this Agreement, except any condition which, if not
satisfied, would result in the violation of any Law. No such waiver shall be
effective unless in writing signed by a duly authorized officer of Buyer.
(b) Prior to or on the Closing Date, CTI, acting through its Board
of Directors, chief executive officer, or other authorized officer, shall have
the right to waive any Default in the performance of any term of this Agreement
by Buyer, to waive or extend the time for the compliance or fulfillment by Buyer
of any and all of its obligations under this Agreement, and to waive any or all
of the conditions precedent to the obligations of Seller and CTI under this
Agreement, except any condition which, if not satisfied, would result in the
violation of any Law. No such waiver shall be effective unless in writing
signed by a duly authorized officer of CTI.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
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<PAGE>
9.9 ASSIGNMENT. Except as expressly contemplated hereby, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party; provided that Buyer may transfer
and assign any or all of its rights, interests and obligations hereunder
(including, without limitation, its rights under Article 1) to an Affiliate of
Buyer (now or hereafter organized), provided that any such assignee agrees in
writing to be bound by all of the terms, conditions and provisions contained
herein, and, unless CTI and Seller otherwise consent, Buyer remains fully liable
hereunder. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the Parties and their
respective successors and assigns.
9.10 NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
Seller or CTI: Coating Technologies International, Inc.
2000 South Beltline Boulevard
Columbia, South Carolina 29205
Telecopy Number: (803) 988-7919
Attention: D. Thomas Divird
Copy to Counsel
(which shall not
constitute notice): Alston & Bird LLP
1201 West Peachtree Street
Atlanta, GA 30309
Telecopy Number: (404) 881-4777
Attention: B. Harvey Hill, Jr.
Buyer: 110 E. Montee de Liesse
St. Laurent, Quebec H4T 1N4
Canada
Telecopy Number: (514) 731-5477
Attention: Melbourne F. Yull
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<PAGE>
Copy to Counsel
(which shall not
constitute notice): Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Telecopy Number: (212) 309-6273
Attention: Nancy H. Corbett, Esq.
Any Party may from time to time may change its address, telefax number or
other information for the purposes of notices to that party by giving notice
specifying such change to the other Parties hereto.
9.11 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Delaware, without regard to any
applicable conflicts of Laws.
9.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
9.13 CAPTIONS; ARTICLES AND SECTIONS. The captions contained in this
Agreement are for reference purposes only and are not part of this Agreement.
Unless otherwise indicated, all references to particular Articles or Sections
shall mean and refer to the referenced Articles and Sections of this Agreement.
9.14 INTERPRETATIONS. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated, and accepted by both parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
9.15 ENFORCEMENT OF AGREEMENT. The Parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity or in this Agreement.
9.16 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
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<PAGE>
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
9.17 UPDATING TARGET DISCLOSURE MEMORANDUM. Seller and CTI may update or
supplement the Target Disclosure Memorandum in writing delivered to Buyer at any
time on or prior to Closing to reflect matters which occur subsequent to the
date hereof and do not result from the breach of any of the covenants contained
in Sections 4.1 or 4.2. Buyer in its sole discretion may (i) accept such Target
Disclosure Memorandum as modified and close the purchase and sale of the Shares,
thereby waiving any claim Buyer may have that such modification is a breach of
the representations and warranties given in Article 2 on the date of this
Agreement, or (ii) terminate this Agreement in the event such modification has,
individually or in the aggregate, a Target Material Adverse Effect.
9.18 NON-COMPETITION AGREEMENTS. At the Closing, Buyer and Target shall
enter into non-competition agreements with each of D. Thomas Divird and
Daniel E. Stansky, in form and substance satisfactory to Buyer, Target,
D. Thomas Divird and Daniel E. Stansky.
[Signatures on Next Page]
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IN WITNESS WHEREOF, each of Seller, CTI and Buyer has caused this
Agreement to be executed on its behalf by its duly authorized officers as of the
day and year first above written.
INTERTAPE POLYMER GROUP INC.
By: /s/ [ILLEGIBLE]
-----------------------------------
Name: [ILLEGIBLE]
-----------------------------------
Title: [ILLEGIBLE]
-----------------------------------
Witness: /s/ [ILLEGIBLE]
-----------------------------
Name: [ILLEGIBLE]
-----------------------------
COATING TECHNOLOGIES
INTERNATIONAL, INC.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Witness:
-----------------------------
Name:
-----------------------------
ANCHOR CONTINENTAL
HOLDINGS, INC.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Witness:
-----------------------------
Name:
-----------------------------
<PAGE>
IN WITNESS WHEREOF, each of Seller, CTI and Buyer has caused this
Agreement to be executed on its behalf by its duly authorized officers as of the
day and year first above written.
INTERTAPE POLYMER GROUP INC.
By: /s/ Andrew M. Archibald
-----------------------------------
Name: Andrew M. Archibald
-----------------------------------
Title: CFO, Secretary
-----------------------------------
Witness: /s/ Paul Vogt
-----------------------------
Name: Paul Vogt
-----------------------------
COATING TECHNOLOGIES
INTERNATIONAL, INC.
By: /s/ D. T. Divird
-----------------------------------
Name: D. T. Divird
-----------------------------------
Title: CEO
-----------------------------------
Witness: /s/ B. H. Hildreth
-----------------------------
Name: B. H. Hildreth
-----------------------------
ANCHOR CONTINENTAL
HOLDINGS, INC.
By: /s/ D. T. Divird
-----------------------------------
Name: D. T. Divird
-----------------------------------
Title: V.P.
-----------------------------------
Witness: /s/ B. H. Hildreth
-----------------------------
Name: B. H. Hildreth
-----------------------------
