-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HCRkfEf+Bc735k9a/5K8HKIixnAj4h8N4mLeESGKxECGth+ouFEhxxnnE4esXJgt sSE1Wcw2q+nwHKqXWF+b0A== 0000813621-00-000002.txt : 20000327 0000813621-00-000002.hdr.sgml : 20000327 ACCESSION NUMBER: 0000813621-00-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMCOL INTERNATIONAL CORP CENTRAL INDEX KEY: 0000813621 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 360724340 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14447 FILM NUMBER: 577550 BUSINESS ADDRESS: STREET 1: 1500 W SHURE DR STREET 2: ONE N ARLINGTON CITY: ARLINGTON HEIGHTS STATE: IL ZIP: 60004-7803 BUSINESS PHONE: 8473948730 MAIL ADDRESS: STREET 1: 1500 W SHURE DR STREET 2: 1500 W SHURE DR SUITE 500 CITY: ARLINGTON HEIGHTS STATE: IL ZIP: 60004-7803 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN COLLOID CO DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________________ FORM 10-K (Mark one) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1999 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to _________ Commission File Number: 0-15661 AMCOL INTERNATIONAL CORPORATION (Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-0724340 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) One North Arlington, 1500 West Shure Drive, Suite 500 Arlington Heights, Illinois 60004-7803 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 394-8730 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: $.01 par value Common Stock (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. The aggregate market value of the $.01 par value Common Stock held by non-affiliates of the registrant on March 15, 2000, based upon the closing sale price on that date as reported in The Wall Street Journal was approximately $344,829,571. Registrant had 24,412,713 shares of $.01 par value Common Stock outstanding as of March 15, 2000. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement to be dated on or before April 29, 2000, are incorporated by reference into Part III hereof. PART I Item 1. Business INTRODUCTION AMCOL International Corporation was originally incorporated in South Dakota in 1924 as the Bentonite Mining & Manufacturing Company. Its name was changed to American Colloid Company in 1927, and in 1959, the Company was reincorporated in Delaware. In 1995, its name was changed to AMCOL International Corporation. Except as otherwise noted, or indicated by context, the term "Company" refers to AMCOL International Corporation and its subsidiaries. The Company operates in three major industry segments: absorbent polymers, minerals and environmental. The Company also operates a transportation business. The absorbent polymers segment produces and distributes superabsorbent polymers primarily for use in consumer markets. The minerals segment mines, processes and distributes clays and products with similar applications to various industrial and consumer markets. The environmental segment processes and distributes clays and products with similar applications for use as a moisture barrier in commercial construction, landfill liners and in a variety of other industrial and commercial applications. The transportation segment includes a long-haul trucking business and a freight brokerage business, which provide services to both the Company's plants and outside customers. The following table sets forth the percentage contributions to net sales of the Company attributable to its absorbent polymers, minerals, environmental and transportation segments for the last three calendar years.
Percentage of Sales 1999 1998 1997 Absorbent polymers......................................................... 45.8% 42.4% 41.1% Minerals................................................................... 28.3% 31.5% 34.1% Environmental.............................................................. 19.6% 20.0% 18.5% Transportation............................................................. 6.3% 6.1% 6.3% 100.0% 100.0% 100.0%
Net revenues, operating profit, assets, depreciation, depletion and amortization, capital expenditures and research and development expenditures attributable to each of the Company's business segments are set forth in Note 2 of the Company's Notes to Consolidated Financial Statements included elsewhere herein, which Note is incorporated herein by reference. The Company has agreed to sell its absorbent polymers business to BASF Aktiengesellschaft ("BASF") pursuant to the terms of an Asset and Stock Purchase Agreement dated November 22, 1999 (the "Purchase Agreement"). The sale is subject to approval by the Company's shareholders, as well as certain U.S. and European governmental regulatory reviews. The Purchase Agreement provides for the transfer to BASF of the following: (i) all of the shares of capital stock of the Company's indirect subsidiaries: Chemdal Corporation and Chemdal Asia Ltd.; and (ii) all other assets of the Company and its designated subsidiaries related primarily to the absorbent polymers business. Subject to certain post-closing adjustments, the total consideration to be paid to the Company by BASF consists of (i) $628 million, less any outstanding intercompany indebtedness of the absorbent polymers business, as the purchase price under the Purchase Agreement, and (ii) $28.5 million, as consideration for entering into an Acrylic Acid Supply Agreement. The sale does not include the Company's Poly-Pore business which was included in the absorbent polymers segment for management purposes. Poly-Pore includes the business of researching, manufacturing and selling of microporous oil and/or water sorbent polymers capable of entrapping solids and liquids, and has had minimal sales to date. The Company currently intends to adopt a plan of partial liquidation in connection with the closing of the sale of the absorbent polymers business pursuant to which the Company will distribute pro rata to its shareholders a significant portion of the net proceeds from the sale. On a pro forma basis, the Company expects to distribute between $14.00 and $14.50 per share. THE AMOUNT OF THE EXPECTED DISTRIBUTION TO SHAREHOLDERS IS BASED UPON THE EXPECTED GROSS PROCEEDS OF THE SALE AND ESTIMATED TRANSACTION RELATED COSTS. THE ACTUAL AMOUNT OF THE DISTRIBUTION WILL BE DETERMINED SHORTLY AFTER THE CLOSING OF THE TRANSACTION. ACCORDINGLY, THE ACTUAL AMOUNT TO BE DISTRIBUTED TO SHAREHOLDERS MAY BE SUBSTANTIALLY DIFFERENT FROM THE AMOUNT INDICATED ABOVE. ABSORBENT POLYMERS In the early 1970s, the Company utilized a technique called modified bulk polymerization ("MBP") to manufacture water-soluble polymers for the oil well drilling industry. This technique was modified to produce superabsorbent polymers ("SAP"), a category of polymers known for its extremely high water absorbency. Chemdal Corporation was formed in 1986 to manufacture and market absorbent polymers, with primary emphasis on SAP. To date, the Company's sales of SAP have been almost exclusively for use as an absorbent in personal care products, primarily disposable baby diapers. The Company produces SAP at its U.S. and U.K. facilities, having a combined annual capacity of 160,000 metric tons. The Company has completed construction of a 20,000 metric ton plant in Thailand that is scheduled to begin production in the latter part of March 2000. The Company also has a supply agreement through June 2000 for supply of up to 1,000 metric tons per month of SAP from a former producer of SAP. Global demand for SAP has grown significantly in recent years as the amount of SAP used in new diaper designs has increased. SAP is more absorbent than fluff pulp, and has been partially replacing fluff pulp in disposable diapers. The use of SAP in diapers allows for a thinner diaper that occupies less shelf space in stores and less landfill space. SAP also helps to hold moisture inside the diaper, thereby causing less irritation to the wearer's skin and reducing leakage. Principal Products and Markets The Company's SAP is primarily marketed under the trade names ARIDALL and ASAP. The Company's customers primarily include private label, national and multinational brand diaper manufacturers. Sales and Distribution The Company sells SAP to the personal care market in the United States on a direct basis. In other countries, the Company markets its products both directly and through agents and distributors. The Company expects to rely increasingly on a direct sales approach in the personal care market. The Company's direct sales efforts employ a team approach that includes both technical and marketing representatives. In 1999, the top two customers accounted for approximately 50% of the Company's polymer sales, and the top five customers accounted for approximately 68% of such sales. Procter and Gamble and Drypers Corporation are the two largest customers, with Procter and Gamble representing approximately 39% of the sales for this segment. Research and Development The Company divides its research efforts into SAPs for the disposable hygienics markets and polymers for other markets (non-hygienics). Research and development for SAP focuses on applications and technology development that differentiate the Company's products and enhance its market position. Activity includes extension of its current technology with enhanced attributes that allow products to command higher prices, and also the creation of new platform technologies with the objective of being the leading edge company in disposable hygienic markets. Research and development works with all functional areas in the Company, from idea generation to product introduction. A substantive part of the overall research and development expenditures is dedicated to new business and technology development activities for markets distinct from disposable hygienics. There is technology crossover for SAP into new areas, such as ion-exchange polymers for several markets, as well as a strong commitment to new-platform technology development. An example of this is adsorbent polymers for cosmetics and industrial markets. The Company benefits from the recruitment and retention of high-caliber research staff. It places importance on leveraging its research investment with collaborative bodies externally, such as academia and other corporations, and internally with the technical functions and resources of AMCOL's other business segments. The Company owns several patents relating to its original manufacturing process developed in the 1970s, and to modifications of its process developed in the 1980s and 1990s relating to its current manufacturing process. Patents on the original process have begun to expire. The Company believes that the loss of the patent protection will not have a material impact on the business. The patents relating to the current modifications expire at various times commencing in 2002. The Company follows the practice of obtaining patents on new developments whenever reasonably practicable. The Company also relies on unpatented know-how, trade secrets and improvements in connection with its SAP manufacturing process. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to or disclose the Company's trade secrets. Raw Materials The process used by the Company to produce SAP primarily uses acrylic acid and, to a lesser extent, potassium and sodium alkalis and catalysts. The Company knows of four acrylic acid suppliers in the United States, three in Europe and four in the Far East. The Company is aware that at least five of these suppliers manufacture SAP and, therefore, compete with the Company in this market. Global merchant supply of acrylic acid is adequate to meet the Company's production requirements. As long as acrylic acid supply exceeds demand, the Company does not consider itself to be at a significant competitive disadvantage against the vertically integrated producers of SAP. Potassium and sodium alkalis are available on a commercial basis worldwide with no meaningful limitations on availability. Catalysts are available from a small number of high-technology chemical manufacturers; however, the Company does not anticipate any difficulties in obtaining catalysts. Competition The Company believes that there are at least five major polymer manufacturers and at least three importers that compete with its U.S. operation, several of which have substantially greater financial resources than the Company. Three of these competitors are vertically integrated producers of acrylic acid, the primary cost component of SAP. The Company's U.K. operation competes with numerous producers. Only one producer has substantially more production capacity and several producers have greater financial resources than the Company. Further, at least three of these competitors are vertically integrated producers of acrylic acid. The competition in both the Company's domestic and international markets is primarily a matter of product quality and price, and it historically has been vigorous. The Company believes that its polymer manufacturing process has enabled it to add polymer production capacity at a lower capital investment cost than that required by other processes currently in widespread commercial use. Regulation and Environmental The Company's production process for SAP consumes virtually all chemicals and other raw materials used in the process. Virtually all materials that are not consumed by the end product are recycled through the process. The Company's polymer plants, therefore, generate a minimal amount of chemical waste. The handling of dried polymer is part of the production process, and, because this generates dust, the Company's polymer plants must meet clean air standards. The Company's polymer plants are equipped with dust collection systems, and the Company believes that it is in material compliance with applicable state and federal clean air regulations. The Company's absorbent polymer business is subject to other federal, state, local and foreign laws and regulations relating to the environment and to health and safety matters. Certain of these laws and regulations provide for the imposition of substantial penalties for non-compliance. While the costs of compliance with, and penalties imposed under, these laws and regulations have not had a material adverse effect on the Company, future events (such as changes in or modified interpretations of existing laws and regulations or enforcement policies or further investigation or evaluation of potential health hazards of certain products) may give rise to additional compliance and other costs that could have a material adverse effect on the Company. MINERALS The Company's minerals business is principally conducted through its wholly owned subsidiaries, American Colloid Company in the United States and Canada, Volclay Ltd. in the United Kingdom, Volclay Siam Ltd. in Thailand, Volclay Korea Ltd. in South Korea, Volclay Pty., Ltd. in Australia, and through its joint venture companies, Redhill Volclay Company Ltd. in China, Volclay de Mexico in Mexico, Ashapura Volclay Ltd. in India, Egypt Mining & Drilling Chemicals Co. in Egypt, and Nissho Iwai Bentonite Company in Japan. The Company also has a 20% equity interest in Ashapura Minechem Ltd., a publicly traded Indian bentonite producer. Commercially produced bentonite is a type of montmorillonite clay found in beds ranging in thickness from two to 50 feet under overburden of up to 60 feet. There are two basic types of bentonite, each having different chemical and physical properties. These are commonly known as sodium bentonite and calcium bentonite. Sodium bentonite is generally referred to as western bentonite because it predominately occurs in the Western United States. Sodium bentonites of lesser purity occur outside the United States. Calcium bentonite is generally referred to as southern bentonite in the United States and as fuller's earth outside the United States. Calcium bentonites mined outside the United States are commonly activated with sodium carbonate to produce properties similar to natural sodium bentonite. A third type of clay mineral, a less pure variety of calcium montmorillonite called fuller's earth in the United States, is used as "traditional" cat litter. In April 1998, the Company sold its fuller's earth reserves and associated business to Oil-Dri Corporation of America (Oil-Dri). As part of the sale agreement, Oil-Dri supplies the Company's brands of traditional fuller's earth cat litter for sale to the pet trade sector of the domestic cat litter market. The Company's principal bentonite products are marketed under various internationally registered trade names, including VOLCLAY, PANTHER CREEK, PREMIUM GEL and ADDITROL. The Company's cat litter is sold under various trade names and private labels. Trade names include NATURAL SELECT, CAREFREE KITTY, PREMIUM CHOICE, CAT TAILS, CATS PAW and PAMPER CAT. Principal Products and Markets Durable Goods Metalcasting. In the formation of sand molds for metal castings, sand is bonded with bentonite and various other additives to yield desired casting form and surface finish. The Company produces blended mineral binders containing sodium and calcium bentonite, sold under the trade name ADDITROL. In addition, several high-performance specialty products are sold to foundries and companies that service foundries. Iron Ore Pelletizing. The Company supplies sodium bentonite for use as a pelletizing aid in the production of taconite pellets in North America. Well Drilling. Sodium bentonite and leonardite, a form of oxidized lignite mined and processed by the Company in North Dakota, are components of drilling fluids used in oil and gas well drilling. Bentonite imparts thickening and suspension properties, which facilitate the transport of rock cuttings to the surface during the drilling process. Drilling fluids lubricate the drilling bit and coat the underground formations to prevent hole collapse and drill bit seizing. The Company's primary trademark for this application is PREMIUM GEL. Other Industrial. The Company produces bentonite and bentonite blends for the construction industry, which are used as a plasticizing agent in cement, plaster and bricks, and as an emulsifier in asphalt. Consumable Goods Cat Litter. The Company produces and markets a sodium bentonite-based, scoopable (clumping) cat litter. The Company markets a traditional cat litter to complement its line of scoopable cat litter products to the pet trade sector of the market. The Company's scoopable products' clump-forming capability traps urine, allowing for easy removal of the odor-producing elements from the litter box. Scoopable cat litter has grown to 54% of the U.S. grocery market for cat litter in 1999 from 0.4% in 1989, and to 64% of the mass merchandise market for cat litter from no representation in 1989. The scoopable cat litter products are sold primarily to private label grocery and mass merchandisers, though the Company also sells its own brands to the grocery, pet store and mass markets. The Company's products are marketed under various trade names. Fine Chemicals. Purified grades of sodium bentonite are marketed to the pharmaceutical and cosmetics industries. Small amounts of purified bentonite act as a binding agent for pharmaceutical tablets, and bentonite's swelling property aids in tablet disintegration. Bentonite also acts as a thickening and suspension agent in lotions. Other specialized uses include flow control additives and beverage clarification. Agricultural. Sodium bentonite and calcium bentonites are sold as pelletizing aids in livestock feed and as anticaking agents for livestock feed in storage or during transit. Sales and Distribution In 1999, the top four customers were located in North America and accounted for approximately 28% of the Company's mineral sales worldwide. The Company has established industry-specialized sales groups staffed with technically oriented salespersons serving each of the Company's major markets. Certain groups have networks of distributors and representatives, including companies that warehouse products at strategic locations. Most customers in the metalcasting industry are served on a direct basis by teams of Company sales, technical and manufacturing personnel. The Company also provides training courses and laboratory testing for customers who use the Company's products in the metalcasting process. Sales to the oil and gas well drilling industry are primarily made directly to oil and gas well drilling fluid service companies, both under the Company's trade name and under private label. Because bentonite is a major component of drilling fluids, two service companies have captive bentonite operations. The Company's potential market, therefore, generally is limited to those service organizations that are not vertically integrated, or do not have long-term supply arrangements with other bentonite producers. Sales to the cat litter market are made on a direct basis and through industry brokers. All sales to the iron ore pelletizing industry are made directly to the end user. Sales to the Company's remaining markets are made primarily through independent distributors and representatives. Competition The Company is one of the largest producers of bentonite products globally. There are at least four other major North American producers of sodium bentonite and at least one other major domestic producer of calcium bentonite. Two of the North American producers are companies primarily in other lines of business with substantially greater financial resources than the Company. There is also substantial global competition. The Company's bentonite operations outside North America compete with at least 12 other bentonite producers. Competition, in both the Company's domestic and international markets, is essentially a matter of product quality, price, logistics, service and technical support. With greater attention to market growth opportunities in emerging economic regions, competition among the significant bentonite producers has become quite vigorous. Seasonality Although business activities in certain of the industries in which the Company's mineral products are sold, e.g. oil and gas well drilling and construction, are subject to factors such as weather, the Company does not consider its mineral business, as a whole, to be seasonal. ENVIRONMENTAL Principal Products and Markets Through its wholly owned subsidiaries, Colloid Environmental Technologies Company (CETCO) in the United States and Canada, CETCO Korea Ltd., CETCO Australia Pty. Ltd., CETCO Environmental Technologies Pte. Ltd. (Singapore), CETCO Poland Sp. z o.o. and CETCO (Europe) Ltd. in the United Kingdom, the Company sells sodium bentonite, products containing sodium bentonite, and other products, services, and equipment for use in environmental and construction applications. CETCO sells bentonite and its geosynthetic clay liner products under the BENTOMAT and CLAYMAX trade names for lining and capping landfills and for containment in tank farms, leach pads, waste stabilization lagoons, slurry walls and wetlands reclamation applications. The Company's VOLCLAY Waterproofing System is sold to the non-residential construction industry. This line includes VOLTEX, a waterproofing composite comprised of two polypropylene geotextiles filled with sodium bentonite. VOLTEX is installed to prevent leakage through underground foundation walls and slabs. The following products round out the principal components of the product line: VOLCLAY PANELS, also used for below-grade waterproofing of walls and slabs; WATERSTOP-RX, a joint sealant product; and VOLCLAY SWELLTITE, a waterproofing membrane for concrete split slabs and plaza areas. Bentonite-based flocculants and customized equipment are used to remove emulsified oils and heavy metals from wastewater. Bentonite-based products are formulated to solidify liquid waste for proper disposal in landfills. These products are sold primarily under the SYSTEM-AC, RM-10 and SORBOND trade names. CETCO's environmental offshore services group employs CRUDESORB filtration technology, used primarily on offshore oil production platforms. CETCO employs several technologies to allow platform operators to maintain compliance with regulatory requirements governing discharge of waste generated during oil production. CETCO's filtration technology is marketed with all necessary equipment, proprietary filter media and trained professional service personnel. The Company is also actively involved in providing wastewater treatment solutions to the cruise line industry to enable cruise line operators to meet wastewater discharge requirements. CETCO's drilling products are used in environmental and geotechnical drilling applications, horizontal directional drilling and mineral exploration. The products are used to install monitoring wells and water wells, rehabilitate existing water wells and seal abandoned exploration drill holes. VOLCLAY GROUT, BENTOGROUT and VOLCLAY TABLETS are among the trade names for products used in these applications. Horizontal and directional drilling applications utilizing HYDRAUL-EZ represent a new market area for CETCO drilling products. Competition CETCO has four principal competitors in the geosynthetic clay liner market. The construction and wastewater treatment product lines are specialized businesses that compete primarily with alternative technologies. The groundwater monitoring, well drilling and sealants products compete with the Company's traditional rivals in the sodium bentonite business. The environmental offshore services group competes with several larger oil services companies using different technology. Competition is based on product quality, service, price, technical support and availability of product. Historically, the competition has been vigorous. Sales and Distribution In 1999, no customer accounted for more than 5% of environmental sales. CETCO products are sold domestically and internationally. CETCO sells most of its products through independent distributors and commissioned representatives. CETCO employs technically oriented marketing personnel to support its network of distributors and representatives. Offshore customers are primarily major oil companies sold on a direct basis. Seasonality Much of the business in the environmental sector is impacted by weather and soil conditions. Many of the products cannot be applied in harsh weather conditions and, as such, sales and profits tend to be stronger April through October. As a result, the Company considers this segment to be seasonal. MINERALS/ENVIRONMENTAL COMMON OPERATIONAL FUNCTIONS Mineral Reserves The Company has reserves of sodium and calcium bentonite at various locations throughout North America including Wyoming, South Dakota, Montana and Alabama. The Company, indirectly through its joint venture companies, has access to bentonite deposits in China, Egypt, India and Mexico. At 1999 consumption rates and product mix, the Company estimates its proven reserves of commercially usable sodium bentonite at more than 30 years. The Company estimates its proven reserves of calcium bentonite at 10 years. While the Company, based upon its experience, believes that its reserve estimates are reasonable and its title and mining rights to its reserves are valid, the Company has not obtained any independent verification of such reserve estimates or such title or mining rights. The Company owns or controls the properties on which its reserves are located through long-term leases, royalty agreements and patented and unpatented mining claims. A majority of the Company's bentonite reserves are owned. All of the properties on which the Company's reserves are located are either physically accessible for the purposes of mining and hauling, or the cost of obtaining physical access would not be material. Of the Company's total bentonite reserves in North America, less than 34% are located on unpatented mining claims owned or leased by the Company, on which the Company has the right to undertake regular mining activity. To retain possessory rights, a fee of $100 per year for each unpatented mining claim is required. The validity of title to unpatented mining claims is dependent upon numerous factual matters. The Company believes that the unpatented mining claims that it owns have been located in compliance with all applicable federal, state and local mining laws, rules and regulations. The Company is not aware of any material conflicts with other parties concerning its claims. From time to time, members of Congress and members of the executive branch of the federal government have proposed amendments to existing federal mining laws. The various amendments would have had a prospective effect on mining operations on federal lands and include, among other things, the imposition of royalty fees on the mining of unpatented claims, the elimination or restructuring of the patent system and an increase in fees for the maintenance of unpatented claims. To the extent that future proposals may result in the imposition of royalty fees on unpatented lands, the mining of the Company's unpatented claims may become uneconomic, and royalty rates for privately leased lands may be affected. The Company cannot predict the form that any amendments might ultimately take or whether or when any such amendments might be adopted. The Company maintains a continuous program of worldwide exploration for additional reserves and attempts to acquire reserves sufficient to replenish its consumption each year, but it cannot assure that additional reserves will continue to become available. The Company oversees all of its mining operations, including its exploration activity and securing the necessary state and federal mining permits. The following table shows a summary of minerals sold by the Company from active mining areas for the last three years in short tons, as well as mineral reserves by major mineral category:
Wet Tons of Assigned Unassigned Conversion Tons Sold Reserves Reserves Reserves Factor Mining Claims Unpatented 1999 1998 1997 Owned (1) Leased Sodium bentonite 1,453 1,532 1,617 116,878 56,724 60,154 77.2% 79,073 16,664 21,141 Calcium bentonite 205 196 195 2,831 2,831 - 72.7% - - 2,831 Leonardite 22 24 30 740 740 - 65.3% - - 740 1,680 1,752 1,842 120,449 60,295 60,154 79,073 16,664 24,712 (1) Quantity of reserves that would be owned if patent was granted. Note: All data except percents in thousands
Assigned reserves means reserves which could be reasonably expected to be processed in existing plants. Unassigned reserves means reserves which will require additional expenditures for processing facilities. Conversion factor means the percentage of reserves that will be available for sale after processing. The Company estimates that available supplies of other materials utilized in its mineral business are sufficient to meet its production requirements for the foreseeable future. Mining and Processing Bentonite is surface-mined, generally with large earthmoving scrapers, and then loaded into trucks and off-highway haul wagons for movement to processing plants. The mining and hauling of the Company's clay is done both by the Company and by independent contractors. Each of the Company's bentonite processing plants generally maintains stockpiles of unprocessed clay equaling approximately four to eight months' production requirements. At the processing plants, bentonite is dried, crushed and sent through grinding mills, where it is sized into shipping form, then chemically modified where needed and transferred to silos for automatic bagging or bulk shipment. Virtually all production is shipped as processed, rather than stored for inventory. Product Development and Patents The Company works actively with customers in each of its major markets to develop commercial applications of specialized grades of bentonite. It maintains a bentonite research center and laboratory testing facility adjacent to its corporate headquarters, as well as one in the United Kingdom. When a need for a product that will accomplish a particular goal is perceived, the Company works to develop the product, research its marketability and study the feasibility of its production. The Company also co-develops products with customers, or others, as needs arise. The Company's development efforts emphasize markets with which it is familiar and products for which it believes there is a viable market. The Company holds a number of U.S. and international patents covering the use of bentonite and products containing bentonite. The Company follows the practice of obtaining patents on new developments whenever feasible. The Company, however, does not consider that any one or more of such patents is material to its minerals and environmental businesses as a whole. Research and Development All Company business segments share research and laboratory facilities adjacent to the corporate headquarters. Technological developments are shared between the companies, subject to license agreements where appropriate. Regulation and Environmental The Company believes it is in material compliance with applicable regulations now in effect for surface mining. Since reclamation of exhausted mining sites has been a regular part of the Company's surface mining operations for the past 31 years, maintaining compliance with current regulations has not had a material effect on mining costs. Reclamation costs are reflected in the prices of the bentonite sold. The grinding and handling of dried clay is part of the production process and, because it generates dust, the Company's mineral processing plants are subject to applicable clean air standards (including Title V of the Clean Air Act). All of the Company's plants are equipped with dust collection systems. The Company has not had, and does not presently anticipate, any significant regulatory problems in connection with its dust emission, though it expects ongoing expenditures for the maintenance of its dust collection systems and required annual fees. The Company's mineral operations are also subject to other federal, state, local and foreign laws and regulations relating to the environment and to health and safety matters. Certain of these laws and regulations provide for the imposition of substantial penalties for noncompliance. While the costs of compliance with, and penalties imposed under, these laws and regulations have not had a material adverse effect on the Company, future events, such as changes in, or modified interpretations of, existing laws and regulations, enforcement policies, further investigation or evaluation of potential health hazards of certain products, may give rise to additional compliance and other costs that could have a material adverse effect on the Company. TRANSPORTATION The Company operates a long-haul trucking business and a freight brokerage business primarily for delivery of finished products throughout the continental United States. Through its transportation operation, the Company is better able to control costs, maintain delivery schedules and assure equipment availability for delivery of its products. The long-haul trucking subsidiary performs transportation services on outbound movements from the Company's production plants and attempts to haul third parties' products on return trips whenever possible. In 1999, approximately 54% of the revenues of this segment involved the Company's products. CORPORATE DEVELOPMENT ACTIVITIES Nanocomposite Product Development The Company is always seeking to develop broader-based technologies which may use bentonite for new, value-added applications. One such technology is nanocomposites for the plastics industry. In 1995, the Company established its Nanocor subsidiary to develop surface-modified bentonites suitable for the emerging nanocomposite market. The primary raw material is bentonite, principally using the Company's current mineral reserves. For some applications, bentonites will be purchased from third party suppliers. Surface treatment chemicals, added in the production process, are readily available on the merchant market. The Company is focusing its development on the use of bentonite as a functional additive for plastics. The technology consists of dispersing highly purified bentonite of nanometer size (one-billionth of a meter) in plastic resins. The mineral's extremely small size creates a molecular blend with the plastic resin, giving rise to a number of beneficial properties. For example, nanocomposite plastics become stronger and lighter than traditional composite plastics, a combination attractive to the transportation industry. Nanocomposite plastics also hold their strength at high temperatures, an appealing property for electronics applications, among others. In plastic beverage containers, the benefits include longer shelf life and fresher taste, attractive qualities for consumer goods. The Company has a number of joint development agreements with potential customers. The arrangements are generally non-exclusive and contain provisions for joint ownership of intellectual property. Some applications of the technology under development are independent of partner participation and will be solely owned by the Company. The Company's Nanocor subsidiary is developing bentonite products suitable for use in automotive parts, electronic components and consumer packaging. The products will be marketed under the tradename Nanomer. Nanomers will be marketed to the plastics industry in North America on a direct basis, and in other regions, both on a direct basis and through distributors. Poly-Pore Development The Company has been involved in the research and development of microporous oil and/or water absorbent polymers capable of entrapping solids and liquids. These products are intended for use in the cosmetics industry. The costs of the research have been included in the absorbent polymers segment. The Company will retain the rights to its proprietary technology after the pending sale of the absorbent polymers segment is completed. FOREIGN OPERATIONS AND EXPORT SALES Approximately 46% of the Company's 1999 net sales were to customers in countries other than the United States. To enhance its overseas market penetration, the Company maintains mineral processing plants in the United Kingdom, Australia, Korea and Thailand, as well as a blending plant in Canada. Through joint ventures, the Company also has the capability to process minerals in Egypt, India, Mexico and China. Chartered vessels deliver large quantities of the Company's bulk, dried sodium bentonite to the plants in the United Kingdom, Australia and Thailand, where it is processed and mixed with other clays and distributed throughout Europe, Australia and Southeast Asia. The Company's U.S. bentonite is also shipped in bulk to Japan, where it is sold by the Japanese joint venture. The Company also maintains a worldwide network of independent dealers, distributors and representatives. The Company manufactures geosynthetic clay liners in the United Kingdom and Poland for the European market. In addition, the Company has sales offices in Norway, Korea and Singapore, as well as various offices in Europe. The Company produces absorbent polymers at its U.S. and U.K. plants, and serves markets in Western Europe, South America, Asia and the Middle East. The Thailand superabsorbent polymer plant will come on stream in 2000. The Company's international operations are subject to the usual risks of doing business abroad, such as currency fluctuations and devaluation, restrictions on the transfer of funds and import and export duties. See Note 2 of the Company's Notes to Consolidated Financial Statements included elsewhere herein. This Note is incorporated by reference for sales attributed to foreign operations and export sales from the United States. EMPLOYEES As of December 31, 1999, the Company employed 1,609 persons, 629 of whom were employed outside of the United States. At December 31, 1999, there were approximately 441, 721, 354 and 28 persons employed in the Company's absorbent polymers, minerals, environmental and transportation segments, respectively, along with 65 corporate employees. The corporate employees include personnel engaged in the nanocomposite research and development effort. Operating plants are adequately staffed, and no significant labor shortages are presently foreseen. Approximately 79 of the Company's employees in the United States and approximately 25 of the Company's employees in the United Kingdom are represented by five labor unions, which have entered into separate collective bargaining agreements with the Company. Employee relations are considered good. Item 2. Properties The Company and its subsidiaries operate the following plants, mines and other facilities, all of which are owned, except as noted:
Location Principal Function ABSORBENT POLYMERS Aberdeen, MS ............................. Manufacture absorbent polymers Birkenhead, Merseyside, U.K............... Manufacture absorbent polymers; research laboratory and headquarters for Chemdal Ltd. Rayong, Thailand ......................... Manufacture absorbent polymers MINERALS Belle Fourche, SD (3)..................... Mine and process sodium bentonite Colony, WY (two plants)................... Mine and process sodium bentonite Lovell, WY (3)............................ Mine and process sodium bentonite Upton, WY................................. Mine and process sodium bentonite Paris, TN................................. Package cat litter Gascoyne, ND.............................. Mine and process leonardite Letohatchee, AL........................... Package and load calcium bentonite Sandy Ridge, AL........................... Mine and process calcium bentonite; blend ADDITROL Columbus, OH (1).......................... Blend ADDITROL; process chromite sand Granite City, IL (1)...................... Package cat litter; process chromite sand Waterloo, IA.............................. Blend ADDITROL Albion, MI (1)............................ Blend ADDITROL York, PA.................................. Blend ADDITROL; package cat litter Chattanooga, TN........................... Blend ADDITROL Lufkin, TX................................ Blend ADDITROL Neenah, WI................................ Blend ADDITROL Troy, IN.................................. Blend ADDITROL Toronto, Ontario, Canada (3).............. Blend ADDITROL Geelong, Victoria, Australia (1)(3)....... Process bentonite; blend ADDITROL Birkenhead, Merseyside, U.K. (2)(3)....... Process bentonite and chromite sand; blend ADDITROL; package cat litter; research laboratory; headquarters for Volclay Ltd. Rayong, Thailand.......................... Process bentonite Kyung-Buk, South Korea.................... Mine and process bentonite ENVIRONMENTAL Belle Fourche, SD (3)..................... Manufacture construction products Lovell, WY (3)............................ Manufacture Bentomat and Claymax geosynthetic clay liners Villa Rica, GA............................ Manufacture components for geosynthetic clay liners Fairmount, GA............................. Manufacture Bentomat and Claymax geosynthetic clay liners Birkenhead, Merseyside, U.K. (2)(3)....... Manufacture Bentomat geosynthetic clay liner; research laboratory; headquarters for CETCO Europe Ltd. Szczytno, Poland ......................... Manufacture Bentomat and Claymax geosynthetic clay liners Copenhagen, Denmark (1)................... Sales and distribution for CETCO (Europe) Ltd. Geelong, Victoria, Australia (1)(3)....... Sales and distribution for CETCO Australia Pty. Ltd. Toronto, Ontario, Canada (3).............. Sales and distribution for CETCO Canada Ltd. Tanager, Norway (1)....................... Sales and distribution for CETCO (Europe) Ltd. Singapore (1)............................. Sales and distribution for CETCO Environmental Technologies Pte Ltd. Seoul, South Korea (1).................... Sales and distribution for CETCO Korea Ltd. Paris, France (1) ........................ Sales and distribution for CETCO (Europe) Ltd. TRANSPORTATION Scottsbluff, NE........................... Transportation headquarters and terminal CORPORATE Arlington Heights, IL (1)................. Corporate headquarters; Chemdal International headquarters; CETCO headquarters; American Colloid Company headquarters; Nanocor, Inc. headquarters; research laboratory Aberdeen, MS.............................. Process purified bentonite (Nanocor, Inc.) (1) Leased (2) Certain offices and facilities are leased. (3) Shared facilities between minerals and environmental segment.
Item 3. Legal Proceedings In 1998, the following claims were filed in Chester, England against certain of the Company's subsidiaries: Adams et al. v. AMCOL (Holdings) Limited and Volclay Limited, (AKA Marie Geraldine O'Laughlin et al.), High Court of Justice, QB Division, Chester District 1998 A. No. 206; and Anziani, et al. v. AMCOL (Holdings) Limited and Volclay Limited, High Court of Justice, QB Division, Chester District 1998 A. No. 365. The claims are for property damage, nuisance and personal injury based on the alleged release of dust from Volclay Limited's facility in Wallasey, England . It is the Company's understanding that the claims are being made on behalf of up to 1,600 persons who at some point during the period from 1965 to the present have resided in the vicinity of the Wallasey, England facility. The Company has notified its insurance carriers and is currently engaged in the discovery process. The Company intends to defend these cases vigorously. Based on information received to date, the Company currently anticipates that its liability with respect to these claims will not have a material adverse affect on the Company. The Company is party to a number of lawsuits arising in the normal course of its business. The Company does not believe that any pending litigation will have a material adverse effect on its consolidated financial position. The Company's processing operations require permits from various governmental authorities. From time to time, the Company has been contacted by government agencies with respect to required permits or compliance with existing permits. While the Company has been notified of certain situations of non-compliance, management does not expect the fines or the cost of compliance, if any, to be significant. Item 4. Submission of Matters to a Vote of Security Holders None. Executive Officers of Registrant
Name Age Principal Occupation for Last Five Years Mark A. Anderson 40 Vice President of Corporate Development of the Company since 1997; prior thereto, Vice President of Absorbent Technologies for Chemdal Corporation since 1992. Gary L. Castagna 38 Vice President of the Company and President of Chemdal International Corporation since 1997; prior thereto, Vice President of Finance of Chemdal Corporation since 1992 and Managing Director of Chemdal Ltd. since 1994. John Hughes 57 Chairman of the Board of Directors since May 1998; Chief Executive Officer of the Company since 1985; a Director since 1984. Mr. Hughes will retire as Chief Executive Officer effective at the Company's annual shareholders' meeting. Lloyd. F. Love 53 Vice President and Chief Information Officer of the Company since July 1999; prior thereto, Chief Information Officer of Baxter Credit Union since 1997; prior thereto, Vice President, Information Services of Caremark International since 1992 (acquired by MedPartners in mid-1996). Peter L. Maul 50 Vice President of the Company since 1993 and President of Nanocor, Inc. since 1995. Ryan F. McKendrick 48 Vice President of the Company and President of Colloid Environmental Technologies Company since November 1998; prior thereto, Vice President of Colloid Environmental Technologies Company since 1994. Gary Morrison 44 Vice President of the Company and President of American Colloid Company since February 2000; prior thereto, Vice President of American Colloid Company since 1994.
Executive Officers of Registrant (continued) Name Age Principal Occupation for Last Five Years Clarence O. Redman 57 Secretary of the Company since 1982. Clarence O. Redman is of counsel to the law firm of Lord, Bissell & Brook, the law firm that serves as Corporate Counsel to the Company, since October 1997; prior thereto, an individual and corporate partner and Chief Executive Officer of the law firm of Keck, Mahin & Cate; a Director since 1989. Paul G. Shelton 50 Senior Vice President and Chief Financial Officer of the Company and President of AMCOL International's transportation units since 1994; a Director since 1988. Anthony S. Tomlin 38 Vice President of the Company since February, 2000; prior thereto, Vice President of Chemdal International Corporation since 1992. Lawrence E. Washow 47 President of the Company since May 1998; Chief Operating Officer of the Company since 1997; prior thereto, Senior Vice President of the Company since 1994 and President of Chemdal International Corporation since 1992; a Director since February, 1998. Mr. Washow has been appointed to succeed Mr. Hughes as the Company's Chief Executive Officer effective at the Company's annual shareholders' meeting. Frank B. Wright, Jr. 51 Vice President of the Company and President of Volclay International Corporation; also President of American Colloid Company from August, 1996 to February, 2000; prior thereto, Manager of International Business Development for American Colloid Company since 1995.
All executive officers of the Company are elected annually by the Board of Directors for a term expiring at the annual meeting of directors following their election, or when their respective successors are elected and shall have qualified. All directors are elected by the stockholders for a three-year term, or until their respective successors are elected and shall have qualified. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's common stock trades on The New York Stock Exchange under the symbol ACO. Prior to September 22, 1998, the Company's common stock traded on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol ACOL. The following table sets forth, for the periods indicated, the high and low closing sale prices of the common stock, as reported by the relevant organizations, and cash dividends declared per share.
Stock Price Cash Dividends High Low Declared Per Share Fiscal Year Ended December 31, 1999: 1st Quarter........ $11.375 $8.250 $.0600 2nd Quarter........ 14.750 8.875 .0700 3rd Quarter........ 15.125 13.250 .0700 4th Quarter........ 17.750 12.000 .0700 Fiscal Year Ended December 31, 1998: 1st Quarter........ $16.375 $12.125 $.0550 2nd Quarter........ 16.375 11.500 .0550 3rd Quarter........ 14.250 9.375 .0600 4th Quarter........ 11.375 8.000 .0600
As of February 21, 2000, there were 3,462 holders of record of the common stock, excluding shares held in street name. The Company has paid cash dividends every year for over 62 years. The Company intends to continue to pay cash dividends on its common stock, but the payment of dividends and the amount and timing of such dividends will depend on the Company's earnings, capital requirements, financial condition and other factors deemed relevant by the Company's Board of Directors. Item 6. Selected Financial Data The following is selected financial data for the Company and its subsidiaries for the five years ended December 31, 1999. Per share amounts have been adjusted to reflect a three-for-two stock split in December 1997, effected in the nature of a stock dividend. SUMMARY OF OPERATIONS (In thousands, except ratios and share and per share amounts)
PER SHARE 1999 1998 1997 1996 1995 Stockholders' equity (1) $ 6.94 $ 6.44 $ 6.18 $ 5.87 $ 5.42 Basic earnings (2) .83 .79 .74 .53 .62 Diluted earnings (3) .82 .78 .72 .52 .60 Dividends .27 .23 .21 .19 .17 Shares outstanding (3) 27,199,263 28,385,860 29,125,168 29,294,489 29,519,220 INCOME DATA Sales $ 552,052 $ 521,530 $ 477,060 $ 405,347 $ 347,688 Gross profit 137,796 111,171 100,741 84,311 76,562 Operating profit 43,433 42,220 41,469 32,337 32,397 Net interest expense (6,396) (7,933) (8,628) (8,450) (6,727) Net other income (expense) (1,338) 140 (398) (670) 1,217 Pretax income 35,699 34,427 32,443 23,217 26,887 Income taxes 13,913 12,350 11,399 7,979 9,082 Net income 22,234 22,085 21,044 15,225 17,771 BALANCE SHEET Current assets $ 164,770 $ 164,076 $ 150,270 $ 147,773 $ 126,337 Net property, plant and equipment 172,408 171,478 175,324 180,876 175,211 Total assets 349,007 357,864 351,009 350,708 322,366 Current liabilities 59,715 74,083 67,241 51,870 35,882 Long-term debt 93,914 96,268 94,425 118,855 117,016 Shareholders' equity 186,440 172,914 175,943 167,404 155,494 RATIO ANALYSIS Operating margin 7.87% 8.10% 8.69% 7.98% 9.32% Pretax margin 6.47 6.60 6.80 5.73 7.73 Effective tax rate 38.97 35.87 35.14 34.37 33.78 Net margin 4.03 4.23 4.41 3.76 5.11 Return on ending assets 6.37 6.17 6.00 4.34 5.51 Return on ending equity 11.93 12.77 11.96 9.09 11.43 (1) Based on the number of common shares outstanding at the end of the year. (2) Based on the weighted average common shares outstanding for the year. (3) Based on the weighted average common shares outstanding, including common stock equivalents, for the year.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Financial Condition At December 31, 1999, the Company had outstanding debt of $94.4 million (including both long- and short-term debt) and cash and cash equivalents of $3.8 million, compared with $113.4 million in debt and $2.8 million in cash and cash equivalents at December 31, 1998. Long-term debt represented 33.5% of total capitalization at December 31, 1999, compared with 35.8% at December 31, 1998. The Company had a current ratio of 2.76-to-1 at December 31, 1999, with approximately $105.1 million in working capital, compared with 2.21-to-1 and $90.0 million, respectively, at December 31, 1998. The Company's revolving credit facility of $125 million matures in October 2003. The Company had $60.2 million in unused, committed credit lines at December 31, 1999. The Company is renegotiating its debt covenants in anticipation of the sale of the absorbent polymers segment. It is anticipated that the $125 million revolver will remain in place after the pending transaction closes. During 1999, the Company had $40.2 million in capital expenditures and $4.6 million in additional investments in joint ventures. The Company acquired $.6 million in treasury stock (net of stock option exercises), paid $7.2 million in dividends and repaid $19.0 million of debt. This activity was funded from cash from operations generated in 1999, principally consisting of net income of $22.2 million and depreciation and amortization totaling $36.7 million. The Company has entered into a definitive agreement to sell its superabsorbent polymer business to BASF AG. Completion of the transaction is subject to the mechanical completion of the polymer plant in Thailand, approval by regulatory authorities in the United States, United Kingdom and Germany and approval by the Company's shareholders. German regulatory approval has been obtained. The Company and BASF are responding to questions raised by the U.S. Federal Trade Commission in response to their respective Hart Scott Rodino filings. The Company currently intends to seek shareholder approval in the second quarter. If all approvals are obtained, the Company currently intends to distribute substantially all of the net proceeds to its shareholders. Management believes that the Company has adequate resources to fund the capital expenditures discussed above, dividend payments and anticipated working capital requirements through its existing committed credit lines and cash balances, and future operating cash flow. Results of Operations for the Three Years Ended December 31, 1999 Net sales increased by $30.5 million, or 5.9%, from 1998 to 1999, and by $44.5 million, or 9.3%, from 1997 to 1998. Approximately 60% of the 1998 sales increase was related to acquisitions made during 1998. Gross profit increased by $26.6 million, or 23.9%, from 1998 to 1999, compared to an increase of $10.4 million, or 10.4%, from 1997 to 1998. Operating profit improved by $1.2 million, or 2.9%, from 1998 to 1999 compared to $.8 million, or 1.8%, from 1997 to 1998. The operating profit for 1999 was reduced by $14.6 million as a result of write downs of the carrying value of certain intangible and long-term assets in the minerals and environmental segments. A $4.8 million operating loss at the Company's U.K. minerals unit adversely impacted operating profit for 1998. Net income increased by less than 1% from 1998 to 1999, compared to $1.0 million, or 4.9%, from 1997 to 1998. During 1999, the write down accounted for $10.1 million after taxes, or approximately $.37 per share. Diluted earnings per share were $.82, $.78 and $.72 in 1999, 1998 and 1997, respectively. The weighted average shares outstanding, including the dilutive impact of stock options, were 4.2% lower in 1999 than in 1998 and 2.5% lower in 1998 than in 1997. A review of sales, gross profit, general, selling and administrative expenses, and operating profit by segment follows:
Absorbent Polymers Year Ended December 31, 1999 1998 1997 1999 vs. 1998 1998 vs. 1997 (Dollars in Thousands) Net sales............. $252,908 100.0% $ 221,093 100.0% $ 195,944 100.0% $31,815 14.4% $25,149 12.8% Cost of sales......... 184,006 72.8% 174,635 79.0% 154,983 79.1% Gross profit........ 68,902 27.2% 46,458 21.0% 40,961 20.9% 22,444 48.3% 5,497 13.4% General, selling and administrative expenses.............. 17,052 6.7% 13,207 6.0% 12,098 6.2% 3,845 29.1% 1,109 9.2% Operating profit.... 51,850 20.5% 33,251 15.0% 28,863 14.7% 18,599 55.9% 4,388 15.2%
Sales of absorbent polymers in 1999 increased by 14.4% over 1998 compared with a 12.8% sales increase from 1997 to 1998. Approximately 65% of the sales increase in 1998 was acquisition-related. In both 1998 and 1999, unit sales volume increased at a faster rate than the sales dollars. Gross profit margins increased by 29.5% from 1998 to 1999 compared to a slight improvement from 1997 to 1998. Margin improvement both in 1998 and 1999 was primarily the result of lower costs for acrylic acid, the main raw material for the production of SAP. In each case, the lower costs more than offset lower unit selling prices. General, selling and administrative expenses increased by $3.8 million, or 29.1%, from 1998 to 1999. Higher research and development spending of approximately $1.0 million, the staffing of the Thai plant of $.9 million, higher incentive compensation of approximately $.9 million and higher occupancy costs of approximately $.4 million accounted for much of the change. In 1998, the increase in general, selling and administrative expenses related primarily to a higher bad debt provision as a result of two customer bankruptcies. Otherwise, the rate of increase from 1997 to 1998 was less than the rate of increase in sales. The Company has aggressively expanded its capacity to produce superabsorbent polymers. Its current global capacity of 160,000 metric tons (excluding the acquisition related 12,000 metric ton U.K. toll processing arrangement) is among the largest in the world. The Company is currently completing construction of a 20,000 metric ton plant in Thailand. This plant is expected to be operational by the end of March 2000.
Minerals Year Ended December 31, 1999 1998 1997 1999 vs. 1998 1998 vs. 1997 (Dollars in Thousands) Net sales............. $156,537 100.0% $ 164,049 100.0% $ 162,895 100.0% ($7,512) -4.6% $ 1,154 .7% Cost of sales......... 121,864 77.8% 135,650 82.7% 135,610 83.2% Gross profit........ 34,673 22.2% 28,399 17.3% 27,285 16.8% 6,274 22.1% 1,114 4.1% General, selling and administrative 17,432 11.1% 18,268 11.1% 15,651 9.6% (836) -4.6% 2,617 16.7% expenses.............. Write down of intangible 2,954 1.9% -- -- -- -- 2,954 NM -- -- assets.............. Operating profit.... 14,287 9.2% 10,131 6.2% 11,634 7.2% 4,156 41.0% (1,503) -12.9%
Sales decreased by $7.5 million from 1998 to 1999. Results for 1998 included approximately $3.8 million of fullers' earth sales, a business sold in April 1998. Sales of the U.K. minerals operation were $6.5 million lower in 1999 than in 1998. The Company reduced its commitment to the U.S. iron ore pelletizing market resulting in a sales decrease of $2.1 million, but this was more than offset by a sales increase to the domestic metalcasting and cat litter markets. Sales increased by $1.2 million in 1998 compared to 1997. This was the net result of the additional sales from the 1997 U.K. cat litter acquisition and the divestiture of the fullers' earth business. Domestic metalcasting sales increased in 1998, offsetting sales declines to domestic well drilling and export customers. As a result of the cat litter acquisition made in late 1997, the U.K. mineral operation produced an operating loss of approximately $4.8 million. The Company experienced problems in management, customer service and production, along with construction delays in integrating the acquisition into the existing plant and organization. Steps have been taken to address the problems in the United Kingdom in 1999, and the operating loss was reduced to $2.9 million. Efforts to improve results more quickly were hampered by a strong U.K. currency, limiting the operation's ability to market cat litter products on the European continent. Gross profit margins increased by 28.3% and by 3.0% from 1998 to 1999 and from 1997 to 1998, respectively. Domestic gross profits improved by approximately $4.0 million, U.K. gross profit improved by approximately $.9 million and other overseas units' gross profit improved by $1.3 million from 1998 to 1999. Domestic gross margins improved by 25.3% from 1997 to 1998. The 1998 domestic improvement was largely offset by the problems at the U.K. operation. General, selling and administrative expenses were $.8 million lower in 1999 than in 1998. Lower domestic personnel costs accounted for the majority of the change. General, selling and administrative expenses increased by $2.6 million from 1997 to 1998. The increase in costs in 1998 was related to the U.K. acquisition, as well as to international marketing costs. The Company wrote down goodwill of approximately $3.0 million related to its U.K. and Canadian operations. Its evaluation of the carrying value of the assets was based upon anticipated performance and a review of projected future cash flows.
Environmental Year Ended December 31, 1999 1998 1997 1999 vs. 1998 1998 vs. 1997 (Dollars in Thousands) Net sales............. $107,975 100.0% $104,501 100.0% $ 88,421 100.0% $ 3,474 3.3% $16,080 18.2% Cost of sales......... 77,515 71.8% 71,859 68.8% 59,625 67.4% Gross profit........ 30,460 28.2% 32,642 31.2% 28,796 32.6% (2,182) -6.7% 3,846 13.4% General, selling and administrative 26,551 24.6% 23,448 22.4% 18,528 21.0% 3,103 13.2% 4,920 26.6% expenses.............. Write down of intangible and other long-term 11,575 10.7% -- -- -- -- 11,575 NM -- -- assets Operating profit (7,666) -7.1% 9,194 8.8% 10,268 11.6% (16,860) -183.4% (1,074) -10.5% (loss)................
Sales increased by $3.5 million from 1998 to 1999. The sales increase from 1998 to 1999 was largely related to businesses acquired during 1998. Approximately 65% of the sales increase from 1997 to 1998 was attributable to these acquisitions. Gross profit margins decreased by 9.6% and 4.3% from 1998 to 1999 and from 1997 to 1998, respectively. Lower gross profits from businesses that were divested during the year, coupled with lower profits from the domestic sales of environmental liner products, accounted for the reduced margins in 1999. Lower than average margins from the newly acquired Norwegian business, coupled with lower margins from exports to Asia and sales to Europe, accounted for the margin reduction in 1998. International expansion accounted for much of the increase in general, selling and administrative expenses of 13.2% and 26.6% from 1998 to 1999, and from 1997 to 1998, respectively. Approximately 58% of the 1999 increase and 59% of the 1998 increase in general, selling and administrative expenses in 1998 was attributable to acquisitions made in 1998. During 1999, the Company also incurred a bad debt of approximately $.4 million related to unsuccessful litigation. During 1999, the Company sold or closed operations that incurred more than $5.5 million in operating losses. These actions are expected to result in improved profitability during 2000. In the process of evaluating its ongoing business operations, the Company wrote down the carrying value of certain intangible and fixed assets by approximately $11.6 million. This charge included $2.1 million related to the January 2000 sale of its Norwegian business. The remainder of the write down was largely related to goodwill not expected to be recovered by future cash flows.
Transportation Year Ended December 31, 1999 1998 1997 1999 vs. 1998 1998 vs. 1997 (Dollars in Thousands) Net sales............. $ 34,632 100.0% $ 31,887 100.0% $ 29,800 100.0% $ 2,745 8.6% $ 2,087 7.0% Cost of sales......... 30,871 89.1% 28,215 88.5% 26,101 87.6% Gross profit........ 3,761 10.9% 3,672 11.5% 3,699 12.4% 89 2.4%$ (26) -.7% General, selling and administrative 2,130 6.2% 2,037 6.4% 2,057 6.9% 93 4.6% (20) -1.0% expenses.............. Operating profit.... 1,631 4.7% 1,635 5.1% 1,642 5.5% (4) -0.2% (7) -.4%
The majority of the sales increase in both 1998 and 1999 came from customers unrelated to AMCOL's other business units. Gross profit margins were 5.2% lower in 1999 than in 1998, and 7.3% lower in 1998 than in 1997, primarily as a result of lower margins from brokered shipments. The gross profit margins vary based largely upon truck availability and sales mix between the trucking and brokerage operations. Higher fuel costs in the latter part of 1999 also put pressure on gross profit margins. The increase in general, selling and administrative expenses in 1999 reflected increased staffing levels to handle increased volume.
Corporate Year Ended December 31, 1999 1998 1997 1999 vs. 1998 1998 vs. 1997 (Dollars in Thousands) General, selling and administrative $16,669 $11,991 $10,938 $ 4,678 39.0% $ 1,053 9.6% expenses.............. Operating loss...... (16,669) (11,991) (10,938) (4,678) 39.0% (1,053) 9.6%
Corporate costs include management information systems, human resources, investor relations and corporate communications, finance, purchasing, research related to developing the nanocomposite technology and corporate governance. The Company is actively engaged in research and development efforts to create new applications for its bentonite reserves. The Company's wholly owned subsidiary, Nanocor, Inc., is devoted to research and development of bentonite-based nanocomposites. When incorporated into plastics, bentonite-based nanocomposites can produce materials with significantly improved properties that encompass a variety of commercial applications. Nanocor's technologies are still in the developmental stage, but management feels that these products have the potential to become a significant part of the Company's future growth. As of December 31, 1999, Nanocor has been issued 14 patents; 6 more patents have been allowed; and 12 patent applications were pending. All costs associated with Nanocor will continue to be included in corporate expenses for 2000, and until meaningful product revenues occur. Corporate costs increased by $4.7 million, or 39.0%, from 1998 to 1999. Approximately $1.3 million of professional fees incurred in connection with the pending transaction with BASF AG were included in the 1999 expenses. The remainder of the increase from 1998 to 1999 was largely accounted for by higher incentive compensation ($1.0 million), higher costs associated with developing the nanocomposite technology ($.9 million) and increased occupancy costs ($.6 million). The addition of two corporate executives and higher occupancy costs accounted for much of the increase in corporate costs from 1997 to 1998. Net Interest Expense Net interest expense decreased by $1.5 million from 1998 to 1999, compared with a $.7 million decrease from 1997 to 1998. Approximately $.5 million of interest related to the Thai polymer plant construction was capitalized in 1999. The remainder of the 1999 reduction was due to lower average debt levels, which also accounted for the lower interest costs in 1998. Other Income (Expense) Other expenses for 1999 included $1.1 million in foreign exchange losses. Foreign currency exchange losses accounted for approximately $.4 million, or 100%, of other expense in 1997. Income Taxes The income tax rate for 1999 was 39.0% compared with 35.9% and 35.1% in 1998 and 1997, respectively. Income tax expense for 1999 and 1998 included a valuation allowance of $1.7 million and $.8 million, respectively, related to the U.K. minerals unit net operating loss carryforward. The effective income tax rate for 1999 was also higher because $2.7 million of the write down of intangible assets was not tax deductible. The effective tax rate for 2000 is currently estimated at 36%. Earnings Per Share Diluted earnings per share were calculated using the weighted average number of shares of common stock, including common share equivalents, outstanding during the year. Stock options issued to key employees and directors were considered common share equivalents. The weighted average number of shares of common stock and common stock equivalent shares outstanding was approximately 27.2 million in 1999 compared with approximately 28.4 million and 29.1 million in 1998 and 1997, respectively. The significant drop in the number of shares outstanding from 1997 to 1999 reflected the high level of share repurchase activity in 1998. Shares outstanding at December 31, 1999, excluding common stock equivalents, totaled 26.9 million shares. The impact of the write down of intangible and other long-term assets amounted to $.37 per diluted share. Conversion to Euro On January 1, 1999, 11 European Union member states adopted the Euro as their common national currency. From that date until January 1, 2002 (the transition period) either the Euro or a participating country's currency will be accepted as legal tender. Beginning on January 1, 2002, Euro-denominated bills and coins will be issued, and by July 1, 2002, only Euro currency will be used. Management continues to address the strategic, financial, legal and systems issues related to the various phases of transition. While the Company does not believe the ultimate costs of conversion will be material to its earnings, cash flow or financial position, every effort is being made to address customer and business needs on a timely basis and anticipate and prevent any complications during the transition period. Forward Looking Statements Certain statements made from time to time by the Company, including statements in the Management's Discussion and Analysis section above, constitute "forward-looking statements" made in reliance upon the safe harbor contained in Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include statements relating to the Company or its operations that are preceded by terms such as "expects," "believes," "anticipates," "intends" and similar expressions, and statements relating to anticipated growth, levels of capital expenditures, future dividends, expansion into global markets and the development of new products. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The Company's actual results, performance or achievements could differ materially from the results, performance or achievements expressed in, or implied by, these forward-looking statements as a result of various factors, including without limitation the following: Pending Transaction Risk The Company has entered into a definitive agreement to sell its superabsorbent polymer business to BASF AG. Completion of the transaction is subject to the mechanical completion of the polymer plant in Thailand, approval by regulatory authorities in the United States, United Kingdom and Germany, and approval by the Company's shareholders. Growth Rate of Absorbent Polymer Operations A significant part of our growth in sales and profit during the last five years has come from sales of superabsorbent polymers ("SAP"). Our sales of SAP have increased in part because newer diaper designs use larger amounts of SAP and because of growth in our sales to international markets. Our ability to continue this growth depends on several factors, including the following: o our ability to retain key clients; o the continued use of larger amounts of SAP in new diaper designs; o the continued growth in sales to international markets; o growth in sales to manufacturers of brand name products; and o acceptance of new applications for SAP which we have developed. There can be no assurance that our sales of SAP will continue to grow in the future or remain at current levels. Dependence on Large Absorbent Polymer Customers Our two largest absorbent polymer customers accounted for approximately 50% of our absorbent polymer sales in 1999 and our five largest absorbent polymer customers accounted for approximately 68% of such sales. We do not usually enter into long-term contracts with our absorbent polymer customers. These customers generally have the right to terminate their relationship with us with little or no notice. We cannot assure that we will be able to maintain our current level of sales to our five largest absorbent polymer customers or any other customer in the future. Many diaper manufacturers, including some of our customers, frequently change their diaper designs. During this process, many diaper manufacturers review the types of SAP available to determine the type of SAP best suited for their new diaper design. Some customers may elect to use the SAP of one of our competitors. The termination of our relationship with any of our significant absorbent polymer customers, or a material reduction in the SAP sold to such customers, could adversely affect our business and future financial results. Competition Absorbent Polymers. The absorbent polymers market is very competitive. Our U.S. operations compete with approximately four manufacturers and at least three importers. Our U.K. operations compete with numerous manufacturers. Two of our competitors have more production capability and several producers have greater resources. In addition, several of our competitors also produce acrylic acid, which is the primary cost component of SAP. The cost of acrylic acid to these competitors may be significantly less than the price we pay for acrylic acid. We believe competition in our absorbent polymers segment is primarily a matter of product quality and price. If we fail to compete successfully based on these or other factors, we may lose customers or fail to attract new customers and our business and future financial results could be materially and adversely affected. Minerals. The minerals market is very competitive. We believe competition is essentially a matter of product quality, price, delivery, service and technical support. Several of our competitors in the U.S. market are larger and have substantially greater financial resources. If we fail to compete successfully based on these or other factors, we may lose customers or fail to recruit new customers and our business and future financial results could be materially and adversely affected. Technology We believe our success and ability to compete in the absorbent polymers segment depends, to a large extent, on our proprietary production process. We rely on a combination of trade secret, trademark, and other intellectual property laws to protect this proprietary technology. However, we may have difficulty monitoring the unauthorized use of our proprietary technology and the steps we have taken to protect it may not be adequate. Any misappropriation of our proprietary technology could have a material adverse effect on our business or future financial results. In addition, if any of our competitors become able to produce a more effective or cheaper SAP, demand for our SAP products may decrease or be eliminated. Reliance on Metalcasting and Construction Industries Approximately 48% of our minerals segment's sales and 31% of our environmental segment's sales in 1999 were to the metalcasting and construction markets, respectively. The metalcasting and construction markets depend heavily upon the strength of the domestic and international economies. If these economies weaken, demand for products by the metalcasting and construction markets may decline and our business or future financial results may be adversely affected in the minerals and environmental segments, respectively. Regulatory and Legal Matters Our operations are subject to various federal, state, local and foreign laws and regulations relating to the environment and to health and safety matters. Substantial penalties may be imposed if we violate certain of these laws and regulations. If these laws or regulations are changed or interpreted differently in the future, it may become difficult or expensive for us to comply. In addition, investigations or evaluations of our products by government agencies may require us to adopt additional safety measures or precautions. If our costs to comply with such laws and regulations in the future materially increase, our business and future financial results could be materially and adversely affected. The Company may be subject to adverse litigation results as well as future changes in laws and regulations that may negatively impact its operations and profits. Availability of Raw Materials Acrylic acid is our primary cost component in manufacturing SAP. Acrylic acid is only available from a limited number of suppliers. If we become unable to obtain a sufficient supply of SAP at a reasonable price, our business and future financial results could be materially and adversely affected. Risks of International Expansion An important part of our business strategy is to expand internationally. We intend to seek acquisitions, joint ventures and strategic alliances globally. Currently, our business outside the United States represents approximately 46% of our consolidated sales. The approximate breakdown of the sales outside of the United States for 1999 was as follows: Europe 52%; Latin America (including Mexico) 23%; Asia 9%; Africa along with the Middle East 15%; and other 1%. As we expand internationally, we will be subject to increased risks which may include the following: o currency exchange or price control laws; o currency translation adjustments; o political and economic instability; o unexpected changes in regulatory requirements; o tariffs and other trade barriers; o longer accounts receivable collection cycles; and o adverse tax consequences. The above listed events could result in sudden, and potentially prolonged, changes in demand for the Company's products. Also, we may have difficulty enforcing agreements and collecting accounts receivable through a foreign country's legal system. At December 31, 1999, approximately 60% of the gross accounts receivable were due from customers outside of the United States and Canada. The breakdown of the overseas balance was as follows: Europe 39%; Latin America (including Mexico) 38%; Asia 12%; and Africa and the Middle East 11%. Volatility of Stock Price The stock market has been extremely volatile in recent years. These broad market fluctuations may adversely affect the market price of our common stock. In addition, factors such as the following may have a significant effect on the market price of our common stock: o fluctuations in our financial results; o our introduction of new services or products; o announcements of acquisitions, strategic alliances or joint ventures by us, our customers or our competitors; o changes in analysts' recommendations regarding our common stock; and o general economic conditions. There can be no assurance that the price of our common stock will increase in the future or be maintained at its recent levels. Accounting Standards Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivatives and for hedging activities. As issued, SFAS No. 133 was effective for all quarters of all years beginning after June 15, 1999. In June 1999, SFAS No. 137 was issued, effectively deferring the date of required adoption of SFAS No. 133 to quarters of all years beginning after June 15, 2000. The Company is studying the statement to determine its effect on the consolidated financial position or results of operations, if any. The Company will adopt SFAS No. 133, as required, in fiscal year 2001. Year 2000 Since the change in the calendar from 1999 to 2000, we have not experienced any malfunctions or failures of our information technology systems, or of our equipment with embedded technology. To date, we are not aware of any party with whom we conduct a significant amount of business that has experienced a material year 2000 readiness issue affecting their ability to operate their business or raise adequate revenues to meet their contractual obligations to us. Although we are prepared to commit the necessary resources to enforce our contractual rights in the event any third parties with whom we conduct business encounter year 2000 issues, we do not expect to incur any additional amounts to continue to monitor and prevent year 2000 malfunctions and failures because we do not expect to encounter any material year 2000 issues. However, we will continue to monitor any potential year 2000 issues that develop, and will adopt contingency plans accordingly to mitigate any impact on the operation of our business. Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a multinational corporation that manufactures and markets products in countries throughout the world, the Company is subject to certain market risks, including foreign currency, interest rates and government actions. The Company uses a variety of practices to manage these market risks, including, when considered appropriate, derivative financial instruments. The Company uses derivative financial instruments only for risk management and does not use them for trading or speculative purposes. Exchange Rate Sensitivity The Company is exposed to potential gains or losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies. The Company's primary exposures are to changes in exchange rates for the U.S. dollar versus the Euro, the British pound, the Canadian dollar, the Australian dollar, the Mexican peso, the Thai baht and the Korean won. The Company also has significant exposure to changes in exchange rates between the British pound and the Euro. The Company's various currency exposures often offset each other, providing a natural hedge against currency risk. Periodically, specific foreign currency transactions (e.g. inventory purchases, royalty payments, etc.) are hedged with forward contracts to reduce the foreign currency risk. Gains and losses on these foreign currency hedges are included in the basis of the underlying hedged transactions. As of December 31, 1999, the Company had outstanding foreign currency contracts to sell the equivalent of $2.75 million of British pounds to hedge raw material purchases. The fair value of these agreements results in an immaterial unrecognized loss at December 31, 1999. Interest Rate Sensitivity The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates for debt obligations. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date. The information is presented in U.S. dollar equivalents, which is the Company's reporting currency. The instrument's actual cash flows are denominated in both U.S. dollars (US), British pounds (BP), Norwegian kroner (NOK), Korean won (WON) and Thai baht (THB) as indicated in parentheses.
Expected Maturity Date 2000 2001 2002 2003 2004 Thereafter Total Value (US$ equivalent in millions) Long-term debt: Fixed rate (US).......... $ - $ 5,000 $ 5,000 $ - $ - $ 15,000 $ 25,000 $25,511 Average interest rate.... - 7.8% 7.8% - - 8.1% - - Variable rate (US)....... 42,000 - - - - - 42,000 42,000 Average interest rate.... 6.4% - - - - - - - Variable rate (BP)....... 22,776 - - - - - 22,776 22,776 Average interest rate.... 6.0% - - - - - - - Variable rate (NOK)...... 509 469 - - - - 978 978 Average interest rate.... 8.3% 7.6% - - - - - - Variable rate (WON)...... 881 - - - - - 881 881 Average interest rate 9.9% - - - - - - - Variable rate (THB)...... 2,788 - - - - - 2,788 2,788 Average interest rate.... 6.6% - - - - - - - 68,954 5,469 5,000 - - 15,000 94,423 94,934 Debt to be refinanced.... (68,445) 3,669 - 64,776 - - - - Total......................... $ 509 $ 9,138 $ 5,000 $ 64,776 $ - $ 15,000 $ 94,423 $94,934
The Company periodically uses interest rate swaps to manage interest rate risk on debt securities. These instruments allow the Company to exchange variable rate debt into fixed rate or fixed rate debt into variable rate. Interest rate differentials paid or received on these arrangements are recognized as adjustments to interest expense over the life of the agreements. At December 31, 1999, the Company had one interest rate swap outstanding, which expires in September 2002, in a notional amount of $15 million. The fair value of this agreement results in an unrecognized loss at December 31, 1999, of $166. The Company is exposed to credit risk on certain assets, primarily cash equivalents, short-term investments and accounts receivable. The credit risk associated with cash equivalents and short-term investments is mitigated by the Company's policy of investing in securities with high credit ratings and investing through major financial institutions with high credit ratings. The Company provides credit to customers in the ordinary course of business and performs ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. The Company currently believes its allowance for doubtful accounts is sufficient to cover customer credit risks. The Company's accounts receivable financial instruments are carried at amounts that approximate fair value. Commodity Price Sensitivity Acrylic acid is the most significant cost component in the production of SAP. The Company purchases a significant amount of acrylic acid under long-term contracts. The terms of these contracts include a linkage to the cost of propylene. The Company has not hedged against fluctuations in the cost of propylene. Item 8. Financial Statements and Supplementary Data See the Index to Financial Statements and Financial Statement Schedules on Page F-1. Such Financial Statements and Schedules are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The table below lists the names and ages of all directors and all positions each person holds with the Company or other organizations. Board of Directors of the Registrant Arthur Brown, 59 (1, 2) Chairman, President and Chief Executive Officer of Hecla Mining Company, a miner and processor of silver, gold and industrial minerals. Director since 1990. Robert E. Driscoll, III, 61 (1, 2 Retired Dean and Professor of Law, University of South Dakota. Director since 1985. John Hughes, 57 (3) Chairman of the Board of Directors since May 1998; Chief Executive Officer of the Company since 1985; a Director since 1984. Mr. Hughes will retire as Chief Executive Officer effective at the Company's annual shareholders' meeting. James A. McClung, 62 (1, 3) Vice President and Executive Officer of FMC Corporation, a diversified producer of chemicals, machinery and other products for industry, government and agriculture. Director since May 1997. Mr. McClung is retiring as a director of the Company effective at the annual shareholders' meeting. Jay D. Proops, 58 (2, 3, 4, 5) Private investor and former Vice Chairman and co-founder of The Vigoro Corporation. Also a Director of Great Lakes Chemical Corporation. Director since 1995. C. Eugene Ray, 67 (1, 2, 3, 4, 5) Retired Executive Vice President - Finance of Signode Industries, Inc. a manufacturer of industrial strapping products. Director since 1981. Clarence O. Redman, 57 (2, 3) Secretary of AMCOL International Corporation. Of counsel to the law firm of Lord, Bissell & Brook, the law firm that serves as Corporate Counsel to the Company. Previously, Mr. Redman was an individual and corporate partner of the law firm of Keck, Mahin & Cate as the sole shareholder and President of Clarence Owen Redman Ltd. Mr. Redman and his professional corporation also served as Chief Executive Officer of Keck, Mahin & Cate until September 1997. In December 1997, Keck, Mahin & Cate filed a voluntary petition in bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. Also a director of U.S. Forest Industries, Inc., a forest products company engaged in the production of wood products used in residential, commercial and industrial applications. Director since 1989. Paul G. Shelton, 50 (3) Senior Vice President and Chief Financial Officer of AMCOL International Corporation. Director since 1988. Dale E. Stahl, 52 (2, 3, 4, 5) President and Chief Operating Officer of Gaylord Container Corporation, a manufacturer and distributor of brown paper and packaging products. Director since 1995. Lawrence E. Washow, 47 (3) President of the Company since May 1998; Chief Operating Officer of the Company since 1997; prior thereto, Senior Vice President of the Company since 1994 and President of Chemdal International Corporation since 1992; a Director since February, 1998. Mr. Washow has been appointed to succeed Mr. Hughes as the Company's Chief Executive Officer effective at the Company's annual shareholders' meeting. Audrey L. Weaver, 45 (2) Private investor. Director since February 1997. Paul C. Weaver, 37 (3, 4, 5) Managing partner of Consumer Aptitudes, Inc., a marketing research firm. Director since 1995. (1) Member of Audit Committee (2) Member of Compensation Committee (3) Member of Executive Committee (4) Member of Nominating Committee (5) Member of Succession Planning Committee Additional information regarding the directors of the Company is included under the caption "Nominees for Director," "Information About Members of the Board" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's proxy statement to be dated on or before April 29, 2000, and is incorporated herein by reference. Information regarding executive officers of the Company is included under a separate caption in Part I hereof, and is incorporated herein by reference, in accordance with General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K. Item 11. Executive Compensation Information regarding the above is included under the caption "Compensation of Named Officers" in the Company's proxy statement to be dated on or before April 29, 2000, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information regarding the above is included under the caption "Beneficial Owners of More than 5% of AMCOL Stock" in the Company's proxy statement to be dated on or before April 29, 2000, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information regarding the above is included under the captions "Nominees for the Board of Directors" and "Information About Continuing Members of the Board" in the Company's proxy statement to be dated on or before April 29, 2000, and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. See Index to Financial Statements. 2. See Financial Statement Schedules on Page F-1. Such Financial Statements and Schedules are incorporated herein by reference. 3. See Index to Exhibits immediately following the signature page. (b) None. (c) See Index to Exhibits immediately following the signature page. (d) See Index to Financial Statements and Financial Statement Schedules on Page F-1. Item 14(a) Index to Financial Statements and Financial Statement Schedules Page (1) Financial Statements: Independent Auditors' Report.............................. F-2 Consolidated Balance Sheets, December 31, 1999 and 1998... F-3 Consolidated Statements of Operations, Years ended December 31, 1999, 1998 and 1997.............. F-4 Consolidated Statements of Comprehensive Income, Years ended December 31, 1999, 1998 and 1997.............. F-4 Consolidated Statements of Stockholders' Equity, Years ended December 31, 1999, 1998 and 1997.............. F-5 Consolidated Statements of Cash Flows, Years ended December 31, 1999, 1998 and 1997.............. F-6 Notes to Consolidated Financial Statements................ F-7 (2) Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts............ F-25 All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required, or because the required information is not material. Independent Auditors' Report The Board of Directors and Stockholders AMCOL International Corporation: We have audited the consolidated financial statements of AMCOL International Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AMCOL International Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Chicago, Illinois March 2, 2000 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands, except share and per share amounts)
ASSETS December 31, 1999 1998 Current assets: Cash and cash equivalents......................................................... $ 3,815 $ 2,758 Accounts receivable: Trade, less allowance for doubtful accounts of $4,415 and $2,999.............. 98,943 96,446 Other......................................................................... 7,873 3,628 Inventories....................................................................... 40,680 52,093 Prepaid expenses.................................................................. 6,571 5,444 Current deferred tax asset........................................................ 6,888 3,707 Total current assets.......................................................... 164,770 164,076 Investment in and advances to joint ventures........................................... 9,111 4,556 Property, plant, equipment, and mineral rights and reserves: Land and mineral rights and reserves.............................................. 12,369 13,421 Depreciable assets................................................................ 339,006 312,260 351,375 325,681 Less accumulated depreciation..................................................... 178,967 154,203 172,408 171,478 Other assets: Goodwill and other intangible assets, less accumulated amortization of $580 and 452 16,308 $16,672 Long-term prepayments and other assets............................................ 1,534 1,446 Deferred tax asset................................................................ 732 - 2,718 17,754 $349,007 $357,864
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 1999 1998 Current liabilities: Current maturities of long-term obligations....................................... 509 $ 17,117 Accounts payable.................................................................. 20,656 21,969 Accrued income taxes.............................................................. 7,564 3,478 Accrued liabilities............................................................... 30,986 31,519 Total current liabilities..................................................... 59,715 74,083 Long-term obligations: Long-term debt.................................................................... 93,914 96,268 Deferred income tax liabilities........................................................ - 7,505 Other liabilities...................................................................... 8,938 7,094 8,938 14,599 Stockholders' equity: Common stock, par value $.01 per share. Authorized 100,000,000 shares, issued 32,015,796 shares............................................................. 320 320 shares Additional paid-in capital........................................................ 76,440 76,238 Retained earnings................................................................. 142,270 127,262 Cumulative other comprehensive income (expense) .................................. (2,607) (1,756) 216,423 202,064 Less: Treasury stock (5,163,715 shares in 1999 and 5,146,399 shares in 1998)............ (29,983) (29,150) 186,440 172,914 $349,007 $357,864
See accompanying notes to consolidated financial statements. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Dollars in thousands, except per share amounts)
Year Ended December 31, 1999 1998 1997 Net sales....................................................................... $ 552,052 $ 521,530 $ 477,060 Cost of sales................................................................... 414,256 410,359 376,319 Gross profit............................................................... 137,796 111,171 100,741 General, selling and administrative expenses.................................... 79,834 68,951 59,272 Write down of intangible and long-term assets................................... 14,529 -- -- Operating profit........................................................... 43,433 42,220 41,469 Other income (expense): Interest expense, net...................................................... (6,396) (7,933) (8,628) Other, net................................................................. (1,338) 140 (398) (7,734) (7,793) (9,026) Income before income taxes and equity in income of joint ventures.......... 35,699 34,427 32,443 Income taxes.................................................................... 13,913 12,350 11,399 Income before equity in income of joint ventures........................... 21,786 22,077 21,044 Equity in income of joint ventures ............................................. 448 8 - Net income................................................................. $ 22,234 $ 22,085 $ 21,044 Earnings per share Basic...................................................................... $ .83 $ .79 $ .74 Diluted.................................................................... $ .82 $ .78 $ .72
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Dollars in thousands)
Year Ended December 31, 1999 1998 1997 Net income...................................................................... $ 22,234 $ 22,085 $ 21,044 Other comprehensive income: Foreign currency translation adjustment....................................... (851) (7) (4,617) Comprehensive income............................................................ $ 21,383 $ 22,078 $ 16,427
See accompanying notes to consolidated financial statements. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Dollars in thousands, except share and per share amounts)
Common Stock Cumulative Other Additional Comprehensive Paid-in Retained Income Treasury Capital Earnings (Expense) Stock Total Number of Shares (1) Amount Balance at December 31, 1996.................... 32,015,796 $ 213 $ 75,576 $ 96,579 $ 2,868 ($7,832) $ 167,404 Net income................... - - - 21,044 - - 21,044 Cash dividends ($.21 per share).................. - - - (5,928) - - (5,928) Cumulative translation adjustment.............. - - - - (4,617) - (4,617) Three-for-two stock split.... 107 (107) - Purchase of 254,132 treasury shares......... - - - - - (2,921) (2,921) Sales of 230,808 treasury shares pursuant to options.............. - - 363 - - 598 961 Balance at December 31, 1997.................... 32,015,796 320 75,939 111,588 (1,749) (10,155) 175,943 Net income................... - - - 22,085 - - 22,085 Cash dividends ($.23 per share).................. - - - (6,411) - - (6,411) Cumulative translation adjustment.............. - - - - (7) - (7) Purchase of 1,829,041 treasury shares......... - - - - - (19,898) (19,898) Sales of 224,240 treasury shares pursuant to options.............. - - 299 - - 903 1,202 Balance at December 31, 1998.................... 32,015,796 $ 320 $76,238 $ 127,262 ($ 1,756) ($ 29,150) $ 172,914 Net income................... - - - 22,234 - - 22,234 Cash dividends ($.27 per share).................. - - - (7,226) - - (7,226) Cumulative translation adjustment.............. - - - - (851) - (851) Purchase of 226,600 treasury shares......... - - - - - ( 2,040) (2,040) Sales of 209,284 treasury shares pursuant to options.............. - - 202 - - 1,207 1,409 Balance at December 31, 1999.................... 32,015,796 $ 320 $ 76,440 $142,270 ($ 2,607) ($ 29,983) $ 186,440 (1) Reflects three-for-two stock split in December 1997, effected in the nature of a stock dividend.
See accompanying notes to consolidated financial statements. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Dollars in thousands)
Year Ended December 31, 1999 1998 1997 Cash flow from operating activities: Net income............................................................. $ 22,234 $ 22,085 $21,044 Adjustments to reconcile net income to net cash provided by operating Activities: Depreciation, depletion, and amortization.......................... 37,208 33,122 31,912 Increase (decrease) in allowance for doubtful accounts............. 1,416 452 (116) Increase (decrease) in deferred income taxes....................... (8,237) 815 177 Increase in other noncurrent liabilities........................... 1,229 311 777 (Gain) loss on sale of depreciable assets.......................... 252 (72) 111 Write down of intangible assets.................................... 13,238 - - (Increase) decrease in current assets: Accounts receivable........................................... (8,158) (10,915) (8,678) Inventories................................................... 11,413 (2,704) 6,925 Prepaid expenses.............................................. (1,127) (335) (607) Current deferred tax asset.................................... (3,181) (623) 2 Increase (decrease) in current liabilities: Accounts payable.............................................. (1,313) (2,933) 513 Accrued income taxes.......................................... 4,086 1,801 1,412 Accrued liabilities........................................... (533) 5,881 7,391 Net cash provided by operating activities................ 68,527 46,885 60,863 Cash flow from investing activities: Proceeds from sale of depreciable assets............................... 2,419 556 787 Sale of product line and mineral reserves.............................. - 13,176 - Acquisition of land, mineral reserves, and depreciable assets.......... (40,160) (37,678) (32,652) Advances to joint ventures............................................. (4,555) (1,521) (1,233) Decrease in other assets............................................... 637 369 343 Net cash used in investing activities..................... (41,659) (25,098) (32,755) Cash flow from financing activities: Proceeds from issuance of debt......................................... 465 16,697 2,443 Principal payments of debt............................................. (19,427) (12,761) (20,818) Proceeds from sales of treasury stock.................................. 1,409 1,202 961 Purchases of treasury stock............................................ (2,040) (19,898) (2,921) Dividends paid......................................................... (7,226) (6,411) (5,928) Net cash used in financing activities..................... (26,819) (21,171) (26,263) Rate change on cash......................................................... 1,008 (935) (1,822) Net increase (decrease) in cash and cash equivalents........................ 1,057 (319) 23 Cash and cash equivalents at beginning of year.............................. 2,758 3,077 3,054 Cash and cash equivalents at end of year.................................... $ 3,815 $ 2,758 $ 3,077 Supplemental disclosures of cash flow information: Cash paid for: Interest............................................................... $ 6,986 $ 7,615 $ 8,908 Income taxes .......................................................... $ 19,959 $ 10,301 $ 9,479
See accompanying notes to consolidated financial statements. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share and per share amounts) (1) Summary of Significant Accounting Policies Company Operations AMCOL International Corporation (the Company) may be divided into three principal categories of operations: absorbent polymers, minerals and environmental. The Company also operates a transportation business primarily for delivery of its own products. In 1999, the Company's revenues are derived 46% from absorbent polymers, 28% from minerals, 20% from environmental and 6% from transportation operations. The Company's sales were approximately 54% domestic and 46% outside of the United States. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its foreign and domestic subsidiaries. All subsidiaries 50% or more owned by the Company are consolidated. All subsidiaries are wholly owned, except India (50% and 20%), Mexico (49%), China (49%), Egypt (25%) and Japan (19%). The Mexican, Chinese and Egyptian joint ventures were accounted for using the equity method in 1999 and 1998. The 20% Indian investment was made in 1999, and recorded using the equity method. Prior to 1998, the Chinese and Mexican ventures were recorded at cost. The difference between the results based on the cost method and the equity method was immaterial. The Japanese investment is recorded at cost. All material intercompany balances and transactions between wholly owned subsidiaries, including profits on inventories, have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Translation of Foreign Currencies The assets and liabilities of subsidiaries located outside of the United States are translated into U.S. dollars at the rate of exchange at the balance sheet date. The statements of operations are translated at the weighted average monthly rate. Foreign exchange translation adjustments are accumulated as a separate component of stockholders' equity, while realized exchange gains or losses are included in income. Inventories Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) or moving average methods. Exploration costs are expensed as incurred. Costs incurred in removing overburden and mining bentonite are capitalized as advance mining costs until the bentonite from such mining area is transported to the plant site, at which point the costs are included in crude bentonite stockpile inventory. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except share and per share amounts) (1) Summary of Significant Accounting Policies (Continued) Property, Plant, Equipment, and Mineral Rights and Reserves Property, plant, equipment, and mineral rights and reserves are carried at cost. Depreciation is computed using the straight-line method for substantially all of the assets. Certain other assets, primarily field equipment, are depreciated on the units-of-production method. Mineral rights and reserves are depleted using the units-of-production method. Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. Goodwill is being amortized on the straight-line method over periods of five to 40 years. Other intangibles, including trademarks and noncompete agreements, are amortized on the straight-line method over periods of up to 10 years. Income Taxes The Company and its U.S. subsidiaries file a consolidated tax return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect for the year in which those temporary differences are expected to be recovered or settled. Revenue Recognition Product revenue is recognized when products are shipped to customers. Allowances for discounts, rebates, and estimated returns are recorded at the time of sale. Research and Development Research and development costs, included in general, selling and administrative expenses, were approximately $8,140, $6,839 and $6,273 for the years ended December 31, 1999, 1998 and 1997. Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average common shares outstanding after consideration of the dilutive effect of stock options. Earnings per share calculations reflect a three-for-two stock split in December 1997, effected in the nature of a stock dividend. A reconciliation between the number of shares used to compute basic and diluted earnings per share follows:
1999 1998 1997 Weighted average of common shares outstanding for the year.............. 26,772,569 27,918,391 28,488,527 Dilutive impact of stock options........................................ 426,694 467,469 636,641 Weighted average of common and common equivalent shares for the year.... 27,199,263 28,385,860 29,125,168 Common shares outstanding at December 31................................ 26,852,081 26,869,397 28,474,198
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (1) Summary of Significant Accounting Policies (Continued) Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three months or less as cash equivalents. Impairment of Long-Lived Assets Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value as estimated by discounted cash flows. Stock Option Plans The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No.123, "Accounting for Stock-Based Compensation," but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. Reclassifications Certain items in the 1998 and 1997 consolidated financial statements have been reclassified to comply with the consolidated financial statement presentation for 1999. (2) Business Segment and Geographic Area Information The Company operates in three major industry segments: absorbent polymers, minerals and environmental. The Company also operates a transportation business. The absorbent polymers segment produces and distributes superabsorbent polymers primarily for use in consumer markets. The minerals segment mines, processes and distributes clays and products with similar applications to various industrial and consumer markets. The environmental segment processes and distributes clays and products with similar applications for use as a moisture barrier in commercial construction, landfill liners and in a variety of other industrial and commercial applications. The transportation segment includes a long-haul trucking business and a freight brokerage business, which provide services to both the Company's plants and outside customers. The Company identifies segments based on management responsibility and the nature of the business activities of each component of the Company. Intersegment sales are insignificant. The Company measures segment profit as operating profit. Operating profit is defined as sales less cost of sales and general, selling and administrative expenses related to a segment's operations. Costs do not include interest or income taxes. Assets by segments are those assets used in the Company's operations in that segment. Corporate assets include cash and cash equivalents, corporate leasehold improvements, nanocomposite plant investment and other miscellaneous equipment. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (2) Business Segment and Geographic Area Information (Continued) Export sales included in the United States were approximately $70,704, $70,442 and $54,863 for the years ended December 31, 1999, 1998 and 1997. Procter & Gamble, a customer of the absorbent polymer segment, accounted for approximately 18% of consolidated sales in 1999. The following summaries set forth certain financial information by business segment and geographic area for the years ended December 31, 1999, 1998 and 1997.
1999 1998 1997 Business Segment: Revenues: Absorbent polymers............................................ $ 252,908 $ 221,093 $ 195,944 Minerals...................................................... 156,537 164,049 162,895 Environmental................................................. 107,975 104,501 88,421 Transportation................................................ 34,632 31,887 29,800 Total..................................................... $ 552,052 $521,530 $477,060 Operating profit: Absorbent polymers............................................ $ 51,850 $ 33,251 $ 28,863 Minerals...................................................... 14,287 10,131 11,634 Environmental................................................. (7,666) 9,194 10,268 Transportation................................................ 1,631 1,635 1,642 Corporate..................................................... (16,669) (11,991) (10,938) Total..................................................... $ 43,433 $ 42,220 $ 41,469 Assets: Absorbent polymers............................................ $ 145,249 $ 131,914 $ 135,076 Minerals...................................................... 119,247 121,085 129,484 Environmental................................................. 62,409 83,674 68,268 Transportation................................................ 1,439 932 1,209 Corporate..................................................... 20,663 20,259 16,972 Total..................................................... $ 349,007 $ 357,864 $ 351,009 Depreciation, depletion and amortization: Absorbent polymers............................................ $ 16,953 $ 14,763 $ 14,032 Minerals...................................................... 12,030 10,306 11,110 Environmental................................................. 5,766 6,249 5,126 Transportation................................................ 64 70 66 Corporate..................................................... 2,395 1,734 1,578 Total..................................................... $ 37,208 $ 33,122 $ 31,912 Capital expenditures: Absorbent polymers............................................ $ 22,016 $ 9,640 $ 4,802 Minerals...................................................... 8,874 12,396 14,494 Environmental................................................. 6,571 11,175 6,598 Transportation................................................ 49 30 112 Corporate..................................................... 2,650 4,437 6,646 Total..................................................... $ 40,160 $ 37,678 $ 32,652 Research and development expenses: Absorbent polymers............................................ $ 4,407 $ 3,326 $ 2,693 Minerals...................................................... 1,051 497 594 Environmental................................................. 1,147 1,035 787 Transportation................................................ - - - Corporate..................................................... 1,535 1,981 2,199 Total..................................................... $ 8,140 $ 6,839 $ 6,273
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (2) Business Segment and Geographic Area Information (Continued)
1999 1998 1997 Geographic area: Sales to unaffiliated customers from: North America...................................................... $ 374,638 $ 349,815 $ 343,114 Europe............................................................. 164,683 163,540 131,102 Asia 9,980 5,812 - Australia.......................................................... 2,751 2,363 2,844 Total......................................................... $ 552,052 $ 521,530 $ 477,060 Sales or transfers between geographic areas: North America...................................................... $ 7,531 $ 5,384 $ 3,575 Europe............................................................. 24 27 - Total......................................................... $ 7,555 $ 5,411 $ 3,575 Operating profit from: North America...................................................... $ 33,124 $ 32,519 $ 26,156 Europe............................................................. 13,026 9,491 15,003 Australia.......................................................... 401 162 305 Asia (3,118) 48 - Adjustments and eliminations....................................... - - 5 Total......................................................... $ 43,433 $ 42,220 $ 41,469 Identifiable assets in: North America...................................................... $ 211,306 $ 225,044 $ 244,581 Europe............................................................. 97,302 114,573 100,671 Australia.......................................................... 2,576 1,940 2,102 Asia 37,823 16,307 3,780 Adjustments and eliminations....................................... - - (125) Total......................................................... $ 349,007 $ 357,864 $ 351,009
(3) Inventories
Inventories consisted of: 1999 1998 Advance mining....................................................................... $ 1,450 $ 2,412 Crude stockpile inventories.......................................................... 9,822 15,174 In-process inventories............................................................... 13,726 19,113 Other raw material, container, and supplies inventories.............................. 15,682 15,394 $ 40,680 $ 52,093
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (4) Property, Plant, Equipment, and Mineral Rights and Reserves Property, plant, equipment and mineral rights and reserves consisted of the following:
Depreciation/ December 31, Amortization 1999 1998 Annual Rates Mineral rights and reserves..................................... $ 6,006 $ 6,622 Other land...................................................... 6,363 6,799 Buildings and improvements...................................... 77,322 57,305 4.9% to 25.0% Machinery and equipment......................................... 261,684 254,955 10.0% to 50.0% $351,375 $325,681
Depreciation and depletion were charged to income as follows:
1999 1998 1997 Depreciation expense........................................................ $33,852 $29,617 $28,922 Depletion expense........................................................... 863 367 368 $34,715 $29,984 $29,290
(5) Income Taxes The components of the provision for domestic and foreign income tax expense for the years ended December 31, 1999, 1998 and 1997 consisted of:
1999 1998 1997 Income before income taxes and minority interest: Domestic............................................................... $ 25,341 $ 30,469 $ 26,023 Foreign................................................................ 10,358 3,958 6,420 $ 35,699 $ 34,427 $ 32,443 Provision for income taxes: Domestic Federal Current............................................................. $ 13,854 $ 10,650 $ 8,818 Deferred............................................................ (8,162) (2,562) (1,027) Domestic State Current............................................................. 2,029 1,318 1,471 Deferred............................................................ (816) (256) (118) Foreign Current............................................................. 8,439 190 931 Deferred............................................................ (1,431) 3,010 1,324 $ 13,913 $ 12,350 $ 11,399
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (5) Income Taxes (Continued) The components of the deferred tax assets and liabilities as of December 31, 1999 and 1998 were as follows:
1999 1998 Deferred tax assets: Accounts receivable, due to allowance for doubtful accounts........................ $ 1,383 $ 1,061 Inventories ....................................................................... 737 686 Net foreign operating loss carryforward............................................ 2,517 1,417 Minimum pension liability.......................................................... 2,314 2,003 Capital losses carried forward..................................................... 2,431 - Book amortization in excess of tax allowance....................................... 4,284 - Other.............................................................................. 4,110 2,765 Total deferred tax assets....................................................... 17,776 7,932 Valuation allowance................................................................ (2,517) (800) Net deferred tax assets......................................................... 15,259 7,132 Deferred tax liabilities: Plant and equipment, due to differences in depreciation............................ (5,517) (8,873) Land and mineral reserves, due to differences in depletion......................... (1,843) (1,969) Inventories, due to change in accounting method from LIFO to FIFO.................. (152) (366) Other.............................................................................. (127) 278 Total deferred tax liabilities.................................................. (7,639) (10,930) Net deferred tax asset (liability).............................................. $ 7,620 $ (3,798)
The Company recorded a valuation allowance in 1999 and 1998 for the tax effect of the net operating loss of its U.K. minerals unit that resulted in a net operating loss carryforward. It is not known whether future operations will generate sufficient taxable income to realize the net deferred tax assets. The following analysis reconciles the statutory Federal income tax rate to the effective tax rates:
1999 1998 1997 Percent Percent Percent of Pretax of Pretax of Pretax Amount Income Amount Income Amount Income Domestic and foreign taxes on income at U.S. statutory rate...................... $ 12,495 35.0% $ 12,049 35.0% $ 11,355 35.0% Increase (decrease) in taxes resulting from: Percentage depletion.................. (875) (2.5) (1,017) (3.0) (595) (1.8) State taxes........................... 1,319 3.7 857 2.5 956 2.9 FSC commission........................ (518) (1.5) (853) (2.5) (724) (2.2) Valuation allowance................... 1,717 4.8 800 2.3 - - Nondeductible goodwill write down..... 935 2.7 - - - - Other................................. (1,160) (3.2) 514 1.6 407 1.2 $ 13,913 39.0% $ 12,350 35.9% $ 11,399 35.1%
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (6) Long-term Debt
Long-term debt consisted of the following: December 31, 1999 1998 Short-term debt supported by revolving credit agreement................................. $ 64,776 $ 67,410 Term note, at 9.68% (Series D).......................................................... - 2,840 Term note, at 7.36% (Series A).......................................................... - 11,500 Term note, at 7.83% (Series B).......................................................... 10,000 10,000 Term note, at 8.10% (Series C).......................................................... 15,000 15,000 Other notes payable..................................................................... 4,647 6,635 94,423 113,385 Less current portion.................................................................... 509 17,117 $ 93,914 $ 96,268
The Company has a committed $125,000 revolving credit agreement, which matures October 31, 2003, with an option to extend for three one-year periods. As of December 31, 1999, there was $60,224 available in unused lines of credit. The revolving credit note is a multi-currency agreement, which allows the Company to borrow at an adjusted LIBOR rate plus .25% to .75%, depending upon debt to capitalization ratios and the amount of the credit line used. Maturities of long-term debt at December 31, 1999, were as follows:
2000 2001 2002 2003 2004 Thereafter Short-term debt supported by revolving credit agreement...... $ - $ - $ - $64,776 $ - $ - Term note, at 7.83% (Series B)...... - 5,000 5,000 - - - Term note, at 8.10% (Series C)...... - - - - - 15,000 Other notes payable................. 509 4,138 - - - - $ 509 $ 9,138 $ 5,000 $64,776 $ - $15,000
The estimated fair value of the term notes above at December 31, 1999, was $25,511 based on discounting future cash payments at current market interest rates for loans with similar terms and maturities. All loan agreements include covenants that require the maintenance of specific minimum amounts of working capital, tangible net worth and financial ratios and limit additional borrowings and guarantees. The Company is not required to maintain a compensating balance. The Company is renegotiating its debt covenants in anticipation of the sale of the absorbent polymers segment. It is anticipated that the $125 million revolver will remain in place after the pending transaction closes. It is possible that the repayment of the term notes will be accelerated as a result of the transaction. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (7) Market Risks and Financial Instruments As a multinational corporation that manufactures and markets products in countries throughout the world, the Company is subject to certain market risks, including foreign currency, interest rates and government actions. The Company uses a variety of practices to manage these market risks, including, when considered appropriate, derivative financial instruments. The Company uses derivative financial instruments only for risk management and does not use them for trading or speculative purposes. Exchange Rate Sensitivity The Company is exposed to potential gains or losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies. The Company's primary exposures are to changes in exchange rates for the U.S. dollar versus the Euro, the British pound, the Canadian dollar, the Australian dollar, the Mexican peso, the Thai baht and the Korean won. The Company also has significant exposure to changes in exchange rates between the British pound and the Euro. The Company's various currency exposures often offset each other, providing a natural hedge against currency risk. Periodically, specific foreign currency transactions (e.g. inventory purchases, royalty payments, etc.) are hedged with forward contracts to reduce the foreign currency risk. Gains and losses on these foreign currency hedges are included in the basis of the underlying hedged transactions. As of December 31, 1999, the Company had outstanding foreign currency contracts to sell the equivalent of $2.75 million of British pounds to hedge raw material purchases. The fair value of these agreements results in an immaterial unrecognized loss at December 31, 1999. Interest Rate Sensitivity The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates for debt obligations. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date. The information is presented in U.S. dollar equivalents, which is the Company's reporting currency. The instrument's actual cash flows are denominated in both U.S. dollars (US), British pounds (BP), Norwegian kroner (NOK), Korean won (WON) and Thai baht (THB) as indicated in parentheses. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (7) Market Risks and Financial Instruments (Continued)
Expected Maturity Date Fair 2000 2001 2002 2003 2004 Thereafter Total Value (US$ equivalent in millions) Long-term debt: Fixed rate (US).......... $ - $ 5,000 $ 5,000 $ - $ - $15,000 $ 25,000 $25,511 Average interest rate.... - 7.8% 7.8% - - - - 8.1% Variable rate (US)....... 42,000 - - - - - 42,000 42,000 Average interest rate.... 6.4% - - - - - - - Variable rate (BP)....... 22,776 - - - - - 22,776 22,776 Average interest rate.... 6.0% - - - - - - - Variable rate (NOK)...... 509 469 - - - - 978 978 Average interest rate.... 8.3% 7.6% - - - - - - Variable rate (WON)...... 881 - - - - - 881 881 Average interest rate 9.9% - - - - - - - Variable rate (THB)...... 2,788 - - - - - 2,788 2,788 Average interest rate.... 6.6% - - - - - - - 68,954 5,469 5,000 - - 15,000 94,423 94,934 Debt to be refinanced.... (68,445) 3,669 - 64,776 - - - - Total......................... $ 509 $ 9,138 $ 5,000 $ 64,776 $ - $15,000 $ 94,423 $94,934
The Company periodically uses interest rate swaps to manage interest rate risk on debt securities. These instruments allow the Company to exchange variable rate debt into fixed rate or fixed rate debt into variable rate. Interest rate differentials paid or received on these arrangements are recognized as adjustments to interest expense over the life of the agreements. At December 31, 1999, the Company had one interest rate swap outstanding, which expires in September 2002, in a notional amount of $15 million. The fair value of this agreement results in an unrecognized loss at December 31, 1999, of $166. The Company is exposed to credit risk on certain assets, primarily cash equivalents, short-term investments and accounts receivable. The credit risk associated with cash equivalents and short-term investments is mitigated by the Company's policy of investing in securities with high credit ratings and investing through major financial institutions with high credit ratings. The Company provides credit to customers in the ordinary course of business and performs ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. The Company currently believes its allowance for doubtful accounts is sufficient to cover customer credit risks. The Company's accounts receivable financial instruments are carried at amounts that approximate fair value. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (8) Leases The Company leases certain railroad cars, trailers, computer software, office equipment, and office and plant facilities. Total rent expense under operating lease agreements was approximately $3,770, $3,535 and $3,560 in 1999, 1998 and 1997, respectively. The following is a schedule of future minimum lease payments for operating leases (with initial terms in excess of one year) as of December 31, 1999:
Operating Leases Domestic Foreign Total Year ending December 31: 2000.................................................. $ 2,904 $ 260 $ 3,164 2001.................................................. 2,395 151 2,546 2002.................................................. 1,982 48 2,030 2003.................................................. 1,440 36 1,476 2004.................................................. 1,315 22 1,337 Thereafter............................................ 4,974 - 4,974 Total minimum lease payments................................ $ 15,010 $ 517 $ 15,527
(9) Employee Benefit Plans The Company has noncontributory pension plans covering substantially all of its domestic employees. The Company's funding policy is to contribute annually the maximum amount, calculated using the actuarially determined entry age normal method, that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to services to date, but also for those expected to be earned in the future. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (9) Employee Benefit Plans (continued) The following tables set forth pension obligations included in the Company's balance sheet at December 31, 1999 and 1998:
Pension Benefits 1999 1998 Change in benefit obligations: Beginning benefit obligation........................................................ $ 24,782 $ 21,583 Service cost........................................................................ 1,708 1,510 Interest cost....................................................................... 1,581 1,481 Plan amendment...................................................................... - - Actuarial (gain) loss............................................................... (2,463) 1,258 Benefits paid....................................................................... (991) (1,050) Ending benefit obligation........................................................... $ 24,617 $ 24,782 Change in plan assets: Beginning fair value................................................................ $ 18,426 $ 19,685 Actual return....................................................................... 3,216 (209) Company contribution................................................................ 1,122 - Benefits paid....................................................................... (991) (1,050) Ending fair value.................................................................. $21,773 $18,426 Funded status of the plan........................................................... ($ 2,844) ($ 6,356) Unrecognized actuarial and investment (gains) losses, net........................... (1,997) 2,035 Prior service cost.................................................................. 625 661 Transition asset.................................................................... (772) (908) Accrued pension cost liability...................................................... ($ 4,988) ($ 4,568)
Pension cost was comprised of: 1999 1998 1997 Service cost - benefits earned during the year.............................. $ 1,708 $ 1,510 $ 1,284 Interest cost on accumulated benefit obligation............................. 1,581 1,481 1,327 Expected return on plan assets.............................................. (1,647) (1,733) (1,455) Net amortization and deferral............................................... (101) (101) (115) Net periodic pension cost................................................... $ 1,541 $ 1,157 $ 1,041
The Company's pension benefit plan was valued as of October 1, 1999 and 1998, respectively. The plan assets are invested in common stocks, corporate bonds and notes, and guaranteed income contracts purchased from insurance companies. The actuarial assumptions for 1999 and 1998, respectively, were as follows: the weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.25% and 6.5%; the rate of increase in future compensation levels was 5.75% and 5.00%; and the expected long-term rate of return on plan assets was 9.0% for both years. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (9) Employee Benefit Plans (continued) In addition to the ERISA qualified plan outlined above, the Company has a supplementary pension plan that replaces those benefits that are lost as a result of ERISA limitations. The unfunded, accrued liability for this plan was $1,024 at September 30, 1999. The Company also has a savings plan for its U.S. personnel. The Company has contributed an amount equal to an employee's contribution up to a maximum of 4% of the employee's annual earnings. Company contributions are made using Company stock purchased on the open market. Company contributions under the savings plan were $1,361 in 1999, $1,280 in 1998 and $1,233 in 1997. The Company also has a deferred compensation plan and a 401(k) restoration plan for its executives. The foreign pension plans, not subject to ERISA, are funded using individual annuity contracts and, therefore, are not included in the information noted above. (10) Stock Option Plans The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No.123 (FAS 123), "Accounting for Stock-Based Compensation," but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for the Company's stock option plans. Had compensation cost for its stock option plans been determined consistent with FAS 123, the Company's net income would have been changed to the pro forma amounts indicated below:
1999 1998 1997 Net income:.................... As reported........ $ 22,234 $ 22,085 $ 21,044 Pro forma.......... $ 21,188 $ 20,966 $ 20,115 Basic earnings per share:...... As reported........ $ 0.83 $ 0.79 $ 0.74 Pro forma.......... $ 0.79 $ 0.75 $ 0.71 Diluted earnings per share:.... As reported........ $ 0.82 $ 0.78 $ 0.72 Pro forma.......... $ 0.78 $ 0.74 $ 0.69
Under the stock option plans, the exercise price of each option equals the market price of the Company's stock on the date of the grant. For purposes of calculating the compensation cost consistent with FAS 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1999, 1998 and 1997:
1999 1998 1997 Risk-free interest rate................... 4.9% 5.6% 6.2% Expected life of option................... 6 yrs 6 yrs 6 yrs Expected dividend yield of stock.......... 2.6% 1.7% 1.6% Expected volatility of stock.............. 45% 40% 42%
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (10) Stock Option Plans (Continued) The Company reserved 2,700,000, 1,260,000, and 510,000 shares of its common stock for issuance of incentive and nonqualified stock options to its directors, officers and key employees in its 1983 Incentive Stock Option Plan, 1993 Stock Plan and 1987 Nonqualified Stock Option Plan, respectively. Options awarded under these plans, which entitle the optionee to one share of common stock, may be exercised at a price equal to the fair market value at the time of grant. Options awarded under the plan generally vest 40% after two years and continue to vest at the rate of 20% per year for each year thereafter, until they are fully vested, unless a different vesting schedule is established by the Compensation Committee of the Board of Directors on the date of grant. Options are exercisable as they vest and expire 10 years after the date of grant, except in the event of termination, retirement or death of the optionee, or a change in control of the Company. These plans are expired as of December 31, 1999, though options that were granted prior to expiration of the plans continue to be valid until the individual option grants expire.
1983 Incentive Stock Option Plan 1999 1998 1997 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Options outstanding at January 1........... 476,348 $ 5.27 611,184 $ 4.88 771,584 $ 4.53 Granted.................................... - - - - - - Exercised.................................. (110,116) 3.66 (130,966) 3.35 (157,115) 3.18 Cancelled.................................. - - (3,870) 7.83 (3,285) 4.84 Options outstanding at December 31......... 366,232 5.76 476,348 5.27 611,184 4.88 Options exercisable at December 31......... 366,232 476,348 552,818 Shares available for future grant at December 31............................. - - -
1993 Stock Plan 1999 1998 1997 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Options outstanding at January 1.......... 1,139,019 $ 11.49 929,830 $ 10.92 664,673 $ 10.48 Granted................................... - - 285,065 13.13 287,772 11.83 Exercised................................. (45,362) 10.19 (17,374) 8.90 (11,286) 8.99 Cancelled................................. (61,625) 11.71 (58,502) 11.15 (11,329) 10.69 Options outstanding at December 31........ 1,032,032 11.53 1,139,019 11.49 929,830 10.92 Options exercisable at December 31........ 547,808 400,190 147,285 Shares available for future grant at December 31............................ - - 318,884
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (10) Stock Option Plans (Continued)
1987 Nonqualified Stock Option Plan 1999 1998 1997 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Options outstanding at January 1........... 106,938 $ 6.79 182,838 $ 5.07 229,284 $ 3.68 Granted.................................... - - - - 21,000 12.00 Exercised.................................. (26,946) 3.04 (75,900) 2.64 (62,400) 1.94 Cancelled.................................. - - - - (5,046) 9.51 Options outstanding at December 31......... 79,992 8.06 106,938 6.79 182,838 5.07 Options exercisable at December 31......... 60,792 73,601 141,183 Shares available for future grant at December 31............................. - - 179,862
1998 Long-Term Incentive Plan The Company reserved 1,900,000 shares of its common stock for issuance to its officers, directors and key employees. This plan provides for the award of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights and phantom stock. Different terms and conditions apply to each form of award made under the plan. To date, only nonqualified stock options have been awarded. Options awarded under this plan, which entitle the optionee to one share of common stock, may be exercised at a price equal to the fair market value at the time of grant. Options awarded under the plan generally vest 40% after two years and continue to vest at the rate of 20% per year for each year thereafter, until they are fully vested, unless a different vesting schedule is established by the Compensation Committee of the Board of Directors on the date of grant. Options are exercisable as they vest and expire 10 years after the date of grant, except in the event of termination, retirement or death of the optionee or a change in control of the Company.
1998 Long-Term Incentive Plan 1999 1998 Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price Options outstanding at January 1....................... 20,000 $14.06 - $ - Granted................................................ 306,000 9.33 20,000 14.06 Exercised.............................................. - - - - Cancelled.............................................. (13,155) 9.00 - - Options outstanding at December 31..................... 312,845 9.64 20,000 14.06 Options exercisable at December 31..................... 5,600 - Shares available for future grant at December 31....... 1,587,155 1,880,000
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (10) Stock Option Plans (Continued) All Stock Option Plans The following table summarizes information about stock options outstanding and exercisable at December 31, 1999:
Options Outstanding Options Exercisable Weighted Average Weighted Weighted Number Remaining Average Number Average of Contractual Exercise Of Exercise Range of exercise prices Shares Life (Yrs.) Price Shares Price $ 1.945 - $ 8.250 518,345 3.10 $ 6.196 491,092 $ 6.085 8.500 - 10.250 475,233 7.87 9.312 128,927 9.697 10.500 - 13.125 645,298 7.02 12.315 232,188 11.756 13.625 - 14.060 152,225 4.50 13.717 128,225 13.673 Total 1,791,101 5.89 9.866 980,432 8.896
(11) Accrued Liabilities
1999 1998 Estimated accrued severance taxes....................................................... $ 1,385 $ 2,393 Accrued employee benefits............................................................... 4,987 4,572 Accrued vacation pay.................................................................... 2,235 1,944 Accrued dividends....................................................................... -- 1,615 Accrued bonus........................................................................... 3,616 2,915 Accrued commissions..................................................................... 4,314 4,987 Other................................................................................... 14,449 13,093 $ 30,986 $ 31,519
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (12) Quarterly Results (Unaudited) Unaudited summarized results for each quarter in 1999 and 1998 are as follows:
1999 Quarter First Second Third Fourth Absorbent polymers.......................................... $ 58,324 $ 64,607 $ 63,372 $ 66,605 Minerals.................................................... 39,609 38,081 39,319 39,528 Environmental............................................... 23,182 30,697 30,866 23,230 Transportation............................................. 7,844 8,485 9,761 8,542 Net sales............................................. $ 128,959 $ 141,870 $ 143,318 $ 137,905 Absorbent polymers.......................................... $ 13,715 $ 16,003 $ 18,207 $ 20,977 Minerals.................................................... 8,656 8,055 8,939 9,023 Environmental............................................... 7,104 8,035 8,348 6,973 Transportation.............................................. 878 949 1,055 879 Gross profit.......................................... $ 30,353 $ 33,042 $ 36,549 $ 37,852 Absorbent polymers.......................................... $ 9,527 $ 11,973 $ 14,087 $ 16,263 Minerals.................................................... 4,012 3,674 4,742 1,859 Environmental............................................... 722 1,393 2,080 (11,861) Transportation.............................................. 348 427 500 356 Corporate................................................... (3,867) (3,547) (4,699) (4,556) Operating profit (loss)............................... $ 10,742 $ 13,920 $ 16,710 $ 2,061 Net income (loss)........................................... $ 5,739 $ 7,749 $ 9,375 $ (629) Basic earnings (loss) per share:............................ $ 0.21 $ 0.29 $ 0.35 $ (0.02) Diluted earnings (loss) per share:.......................... $ 0.21 $ 0.29 $ 0.34 $ (0.02)
1998 Quarter First Second Third Fourth Absorbent polymers.......................................... $ 54,656 $ 52,047 $ 53,922 $ 60,468 Minerals.................................................... 44,388 39,495 39,077 41,089 Environmental............................................... 15,695 26,546 35,179 27,081 Transportation............................................. 6,818 7,547 9,226 8,296 Net sales............................................. $ 121,557 $ 125,635 $ 137,404 $ 136,934 Absorbent polymers.......................................... $ 10,624 $ 10,631 $ 11,607 $ 13,596 Minerals.................................................... 7,319 6,924 6,810 7,346 Environmental............................................... 4,761 8,635 10,655 8,591 Transportation.............................................. 831 895 1,030 916 Gross profit.......................................... $ 23,535 $ 27,085 $ 30,102 $ 30,449 Absorbent polymers.......................................... $ 7,534 $ 7,560 $ 8,394 $ 9,763 Minerals.................................................... 2,986 2,755 1,767 2,623 Environmental............................................... 54 2,822 4,325 1,993 Transportation.............................................. 346 380 508 401 Corporate................................................... (3,075) (2,526) (3,081) (3,309) Operating profit...................................... $ 7,845 $ 10,991 $ 11,913 $ 11,471 Net income.................................................. $ 3,458 $ 5,758 $ 6,673 $ 6,196 Basic earnings per share.................................... $ 0.12 $ 0.20 $ 0.24 $ 0.23 Diluted earnings per share:................................. $ 0.12 $ 0.20 $ 0.24 $ 0.23
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (13) Impairment of Assets As a result of the poor operating performance of some of the Company's subsidiaries, recoverability of their long lived assets was assessed. That assessment indicated certain intangibles and fixed assets would not be recovered through undiscounted cash flows. As a result, an asset impairment was recorded, in the amount of $3.0 million for the minerals segment and $11.6 million for the environmental segment. The assets were written down to fair value as estimated by discounting cash flows using an incremental borrowing rate. (14) Pending Transaction The Company has entered into a definitive agreement to sell its superabsorbent polymer business to BASF AG. Completion of the transaction is subject to the mechanical completion of the polymer plant in Thailand, approval by regulatory authorities in the United States, United Kingdom and Germany, and approval by the Company's shareholders. German regulatory approval has been obtained. The Company and BASF are responding to questions raised by the U.S. Federal Trade Commission in response to their respective Hart Scott Rodino filings. The Company currently intends to seek shareholder approval concurrent with the proxy filing for its annual meeting. If all approvals are obtained, the Company currently intends to distribute substantially all of the net proceeds to its shareholders. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Schedule II Valuation and Qualifying Accounts (Dollars in thousands)
Additions Balance Balance at Charged to Charged at end beginning costs and to other Other charges of Year Description of year expenses account s add (deduct) (1) year 1999 Allowance for doubtful accounts $ 2,999 $ 3,072 $ - ($1,656) $4,415 1998 Allowance for doubtful accounts $ 2,547 $ 3,469 $ - ($3,017) $2,999 1997 Allowance for doubtful accounts $ 2,663 $ 1,644 $ - ($1,760) $2,547 (1) Bad debts written off.
SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 9, 2000 AMCOL INTERNATIONAL CORPORATION By: /s/ John Hughes John Hughes Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ John Hughes March 9, 2000 John Hughes Chairman of the Board and Chief Executive Officer and Director /s/ Lawrence E. Washow March 9, 2000 Lawrence E. Washow President and Chief Operating Officer and Director /s/ Paul G. Shelton March 9, 2000 Paul G. Shelton Senior Vice President and Chief Financial Officer; Treasurer; Chief Accounting Officer and Director /s/ C. Eugene Ray March 9, 2000 C. Eugene Ray Director /s/ Jay D. Proops March 9, 2000 Jay D. Proops Director James A. McClung Director /s/ Robert E. Driscoll, III March 9, 2000 Robert E. Driscoll, III Director /s/ Clarence O. Redman March 9, 2000 Clarence O. Redman Director /s/ Arthur Brown March 9, 2000 Arthur Brown Director /s/ Dale E. Stahl March 9, 2000 Dale E. Stahl Director /s/ Audrey L. Weaver March 9, 2000 Audrey L. Weaver Director /s/ Paul C. Weaver March 9, 2000 Paul C. Weaver Director INDEX TO EXHIBITS Exhibit Number 3.1 Restated Certificate of Incorporation of the Company (5), as amended (10), as amended (16) 3.2 Bylaws of the Company (10) 4 Article Four of the Company's Restated Certificate of Incorporation (5), as amended (16) 10.1 AMCOL International Corporation 1983 Incentive Stock Option Plan (1); as amended (3) 10.3 Lease Agreement for office space dated September 29, 1986, between the Company and American National Bank and Trust Company of Chicago; (1) First Amendment dated June 2, 1994 (8); Second Amendment dated June 2, 1997 (13) 10.4 AMCOL International Corporation 1987 Non-Qualified Stock Option Plan (2); as amended (6) 10.5 Change in Control Agreement dated April 1, 1997, by and between Registrant and John Hughes (12) 10.6 Change in Control Agreement dated April 1, 1997, by and between Registrant and Paul G. Shelton (12) 10.7 Change in Control Agreement dated February 16, 1998, by and between Registrant and Lawrence E. Washow (14) 10.8 Change in Control Agreement dated April 1, 1997, by and between Registrant and Peter L. Maul (12) 10.9 AMCOL International Corporation Dividend Reinvestment and Stock Purchase Plan (4); as amended (6) 10.10 AMCOL International Corporation 1993 Stock Plan, as amended and restated (10) 10.11 Credit Agreement by and among AMCOL International Corporation and Harris Trust and Savings Bank, individually and as agent, NBD Bank, LaSalle National Bank and the Northern Trust Company dated October 4, 1994, (7); as amended, First Amendment to Credit Agreement dated September 25, 1995 (9), as amended, Second Amendment to Credit Agreement dated March 28, 1996, Third Amendment to Credit Agreement dated September 12, 1996 (11) and Fourth Amendment to Credit Agreement dated December 15, 1998 (18). 10.12 Note Agreement dated October 1, 1994, between AMCOL International Corporation and Principal Mutual Life Insurance Company,(7); as amended, First Amendment of Note Agreement dated September 30, 1996 (11); Second Amendment of Note Agreement dated December 15, 1998 (18). 10.13 Change in Control Agreement dated August 21, 1996 by and between Registrant and Frank B. Wright, Jr. (11) 10.14 Change in Control Agreement dated February 17, 1998 by and between Registrant and Gary L. Castagna (14) 10.15 AMCOL International Corporation 1998 Long-Term Incentive Plan (15) 10.16 Change in Control Agreement dated February 4, 1999 by and between Registrant and Ryan F. McKendrick (17) 10.17 Asset and Stock Purchase Agreement dated November 22, 1999 by and between the Company and BASF Aktiengesellschaft 23 Consent of KPMG LLC 27 Financial Data Schedule (1) Exhibit is incorporated by reference to the Registrant's Form 10 filed with the Securities and Exchange Commission on July 27, 1987. (2) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1988. (3) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1993. (4) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1992. (5) Exhibit is incorporated by reference to the Registrant's Form S-3 filed with the Securities and Exchange Commission on September 15, 1993. (6) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1993. (7) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 1994. (8) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1994. (9) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 1995. (10) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1995. (11) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1996. (12) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended March 31, 1997. (13) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended June 30, 1997. (14) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1997. (15) Exhibit is incorporated by reference to the Registrant's Form S-8 (File 333-56017) filed with the Securities and Exchange Commission on June 4, 1998. (16) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended June 30, 1998. (17) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998. (18) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 1999. o Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) of Form 10-K. EX-10.17 2 ASSET AND STOCK PURCHASE AGREEMENT EXHIBIT 10.17 ASSET AND STOCK PURCHASE AGREEMENT Between AMCOL INTERNATIONAL CORPORATION and BASF AKTIENGESELLSCHAFT Dated November 22, 1999 * An asterisk represents certain material which has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Such omitted material has been filed separately with the SEC. TABLE OF CONTENTS Section
ARTICLE I DEFINITIONS 1.01. Certain Defined Terms...............................................................................2 ARTICLE II PURCHASE AND SALE 2.01. Purchase and Sale of the Shares....................................................................13 2.02. Assets to be Sold..................................................................................13 2.03. Assumption and Exclusion of Liabilities............................................................15 2.04. Purchase Price; Allocation of Purchase Price.......................................................17 2.05. Closing............................................................................................18 2.06. Closing Deliveries by Parent.......................................................................18 2.07. Closing Deliveries by the Purchaser................................................................18 2.08. Statement of Working Capital.......................................................................19 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT 3.01. Organization, Authority and Qualification of the Sellers...........................................21 3.02. Organization, Authority and Qualification of the Company and SAP Thai..............................21 3.03. Capital Stock of the Company and SAP Thai; Ownership of the Shares.................................22 3.04. Corporate Books and Records........................................................................23 3.05. No Conflict........................................................................................23 3.06. Governmental Consents and Approvals................................................................23 3.07. Financial Statements...............................................................................23 3.08. No Undisclosed Liabilities.........................................................................24 3.09. Receivables........................................................................................24 3.10. Inventories........................................................................................25 3.11. Conduct in the Ordinary Course; Absence of Certain Changes, Events and Conditions..........................................................................25 3.12. Litigation.........................................................................................27 3.13. Compliance with Laws...............................................................................28 3.14. Environmental Matters..............................................................................28 3.15. Material Contracts.................................................................................30 3.16. Intellectual Property..............................................................................31 3.17. Real Property......................................................................................34 3.18. Tangible Personal Property.........................................................................36 3.19. Assets.............................................................................................37 3.20. Employee Benefit Matters...........................................................................37 3.21. Labor Matters......................................................................................42 Section Page 3.22. Key Employees......................................................................................43 3.23. Taxes..............................................................................................43 3.24. Insurance..........................................................................................45 3.25. Brokers............................................................................................47 3.26. Disclaimer.........................................................................................47 3.27. Disclosure Schedule................................................................................47 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 4.01. Organization and Authority of the Purchaser........................................................47 4.02. No Conflict........................................................................................48 4.03. Governmental Consents and Approvals................................................................48 4.04. Investment Purpose.................................................................................48 4.05. Litigation.........................................................................................48 4.06. Purchaser Financial Statements.....................................................................49 4.07. Brokers............................................................................................49 4.08. Disclaimer.........................................................................................49 ARTICLE V ADDITIONAL AGREEMENTS 5.01. Conduct of Business Prior to the Closing...........................................................49 5.02. Access to Information..............................................................................50 5.03. Confidentiality....................................................................................51 5.04. Stockholders' Meeting..............................................................................51 5.05. Proxy Statement....................................................................................52 5.06. Regulatory and Other Authorizations; Notices and Consents..........................................52 5.07. Notice of Developments.............................................................................54 5.08. No Solicitation or Negotiation.....................................................................54 5.09. Use of Intellectual Property.......................................................................55 5.10. Non-Competition....................................................................................56 5.11. Release of Indemnity Obligations...................................................................57 5.12. Termination of Intercompany Agreements.............................................................57 5.13. Transition Services Agreement......................................................................57 5.14. CETCO Supply Agreement.............................................................................58 5.15. Acrylic Acid Supply Agreement......................................................................58 5.16. License Agreement..................................................................................58 5.17. SAP Subleases......................................................................................58 5.18. Product/Material Rebates...........................................................................58 5.19. ION Exchange License Agreement.....................................................................58 5.20. Mixed-Use Assets...................................................................................58 5.21. Termination of SAP Indebtedness....................................................................59 Section Page 5.22. Termination of the Celanese Supply Agreement.......................................................59 5.23. Uncashed Cheques...................................................................................59 5.24. Access to Insurance................................................................................59 5.25. Patent Opinions....................................................................................60 5.26. Thai Facility......................................................................................60 5.27. * Obligations......................................................................................60 5.28. * Regional Assistance Grants.......................................................................60 5.29. Thai Facility Construction Contracts...............................................................61 5.30. Further Action.....................................................................................61 ARTICLE VI EMPLOYEE MATTERS 6.01. Transferred Employees..............................................................................61 6.02. Severance Obligations..............................................................................61 6.03. Employee Benefit Plans.............................................................................62 6.04. Pension Plans......................................................................................63 6.05. U.S. Employee Information..........................................................................64 6.06. Workers' Compensation Obligation for U.S. Transferred Employees....................................64 6.07. Provisions Relating to U.K. Employees..............................................................64 6.08. Provisions Relating to Thai Employees..............................................................65 6.09. Retained Obligations of Parent.....................................................................65 6.10. Employee Stock Options.............................................................................66 ARTICLE VII TAX MATTERS 7.01. Indemnity..........................................................................................67 7.02. Returns and Payments...............................................................................68 7.03. Contests...........................................................................................69 7.04. Time of Payment....................................................................................70 7.05. Cooperation and Exchange of Information............................................................70 7.06. Conveyance Taxes...................................................................................71 7.07. Section 338 Election...............................................................................71 7.08. Miscellaneous......................................................................................72 ARTICLE VIII CONDITIONS TO CLOSING 8.01. Conditions to Obligations of Parent................................................................73 8.02. Conditions to Obligations of the Purchaser.........................................................74 Section Page ARTICLE IX INDEMNIFICATION 9.01. Survival of Representations and Warranties.........................................................77 9.02. Indemnification by Parent..........................................................................77 9.03. Indemnification by the Purchaser...................................................................80 9.04. Indemnification Procedures.........................................................................81 9.05. Limits on Indemnification..........................................................................82 9.06. Waiver of Other Remedies...........................................................................83 ARTICLE X TERMINATION AND WAIVER 10.01. Termination........................................................................................83 10.02. Effect of Termination..............................................................................85 10.03. Fees and Expenses..................................................................................85 ARTICLE XI GENERAL PROVISIONS 11.01. Expenses...........................................................................................86 11.02. Notices............................................................................................86 11.03. Public Announcements...............................................................................87 11.04. Headings...........................................................................................88 11.05. Severability.......................................................................................88 11.06. Entire Agreement...................................................................................88 11.07. Assignment.........................................................................................88 11.08. Third Party Beneficiaries..........................................................................88 11.09. Amendment..........................................................................................88 11.10. Waiver.............................................................................................88 11.11. Governing Law......................................................................................89 11.12. Counterparts.......................................................................................89 11.13. Specific Performance...............................................................................89
EXHIBITS Exhibit 1.01 - Other Sellers Exhibit 1.01(a) - SAP Thai Shareholders Exhibit 1.01(b) - Executive Officers of the Other Sellers Exhibit 1.01(c) - Managers/Persons with Knowledge Exhibit 1.01(d) - SAP Real Property Exhibit 1.01(e) - Thai Recordings Exhibit 2.04(b) - Purchase Price Allocation Exhibit 2.08 - Working Capital Exhibit 5.02 - Access to Information Exhibit 5.10(c) - Certain Employees Exhibit 5.11 - Release of Indemnity Obligations Exhibit 5.12 - Continuing Intercompany Agreements Exhibit 5.13 - Transition Services Agreement Exhibit 5.14 - CETCO Supply Agreement Exhibit 5.15 - Acrylic Acid Supply Agreement Exhibit 5.16 - License Agreement Exhibit 5.17 - SAP Subleases Exhibit 5.19 - ION Exchange License Agreement Exhibit 5.26 - Definition of Mechanically Complete Exhibit 5.27 - * Obligations ASSET AND STOCK PURCHASE AGREEMENT dated November 22, 1999 between AMCOL International Corporation, a Delaware corporation ("Parent"), and BASF Aktiengesellschaft, a corporation organized under the laws of Germany (the "Purchaser"). W I T N E S S E T H: WHEREAS, Parent and its Subsidiaries (as defined herein) have been and are engaged in various businesses, including, without limitation, the business of researching, developing, manufacturing, marketing, distributing, supplying and selling Superabsorbent Polymers (as defined herein) and other products comprising Superabsorbent Polymers (such business being, the "SAP Business") (it being understood and agreed that the SAP Business does not include the Poly-Pore Business (as defined herein)); WHEREAS, the Purchaser wishes to acquire the SAP Business conducted by Parent, its subsidiaries, Chemdal Corporation, a Delaware corporation (the "Company"), and Chemdal Asia Ltd. (Thailand), a Thai corporation ("SAP Thai"), and the other sellers listed on Exhibit 1.01 hereto (such other sellers listed on Exhibit 1.01 being, the "Other Sellers"; and the Other Sellers together with Parent being, the "Sellers"; any of the Sellers individually being, a "Seller"); WHEREAS, Chemdal International Corporation, a Delaware corporation and wholly owned subsidiary of Parent ("Chemdal International Sub"), owns all of the issued and outstanding shares (the "Company Shares") of common stock, $0.01 par value per share (the "Company Common Stock"), of the Company; WHEREAS, Chemdal Holdings B.V., a Netherlands corporation and wholly owned subsidiary of Parent ("Chemdal Netherlands Sub"), and the Persons listed on Exhibit 1.01(a) hereto own all of the issued and outstanding ordinary shares of SAP Thai (the "Thai Shares"; and the Thai Shares together with the Company Shares being, the "Shares"); WHEREAS, Parent wishes to sell, and to cause the Other Sellers to sell, to the Purchaser, and the Purchaser wishes to purchase from Parent and the Other Sellers, the SAP Business and the Shares, as applicable, upon the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, the Purchaser and Parent hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms (a) As used in this Agreement, the following terms shall have the following meanings: "Action" means any claim, action, suit, arbitration or proceeding by or before any Governmental Authority. "Affiliate" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. "After-Tax Basis" means, with respect to any payment to be received or accrued by any Person, the amount of such payment supplemented by a further payment or payments (which will be payable simultaneously with the initial payment or, in the event that Taxes resulting from the receipt or accrual of such initial payment are not payable for the year of receipt or accrual, at the time or times that such Taxes become payable) so that the sum of all such initial and supplemental payments, after deduction of all Taxes imposed by any taxing authority in respect of or attributable to the receipt or accrual of such initial and supplemental payments (whether or not such Taxes are payable for the year of receipt or accrual), and after taking into account the net present value of any Tax benefit realized by such Person with respect to the loss or other amount that gave rise to such initial payment (using a discount rate of 10%), will be equal to the amount of the initial payment to be so received or accrued. "Agreement" or "this Agreement" means this Asset and Stock Purchase Agreement dated November 22, 1999 between Parent and the Purchaser (including the Exhibits hereto and the Disclosure Schedule) and all amendments hereto made in accordance with the provisions of Section 11.09. "Assumption Agreements" means the Assumption Agreements to be executed by the Purchaser or certain of its designated Affiliates on the Closing Date. "Bills of Sale" means the Bill of Sale to be executed by Parent, the Bill of Sale to be executed by Chemdal Limited (U.K.), a United Kingdom corporation and a wholly owned Subsidiary of Parent ("Chemdal U.K."), and the Bills of Sale to be executed by any other Persons selling assets to the Purchaser or its designated Affiliates hereunder, in each case, on the Closing Date; which Bills of Sale shall be consistent in all respects with, and will not impose any liabilities or obligations other than those imposed by, this Agreement or any applicable Law. "Board" means the board of directors of Parent or the executive board of directors of the Purchaser, as applicable. "Business Day" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in The City of New York. "Business Intellectual Property" means all Intellectual Property in and to which any Seller holds, or has a right to hold, any right, title or interest, and all Intellectual Property licensed or sublicensed to a Seller from a third party, in each case, used primarily in, developed primarily for, or relating primarily to, the SAP Business, including the ION Exchange Intellectual Property. "Code" means the Internal Revenue Code of 1986, as amended through the date hereof. "Company Intellectual Property" means all Intellectual Property in and to which the Company holds, or has a right to hold, any right, title or interest, and all Intellectual Property licensed or sublicensed to the Company from a third party, in each case, used primarily in, developed primarily for, or relating primarily to, the SAP Business, including the ION Exchange Intellectual Property. "control" (including the terms "controlled by" and "under common control with"), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise, including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person. "Disclosure Schedule" means the Disclosure Schedule attached hereto, dated as of the date hereof, and forming a part of this Agreement. "Encumbrance" means any security interest, pledge, mortgage, lien (including, without limitation, environmental and Tax liens), charge, encumbrance, written adverse claim, preferential arrangement or restriction of any kind, including, without limitation, any restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership, except for any Encumbrance arising from the transactions contemplated by this Agreement or any action by the Purchaser. "Environment" means surface waters, groundwater, surface water sediment, soil, subsurface strata, ambient air and any other environmental medium. "Environmental Claims" means any and all Actions, suits, demands, demand letters, claims, liens, notices of non-compliance or violation, notices of liability or potential liability, investigations, proceedings, consent orders or consent agreements relating in any way to any Environmental Law, any Environmental Permit or any Hazardous Material or arising as a result of the presence of gases occurring naturally, geologically or otherwise. "Environmental Law" means any applicable Law, rule or regulation, in each case in effect and as amended as of the Closing, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to pollution or protection of the Environment, health, safety or natural resources or to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials; provided, however, that the term Environmental Law shall also include the U.K. Environment Act of 1995, as amended. "Environmental Permit" means any permit (or permit application pursuant to which comparable operations may be conducted in compliance with Environmental Law), approval, identification number, license or other written authorization required to operate the SAP Business or the SAP Real Property under any applicable Environmental Law. "Governmental Authority" means any United States federal, state or local or any non-U.S. government, governmental, regulatory or administrative authority, state enterprise, agency or commission or any court, tribunal, or judicial or arbitral body. "Governmental Order" means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority. "Hazardous Materials" means (a) petroleum and petroleum products, by-products or breakdown products, radioactive materials, asbestos-containing materials and polychlorinated biphenyls, and (b) any other chemicals, materials or substances regulated as toxic or hazardous or as a pollutant, contaminant or solid waste, in each case, as regulated under any applicable Environmental Law. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "Indebtedness" means, with respect to any Person, (a) all indebtedness of such Person, whether or not contingent, for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of Parent or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with U.S. GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all Indebtedness of others referred to in clauses (a) through (f) above guaranteed directly or indirectly in any manner by such Person, and (h) all Indebtedness referred to in clauses (a) through (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Encumbrance on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness. "Indemnified Products" means any Superabsorbent Polymer (i) manufactured prior to the Closing Date by the Sellers, SAP Thai or the Company, and/or (ii) manufactured subsequent to the Closing Date by the Purchaser in the same manner as manufactured by the Sellers, SAP Thai or the Company prior to the Closing Date; provided, however, that (A) Indemnified Products shall also include any Superabsorbent Polymers that are not manufactured in the same manner as manufactured by the Sellers, SAP Thai or the Company prior to the Closing Date to the extent any difference between the method of manufacture (including processes and ingredients) employed by a Purchaser Indemnified Party after the Closing Date and the method of manufacture used by the Sellers, SAP Thai or the Company prior to the Closing Date is not the cause of infringement, and (B) Indemnified Products shall not include any Superabsorbent Polymers (whether or not evaluated by Parent and/or one of the Sellers) (x) manufactured by the Purchaser prior to the Closing Date, or (y) manufactured by the Purchaser after the Closing Date to the extent that such products and processes are not directly related to the SAP Business acquired by the Purchaser and its designated Affiliates pursuant to this Agreement. "Intellectual Property" means United States, international, and non-U.S. (i) patents and patent applications, (ii) registered and unregistered trademarks and service marks, including, without limitation, the goodwill associated therewith, (iii) registered and unregistered copyrights, and (iv) confidential and proprietary information, including, without limitation, trade secrets and know-how. "Inventories" means all inventory, merchandise, finished goods, work-in-progress, raw materials, repair parts and supplies maintained, held or stored for use in the SAP Business by or on behalf of the Company, SAP Thai or the Sellers and any prepaid deposits for any of the same. "ION Exchange Intellectual Property" means the following patent applications, together with any patents issuing therefrom, including all divisionals, continuations, continuations-in-part, reissues, reexaminations, and global counterparts thereto, together with the proprietary information, know-how, trade secrets, data, processes and formulae relating to the claimed subject matter described therein, existing as of the Closing Date: * "IRS" means the Internal Revenue Service of the United States. "Law" means any federal, state, local or non-U.S. statute, law, ordinance, regulation, rule, code, order, other requirement or rule of law. "Liabilities" means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any Law (including, without limitation, any Environmental Law), Action, investigation or Governmental Order and those arising under any contract, agreement, commitment or undertaking. "Licensed Intellectual Property" means all Seller Intellectual Property licensed to the Purchaser or one or more of its designated Affiliates pursuant to Section 5.16 of this Agreement. "Material Adverse Effect" means any change or effect that (i) is reasonably likely to be materially adverse to the business, financial condition or results of operations of the SAP Business, taken as a whole, or (ii) when taken together with all other adverse changes, effects or exceptions that are within the scope of the representations and warranties made by the Sellers in this Agreement and which are not individually deemed to have a Material Adverse Effect, is reasonably likely to be materially adverse to the business, financial condition or results of operations of the SAP Business, taken as a whole, other than any change, effect, event or occurrence to the extent arising from or relating to (x) actions taken pursuant to the obligations of the parties expressly set forth in this Agreement, or (y) the United States, the global economy or the securities market in general, or the Superabsorbent Polymer industry in general; provided, however, that the SAP Business, taken as a whole, is not materially disproportionately affected, as compared to other Persons engaged in such industry, by such change, effect, event or occurrence. "* Patents" means any patent claiming priority from *, together with all worldwide counterparts thereto, including continuations, continuations-in-part, divisionals, reissues and reexaminations thereof, issued either (i) as of the Closing Date or (ii) after the Closing Date, provided that the claim of any patent that issued after the Closing Date which forms the basis of any infringement claim or assertion of infringement against a Purchaser Indemnified Party is not broader in scope (in respect of a material claim limitation) than any claim of any patent claiming priority from the * issued as of the Closing Date. "Offsite Environmental Liabilities" means any Liabilities pursuant to Environmental Law that arise from the transportation, or arrangement thereof, on or before the Closing Date, of any Hazardous Material generated at SAP Real Property to a site not at any time owned or operated by the Company, SAP Thai, the Sellers (with respect to the SAP Business) or the SAP Business for the purpose of disposal of such Hazardous Material at such site; provided, however, that such term shall not mean the Release of any Hazardous Material from the SAP Real Property or any other property at any time owned or operated by the Company, SAP Thai, the Sellers (with respect to the SAP Business) or the SAP Business to any area surrounding or in the vicinity of such property. "Parent's Accountants" means KPMG LLP, the independent accountants of Parent. "Parent's Knowledge" means the actual knowledge of (i) any of the executive officers of Parent who will not become employees of Purchaser or its Affiliates following the Closing pursuant to this Agreement, and (ii) any of the executive officers of the Other Sellers listed on Exhibit 1.01(b) attached hereto who will not become employees of Purchaser or its Affiliates following the Closing pursuant to this Agreement, in each case, after making due inquiry of the Persons listed on Exhibit 1.01(c) attached hereto. "Permitted Encumbrances" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) liens for Taxes, assessments and governmental charges or levies not yet due and payable (i) which are not in excess of $50,000 in the aggregate or (ii) which are disclosed in the Agreement, disclosed or reflected on the Financial Statements (as defined below) or included in the Disclosure Schedule; (b) Encumbrances imposed by Law, such as materialmen's, mechanics', carriers', workmen's and repairmen's liens and other similar liens arising in the ordinary course of business securing obligations that (x) are not overdue for a period of more than 30 days and (y) are not in excess of $25,000 in the case of a single property or $150,000 in the aggregate at any time or are disclosed in the Agreement, disclosed or reflected on the Financial Statements (as defined below) or included in the Disclosure Schedule; (c) pledges or deposits to secure obligations under workers' compensation Laws or similar legislation or to secure public or statutory obligations; and (d) minor survey exceptions, reciprocal easement agreements and other customary encumbrances on title to real property that (i) were not incurred in connection with any Indebtedness, (ii) do not render title to the property encumbered thereby unmarketable and (iii) do not, individually or in the aggregate, materially adversely affect the use of such property in the manner being currently utilized by Parent. "Person" means any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act. "Poly-Pore Business" means the business of researching, developing, manufacturing, marketing, distributing, supplying and selling of microporus, oil and/or water sorbent polymers capable of entrapping solids and liquids, wherein such polymers, their method of manufacture or use meet all of the limitations of one or more claims of U.S. Patent Nos. 5,677,407; 5,830,967; 5,837,790; 5,608,005; 5,777,054; 5,712,358; 5,834,577; 5,830,960; 5,955,552; and divisionals, continuations, continuations-in-part, reissues, and global counterparts thereto (collectively being, the "Poly-Pore Patents"), including the Poly-Pore Patents and the proprietary information, know-how, trade secrets, data, processes, and formulae relating to the claimed subject matter described in the Poly-Pore Patents. "Purchase Price Bank Account" means a bank account in the United States to be designated by Parent in a written notice to the Purchaser at least five Business Days before the Closing. "Purchaser's Accountants" means Deloitte & Touche LLP, the independent accountants of the Purchaser. "Receivables" means any and all accounts receivable, notes and other amounts receivable from third parties, including, without limitation, customers, arising from the conduct of the SAP Business before the Closing Date, whether or not in the ordinary course, together with all unpaid financing charges accrued thereon; provided, however, that the term shall not include any rights to refunds for Taxes for any period, or any portion of any period, ending on or prior to the Closing Date. "Regulations" means the Treasury Regulations (including Temporary Regulations) promulgated by the United States Department of Treasury with respect to the Code or other federal tax statutes. "Release" means disposing, discharging, injecting, spilling, leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and the like any Hazardous Materials into or upon any land or water or air or otherwise into the Environment in a manner subject to regulation under the Environmental Laws. "Remco Businesses" means any of the businesses conducted by Parent and its Subsidiaries, other than the SAP Business. "Remedial Action" means any investigation, assessment, monitoring, treatment, excavation, removal, remediation or cleanup of Hazardous Materials in the Environment. "SAP Opinion" means any patent opinion prepared by counsel to Parent or its Affiliates prior to Closing which relates to the Business Intellectual Property, the Company Intellectual Property or the SAP Thai Intellectual Property. "SAP Real Property" means the real property used in the SAP Business and described in Exhibit 1.01(d) attached hereto. "SAP Thai Intellectual Property" means all Intellectual Property in and to which SAP Thai holds, or has a right to hold, any right, title or interest, and all Intellectual Property licensed or sublicensed to SAP Thai from a third party, in each case, used primarily in, developed primarily for, or relating primarily to, the SAP Business, including the ION Exchange Intellectual Property. "Seller Intellectual Property" means all Intellectual Property in and to which any Seller holds, or has a right to hold, any right, title and interest, and all Intellectual Property licensed or sublicensed to a Seller, in each case, other than the Business Intellectual Property. "Sellers' Accountants" means KPMG LLP, the independent accountants of Parent. "Stock Option Plans" means, collectively, Parent's 1983 Incentive Stock Option Plan, 1987 Non-Qualified Stock Option Plan (as amended and restated effective as of January 1, 1993), 1993 Stock Option Plan and 1998 Long-Term Incentive Stock Option Plan, and the Chemdal U.K. 1995 Share Option Scheme. "Subsidiaries" means, with respect to any Person, any and all corporations, partnerships, joint ventures, associations and other entities a majority of whose outstanding voting interests or other equity securities are owned by such Person, directly or indirectly through one or more Subsidiaries. "Superabsorbent Polymers" means, lightly cross linked, organic, polymeric materials capable of absorbing more than ten (10) times their own weight of a standard sodium chloride solution under conditions which are specified in Standard 440.199 of the European Disposable and Nonwovens Association which have been evaluated by Parent and/or the Sellers for potential use in any Traditional SAP Market Segments. "Superior Proposal" means any Acquisition Proposal on terms which Parent's Board determines, in its good faith judgment (after having received the advice of a financial adviser of nationally recognized reputation), to be more favorable to Parent and its stockholders than the transaction contemplated by this Agreement and for which financing, to the extent required, is then committed or, in the good faith judgment of Parent's Board, based upon the written advice of its financial adviser, is reasonably capable of being obtained by the third party bidder. "Tax" or "Taxes" means any and all taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any government or taxing authority or arising under any tax law or tax indemnity or tax sharing agreement, including, without limitation: taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation, or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes; license, registration and documentation fees; and customs duties, tariffs, and similar charges. "Thai Facility Construction Contracts" means the various construction contracts listed on Section 3.15 of the Disclosure Schedule entered into prior to the Closing between SAP Thai or its Affiliates, on the one hand, and certain third parties, on the other hand, which relate to the construction of the Thai Facility. "Thai Recordings" means the recordings set forth on Exhibit 1.01(e). "Traditional SAP Market Segments" means disposable hygienics (such as diapers, adult incontinence products, and feminine care products), cable wraps, fire retardants, freezer packs and food packaging liquid absorption. "Transaction Agreements" means the Bills of Sale, the Assumption Agreements, the Transition Services Agreement, the License Agreement, the Ion Exchange License Agreement, the CETCO Supply Agreement, the Acrylic Acid Supply Agreement and the SAP Subleases. "Transaction Intellectual Property" means the Business Intellectual Property, the Company Intellectual Property, the SAP Thai Intellectual Property and the Licensed Intellectual Property. "* Assistance Grants" means (i) the regional financial assistance grant in the amount of * evidenced by a letter dated * from the * and (ii) the regional financial assistance grant in the amount of * evidenced * from the *. "U.S. GAAP" means United States generally accepted accounting principles and practices as in effect from time to time and applied consistently throughout the periods involved. b) The following terms have the meaning set forth in the Sections set forth below: Defined Term Location of Definition Acquisition Proposal 5.08 Acrylic Acid Supply Agreement 5.15 Adjusted Statement of Working Capital 2.08(b)(ii) Allocation 7.07(b) Assumed Liabilities 2.03(a) Celanese Agreement 5.22 CETCO Supply Agreement 5.14 Chemdal International Sub Recitals Chemdal Names 5.09(a) Chemdal Netherlands Sub Recitals Chemdal U.K. 1.01 Closing 2.05 Closing Date 2.05 COBRA Benefits 6.03(c) Company Recitals Company Common Stock Recitals Company Shares Recitals Confidentiality Agreement 5.03 Continuing Intercompany Indebtedness 2.04(c) ERISA 3.20(a) Exchange Act 5.05(a) Excluded Assets 2.02(b) Excluded Liabilities 2.03(b) Expenses 10.03(b) FAS No. 87 3.20(i) Fee 10.03(a) Financial Statements 3.07 Foreign Benefit Plan 3.20(i) Indemnified Party 9.04 Indemnifying Party 9.04 Independent Accounting Firm 2.08(b)(ii) ION Exchange License Agreement 5.19 License Agreement 5.16 Licensed Transaction Intellectual Property 3.16(a) Loss 9.02 Loss Event 5.24 Material Contracts 3.15(a) Multiemployer Plan 3.20(b) Multiple Employer Plan 3.20(b) * Application 1.01 Other Sellers Recitals Owned Transaction Intellectual Property 3.16(b) Parent Preamble Plans 3.20(a) Poly-Pore Patents 1.01(a) Proxy Statement 5.05(a) Purchase Price 2.04(a) Purchaser Preamble Purchaser Defined Contribution Plan 6.04 Purchaser Indemnified Party 9.02 Purchaser Objection 2.08(b)(ii) Purchaser's Scheme 6.07(e) Rebates 5.18 Restricted Period 5.10(a) Returns 7.02(a) SAP Assets 2.02(a) SAP Business Recitals SAP Subleases 5.17 SAP Thai Recitals SEC 5.05(a) Seller Recitals Seller Defined Benefit Plan 6.04 Seller Defined Contribution Plan 6.04 Seller Indemnified Party 9.03(a) Seller Pension Plans 6.04 Sellers Recitals Shares Recitals Signing Premium 2.04(a) Statement of Working Capital 2.08(a) Stock Option 6.10(a) Stockholders' Meeting 5.04 Substituted Stock Option 6.10(b)(i) Tangible Personal Property 3.18(a) Terminating Purchaser Breach 10.01(c) Terminating Sellers' Breach 10.01(b) Thai Facility 8.02(r) Thai Shares Recitals Thai Transferred Employee 6.08(a) Third Party Claims 9.04 Transfer Laws 6.07(b) Transferred Assets 3.19(a) Transferred Employee 6.01 Transition Services Agreement 5.13 U.K. Designated Employee 6.07(a) U.K. Regulations 6.07(d) Unpaid SAP Cheques 5.23 Unvested Stock Option 6.10(b)(i) U.S. Transferred Employees 6.03(a) WARN 3.20(h) Working Capital 2.08(a) ARTICLE II PURCHASE AND SALE SECTION 2.01. Purchase and Sale of the Shares. Upon the terms and subject to the conditions of this Agreement, at the Closing, Parent shall cause the sale of the Shares to the Purchaser or one or more of its designated Affiliates, and the Purchaser or one or more of such designated Affiliates shall purchase the Shares. SECTION 2.02. Assets to be Sold. (a) On the terms and subject to the conditions of this Agreement, Parent shall, and shall cause the Other Sellers to, on the Closing Date, sell, assign, transfer, convey and deliver to the Purchaser or one or more of the Purchaser's designated Affiliates, and the Purchaser or one or more of such designated Affiliates shall purchase from the Sellers, on the Closing Date, all the assets, properties, goodwill and business of every kind and description and wherever located, whether tangible or intangible, real, personal or mixed, directly or indirectly owned by the Sellers or to which they are directly or indirectly entitled and, in any case, belonging to or used or intended to be used primarily in the SAP Business or primarily related to the SAP Business, other than the Excluded Assets (the assets to be purchased by the Purchaser and its designated Affiliates being referred to as the "SAP Assets"), including, without limitation, the following: (i) the SAP Business as a going concern; (ii) all the SAP Real Property; (iii) all furniture, fixtures, equipment, machinery and other tangible personal property used or held for use by the Sellers at the locations at which the SAP Business is conducted, or otherwise owned or held by a Seller at the Closing Date for use in the conduct of the SAP Business and not otherwise included in clause (ii) above; (iv) all Inventories; (v) all Receivables; (vi) all books of account, general, financial, tax and personnel records, invoices, shipping records, supplier lists, correspondence and other documents, records and files and all computer software and programs and any rights thereto owned by, primarily associated with, primarily used in, or primarily relating to, the SAP Business at the Closing Date, other than organization documents, minute and stock record books and the corporate seal of each of the Sellers; (vii) all the Sellers' right, title and interest in, to and under the Business Intellectual Property; (viii) all claims, causes of action, choses in action, rights of recovery and rights of set-off of any kind (including rights to insurance proceeds and rights under and pursuant to all warranties, representations and guarantees made by suppliers of products, materials or equipment, or components thereof) primarily relating to the SAP Business; (ix) all sales and promotional literature, customer lists and other sales-related materials owned by or primarily used, associated with or employed by the Sellers in the SAP Business at the Closing Date; (x) all rights of the Sellers under all contracts, licenses, sublicenses, agreements, leases, commitments, and sales and purchase orders, and under all commitments, bids and offers (to the extent such offers are transferable) primarily relating to the SAP Business; (xi) all municipal, state and federal franchises, permits, licenses, agreements, waivers and authorizations primarily held or used by the Sellers in connection with, or required for, the SAP Business, to the extent transferable; (xii) all refunds of any Taxes relating to any period, or any portion of any period, ending on or prior to the Closing Date to the extent any such refunds are reflected on the Statement of Working Capital; and (xiii) all the Sellers' right, title and interest on the Closing Date in, to and under all other assets, rights and claims of every kind and nature primarily used or intended to be primarily used in the operation of the SAP Business or located on the SAP Real Property. (b) The SAP Assets shall exclude the following assets owned by the Sellers (the "Excluded Assets"): (i) all cash, cash equivalents and bank accounts owned by the Sellers at the Closing Date; (ii) all rights of the Sellers under this Agreement; (iii) except as otherwise provided in this Agreement, all assets and properties of every kind and description and wherever located, directly or indirectly, owned or held for use by the Sellers and not primarily related to, or primarily used in the conduct of, the SAP Business including, without limitation, all of the assets and business of Parent and its Subsidiaries used or intended to be used primarily in the Poly-Pore Business; (iv) the name "AMCOL" and all related trademarks, logos, tradenames, telephone numbers and internet domain names; (v) all of the Sellers' right, title and interest to an under the Seller Intellectual Property; (vi) the right of the Seller to receive refunds of any Taxes relating to any period, or any portion of any period, ending on or prior to the Closing Date, except to the extent any such refunds are reflected on the Statement of Working Capital; and (vii) the right to receive any rebates and other refunds arising in connection with amounts paid by Parent and its Affiliates to the Purchaser and its Affiliates prior to the Closing pursuant to any materials supply agreements between the parties or their Affiliates. SECTION 2.03. Assumption and Exclusion of Liabilities. (a) On the terms and subject to the conditions of this Agreement, the Purchaser or one of its designated Affiliates shall, on the Closing Date, assume and shall pay, perform and discharge when due all debts, obligations, contracts, commitments, agreements and liabilities of the Sellers, of every kind and description primarily related to the conduct of the SAP Business and arising by reason of actions or events occurring on or before the Closing Date, whether or not existing on the Closing Date, and whether absolute or contingent, matured or unmatured, or known or unknown, except for the Excluded Liabilities (as defined below) (the "Assumed Liabilities"). (b) The Purchaser and its designated Affiliates, as applicable, shall not assume or have any responsibility for any debts, obligations, contracts, commitments, agreements or liabilities of the Sellers of any kind or description not primarily related to the conduct of the SAP Business (the "Excluded Liabilities"). The Sellers shall retain, and shall be responsible for paying, performing and discharging when due (provided that nothing herein shall preclude Parent from contesting or disputing any such Excluded Liabilities) all of the Excluded Liabilities, including, without limitation: (i) all Taxes now or hereafter owed by the Sellers, or attributable to the SAP Assets or the SAP Business, to the extent relating to any period, or any portion of any period, ending on or prior to the Closing Date (excluding, for purposes of clarification, any conveyance Taxes subject to Section 7.06 hereof, which shall be shared by the parties in the manner set forth therein); (ii) all Liabilities (including Taxes) relating to or arising out of the Excluded Assets or the Remco Businesses; (iii) all Liabilities arising from or relating to the employment or termination of employment of any Transferred Employee or U.K. Designated Employee prior to the Closing Date (including, without limitation, any Liabilities arising under any Plan or other compensation program, arrangement or agreement of the Sellers, the Company or SAP Thai except to the extent otherwise provided in this Agreement); (iv) any Indebtedness for borrowed money other than the Continuing Intercompany Indebtedness; (v) all debts, Liabilities and obligations of the Sellers related to, or arising out of, the conduct of the SAP Business prior to the Closing Date to the extent that the existence of such Liability or obligation constitutes a breach by the Sellers of any of their representations and warranties in this Agreement; (vi) any Liabilities of, or retained by, the Sellers under this Agreement; (vii) any and all Liabilities or Losses suffered or incurred by the Sellers or the SAP Business, including by reason of or in connection with any claim or cause of action of any third party, to the extent arising out of any action, inaction, event, condition, liability or obligation of the Remco Businesses occurring or existing before or after the Closing Date; (viii) except for Offsite Environmental Liabilities, and the obligations of the Purchaser as described in Exhibit 5.27 attached hereto with respect to the specific condition described therein, any and all Losses or Liabilities pursuant to any Environmental Law, or related to gases occurring naturally, geologically or otherwise, in each case, arising from or related to any action, event, circumstance or condition related to the SAP Business and occurring or existing on or before the Closing Date, including, without limitation, (A) any Release of Hazardous Materials into the Environment at, to or from the SAP Real Property or any property formerly owned or operated in connection with the SAP Business, in each case on or prior to the Closing (and any additional migration of such Release after the Closing Date) to the extent such Release is in violation of any Environmental Law or is in a quantity, concentration or any other form that is reportable or requires investigation, remediation or other action pursuant to Environmental Law; (B) any and all Environmental Claims arising at any time that relate to the SAP Business or the SAP Real Property on or prior to the Closing; and (C) any and all non-compliances with or violations of any applicable Environmental Law or Environmental Permit relating to the Sellers, the SAP Real Property or the SAP Business on or prior to the Closing (and any continuance of such non-compliance or violation after the Closing Date, except, with respect to this Section 2.03(viii)(C), to the extent (i) the Purchaser was or should have been aware of such non-compliance or violation on or before the Closing Date, or (ii) the condition constituting such non-compliance or violation is altered or changed by the Purchaser and its Affiliates after the Closing Date); and (ix) any and all costs and expenses (including attorneys' fees) incurred by the Sellers in preparing and negotiating this Agreement or the transactions contemplated hereby, and any Liabilities with respect to Actions relating to, resulting from, or arising out of, this Agreement or the transactions contemplated hereby. SECTION 2.04. Purchase Price; Allocation of Purchase Price. (a) Subject to the adjustments set forth in Section 2.08, the purchase price for the Shares and the SAP Assets shall be U.S.$628,000,000, less the Continuing Intercompany Indebtedness (as defined in Section 2.04(c) below) (the "Purchase Price"). In addition, the Purchaser will cause the payment to Chemdal U.K. of an amount equal to U.S.$28,500,000 (the "Signing Premium") as consideration for entering into the Acrylic Acid Supply Agreement set forth in Section 5.15 of this Agreement (it being understood that the Signing Premium shall be non-refundable for any reason, including, without limitation, on account of an early termination of the Acrylic Acid Supply Agreement for any reason, including, without limitation, for any actual or alleged breach or nonperformance thereunder by Chemdal U.K.). (b) The sum of the Purchase Price and the Assumed Liabilities shall be allocated among the Shares and the SAP Assets as of the Closing Date in accordance with Exhibit 2.04(b) attached hereto. Any subsequent adjustments to the sum of the Purchase Price and Assumed Liabilities shall be reflected in the allocation hereunder in a manner consistent with Treasury Regulation 1.1060-1T(f). For all Tax purposes, each of the Purchaser, Parent and the Other Sellers agrees to report the transactions contemplated in this Agreement in a manner consistent with the terms of this Agreement, including the allocation under Exhibit 2.04(b), and to refrain from taking any position inconsistent therewith in any Tax return, in any refund claim, in any litigation, or otherwise. (c) No less than 10 days prior to the Closing Date, Parent shall deliver to the Purchaser a certificate signed by the chief financial officer of Parent indicating the amount of any outstanding intercompany Indebtedness (the "Continuing Intercompany Indebtedness") of the SAP Business that will exist as of the Closing Date (it being understood that there will be no Continuing Intercompany Indebtedness existing as of the Closing Date that by its terms cannot be prepaid in full or in part at any time without penalty). SECTION 2.05. Closing. Upon the terms and subject to the conditions of this Agreement, the sale and purchase of the Shares and the SAP Assets contemplated by this Agreement shall take place at a closing (the "Closing") to be held at the offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York, at 10:00 A.M. New York time, on the tenth Business Day following the satisfaction or waiver of all other conditions to the obligations of the parties set forth in Article VIII, or at such other place or at such other time or on such other date as Parent and the Purchaser may mutually agree upon in writing (the day on which the Closing takes place being the "Closing Date"). SECTION 2.06. Closing Deliveries by Parent. At the Closing, Parent shall deliver or cause to be delivered to the Purchaser: (i) stock certificates evidencing the Shares duly endorsed in blank, or accompanied by stock powers duly executed in blank, in form reasonably satisfactory to the Purchaser and with all required stock transfer tax stamps affixed; (ii) the Bills of Sale (or any such other documents as may be reasonably requested by the Purchaser to transfer the SAP Assets to the Purchaser or one or more of its designated Affiliates or to evidence such transfer on the public records), customary instruments of transfer for the SAP Real Property, and customary instruments of transfer for the Business Intellectual Property, the Company Intellectual Property and the Thai Intellectual Property, all such documents to be in form and substance reasonably satisfactory to the parties; (iii) a receipt for the Purchase Price and the Signing Premium; and (iv) the certificates and other documents required to be delivered pursuant to Section 8.02. SECTION 2.07. Closing Deliveries by the Purchaser. At the Closing, the Purchaser shall deliver to Parent: (i) the Purchase Price by wire transfer in immediately available funds to the Purchase Price Bank Account; (ii) the Signing Premium by wire transfer in immediately available funds to the Purchase Price Bank Account; (iii) the Assumption Agreements and such other documents as may be reasonably requested by Parent to effect the assumption by the Purchaser or one or more of its designated Affiliates of the Assumed Liabilities and to evidence such assumption on the public records, all such documents to be in form and substance reasonably satisfactory to the parties; and (iv) the certificates and other documents required to be delivered pursuant to Section 8.01. SECTION 2.08. Statement of Working Capital. (a) As promptly as practicable, but in any event within 30 Business Days following the Closing Date, Parent shall deliver to the Purchaser (i) a statement (the "Statement of Working Capital") indicating the amount of current trade accounts receivable, net of allowance for doubtful accounts, SAP Thai Value Added Tax (VAT) receivables, if any, and Inventories, less accounts payable and accrued current liabilities (it being understood that (i) only those accrued current liabilities actually being transferred to the Purchaser pursuant to this Agreement shall be included in this statement and that this statement shall exclude any Receivables or rebates due to the SAP Business from the Purchaser and its Affiliates pursuant to any materials supply agreements, and (ii) to the extent there are any other current Receivables existing as of the Closing Date that were not included in the June 30, 1999 statement of working capital (attached hereto as Exhibit 2.08), the Purchaser shall promptly advise Parent whether it wishes to acquire any of such current Receivables, and should the Purchaser decide to acquire any of such current Receivables, then any of such current Receivables actually acquired by the Purchaser will be included in the Statement of Working Capital) (the "Working Capital") of the SAP Business as of the Closing Date, which Statement of Working Capital shall be prepared substantially in the same manner as the June 30, 1999 statement of working capital attached hereto as Exhibit 2.08 and (ii) an unqualified report thereon of Parent's Accountants stating that the Statement of Working Capital fairly presents in all material respects the Working Capital of the SAP Business at the Closing Date. (b) (i) Subject to clause (ii) of this Section 2.08, the Statement of Working Capital delivered by Parent to the Purchaser shall be deemed to be and shall be final, binding and conclusive on the parties hereto. (ii) The Purchaser may dispute any amounts reflected on the Statement of Working Capital; provided, however, that the Purchaser shall have notified Parent and the Sellers' Accountants in writing of each disputed item, specifying the estimated amount thereof in dispute and setting forth, in reasonable detail, the basis for such dispute (the "Purchaser Objection") within 30 Business Days of receipt of the Statement of Working Capital from Parent. Parent shall then have 30 Business Days from the receipt of the Purchaser Objection to review and respond to the Purchaser Objection. If the Purchaser and Parent are unable to resolve all of their disagreements with respect to the Statement of Working Capital within 10 Business Days following Parent's review of the Purchaser Objection, they shall submit the items remaining in dispute for resolution to an independent accounting firm of international reputation mutually acceptable to the Purchaser and Parent (such accounting firm being referred to herein as the "Independent Accounting Firm"), which shall, within 30 Business Days after such submission, determine and report to the Purchaser and Parent upon such dispute, and such written report shall be final, binding and conclusive on the Purchaser and Parent. The fees and disbursements of the Independent Accounting Firm shall be paid by the Purchaser and Parent in inverse proportion to those matters submitted to the Independent Accounting Firm which are resolved in favor of the Purchaser and Parent, as the case may be, as so allocated between the Purchaser and Parent by the Independent Accounting Firm in accordance with this Section 2.08 at the time of the Independent Accounting Firm's determination. The "Adjusted Statement of Working Capital" shall be (i) the Statement of Working Capital in the event that (x) no Purchaser Objection is delivered to Parent during the 30 Business Day period specified above or (y) the Purchaser and Parent so agree during such 30 Business Day period; (ii) the Statement of Working Capital as adjusted in accordance with the Purchaser Objection, in the event that the Purchaser Objection is timely delivered to Parent and (x) Parent does not respond to the Purchaser Objection within the 30 Business Day period following receipt by Parent of the Purchaser Objection or (y) the Purchaser and Parent so agree during such 30 Business Day period; or (iii) the Statement of Working Capital as adjusted by either (x) the agreement of the Purchaser and Parent or (y) the Independent Accounting Firm. (c) (i) Within 10 Business Days following the determination of the Adjusted Statement of Working Capital pursuant to this Section 2.08, the adjustment payments, if any, payable pursuant to this Section 2.08 shall be paid by wire transfer of immediately available funds to a bank account designated by the Purchaser or Parent, as the case may be, at least five Business Days prior to the expiration of such 10 Business Day period. For the purposes of determining which of the Purchaser's designated Affiliates will make or receive any required adjustment payments hereunder, the amount of U.S.$34,175,000 referred to in (ii) and (iii) below is assumed attributed as follows: U.S.$ * to the Company, U.S.$ * to SAP U.K. and U.S.$ * to SAP Thai. (ii) Parent shall make an adjustment payment to the Purchaser or one of its designated Affiliates in respect of Working Capital in an amount equal to the amount, if any, by which the (x) Adjusted Statement of Working Capital is less than (y) U.S.$34,175,000. (iii) The Purchaser shall make, or cause to be made, an adjustment payment to Parent in respect of Working Capital in an amount equal to the amount, if any, by which the (x) Adjusted Statement of Working Capital is greater than (y) U.S.$34,175,000. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT As an inducement to the Purchaser to enter into this Agreement, each of the Sellers hereby represents and warrants to the Purchaser as follows (except as set forth in the Disclosure Schedule): SECTION 3.01. Organization, Authority and Qualification of the Sellers. Each of the Sellers is a corporation duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation and, in the case of Parent, has all necessary power and authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. Each of the Sellers is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary, except to the extent that the failure to be so licensed or qualified (i) would not materially adversely affect the ability of such Seller to carry out its obligations under, and to consummate the transactions contemplated by, this Agreement, or (ii) have a Material Adverse Effect. Except for obtaining the necessary approval of stockholders, the execution and delivery of this Agreement by Parent, the performance by Parent of its obligations hereunder and the consummation by Parent of the transactions contemplated hereby have been duly authorized by all requisite action on the part of Parent. This Agreement has been duly executed and delivered by Parent, and (assuming due authorization, execution and delivery by the Purchaser) this Agreement constitutes a legal, valid and binding obligation of Parent enforceable against Parent in accordance with its terms, subject to bankruptcy, insolvency, moratorium, reorganization or similar Laws affecting the rights of creditors generally and the availability of equitable remedies. SECTION 3.02. Organization, Authority and Qualification of the Company and SAP Thai. Each of the Company and SAP Thai is a corporation duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation and has all necessary power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on the SAP Business as it has been and is currently conducted, except for the failure to be so organized, existing or in good standing or to have such power or authority as would not have a Material Adverse Effect. Each of the Company and SAP Thai is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary or desirable, except for failures to be so qualified or in good standing which would not, in the aggregate, have a Material Adverse Effect. All corporate actions taken by the Company during the past five years and by SAP Thai since the date of its incorporation have been duly authorized, and neither the Company nor SAP Thai has taken any action that in any respect conflicts with, constitutes a default under or results in a violation of any provision of its Certificate of Incorporation or By-laws (or similar organizational documents), except to the extent that the absence of such authority or the existence of such conflict or default would not have a Material Adverse Effect. True and correct copies of the Certificate of Incorporation and By-laws (or similar organizational documents) of the Company and SAP Thai, each as in effect on the date hereof, have been delivered by Parent to the Purchaser. As of the Closing Date, neither the Company nor SAP Thai will have any Subsidiaries. SECTION 3.03. Capital Stock of the Company and SAP Thai; Ownership of the Shares. (a) The authorized capital stock of the Company consists of 150,000 shares of Company Common Stock and the authorized capital stock of SAP Thai consists of 2,000,000 ordinary shares. As of the date hereof, 2,000 shares of Company Common Stock and 2,000,000 ordinary shares of SAP Thai are issued and outstanding, all of which are validly issued, fully paid and nonassessable. None of the issued and outstanding Shares were issued in violation of any preemptive rights. There are no options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character relating to the capital stock of the Company or SAP Thai or obligating Parent, Chemdal International Sub, Chemdal Netherlands Sub, the Company or SAP Thai to issue or sell any shares of capital stock of, or any other interest in, the Company or SAP Thai. There are no outstanding contractual obligations of the Company or SAP Thai to repurchase, redeem or otherwise acquire any shares of Company Common Stock or shares of SAP Thai or to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any other Person. The Company Shares constitute all the issued and outstanding capital stock of the Company and are owned of record and beneficially solely by Chemdal International Sub free and clear of all Encumbrances, and the Thai Shares constitute all the issued and outstanding capital stock of SAP Thai and are owned of record and beneficially solely by the Persons set forth on Exhibit 1.01(a) attached hereto free and clear of all Encumbrances. Upon consummation of the transactions contemplated by this Agreement and registration of the Shares in the name of the Purchaser in the stock records of the Company and SAP Thai, as applicable, the Purchaser, assuming it shall have purchased the Shares for value in good faith and without notice of any adverse claim, will own all the issued and outstanding capital stock of the Company and SAP Thai free and clear of all Encumbrances. Upon consummation of the transactions contemplated by this Agreement, the Shares will be fully paid and nonassessable. There are no voting trusts, stockholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of any of the Shares. (b) The stock register of each of the Company and SAP Thai accurately records: (i) the name and address of each Person owning shares of capital stock of the Company and SAP Thai, as applicable and (ii) the certificate number of each certificate evidencing shares of capital stock issued by the Company and SAP Thai, as applicable, the number of shares evidenced by each such certificate, the date of issuance thereof and, in the case of cancellation, the date of cancellation. SECTION 3.04. Corporate Books and Records. Except as would not have a Material Adverse Effect, the minute books of the Company and SAP Thai contain accurate records of all meetings and accurately reflect all other actions taken by the stockholders, the board of directors and all committees of the board of directors of the Company and SAP Thai, as applicable. Complete and accurate copies of all such minute books and of the stock register of the Company and SAP Thai have been provided by Parent to the Purchaser. SECTION 3.05. No Conflict. Assuming that all consents, approvals, authorizations and other actions described in Section 3.06 have been obtained and all filings and notifications listed in Section 3.06 of the Disclosure Schedule have been made, except for any facts or circumstances relating solely to the Purchaser, the execution, delivery and performance of this Agreement by Parent do not and will not (a) violate, conflict with or result in the breach of any provision of the charter or by-laws (or similar organizational documents) of Parent, the Company, SAP Thai or any Other Seller, (b) cause an event which could reasonably be expected to have a Material Adverse Effect as a result of any conflict with or violation of any Law or Governmental Order applicable to Parent, the Company, SAP Thai or any Other Seller or any of their respective assets, properties or businesses, including, without limitation, the SAP Business, or (c) except as set forth in Section 3.05(c) of the Disclosure Schedule or as would not have a Material Adverse Effect, conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the Company Shares or the Thai Shares or on any of the assets or properties of the Company, SAP Thai or of the Sellers pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which prior to the Closing the Company, SAP Thai or the Sellers is a party or by which any of the Shares or any of such assets or properties is bound or affected. SECTION 3.06. Governmental Consents and Approvals. The execution, delivery and performance of this Agreement by Parent do not and will not require any consent, approval, authorization or other order of, action by, filing with or notification to any Governmental Authority, except (a) as described in Section 3.06 of the Disclosure Schedule and (b) the notification requirements of the HSR Act and applicable filings under non-U.S. merger control and competition Laws; or (c) where the failure to obtain such consent, authorization or to make such filing would not have a Material Adverse Effect. SECTION 3.07. Financial Statements. True and complete copies of (i) the unaudited balance sheets of the Company, Chemdal International Sub, Chemdal Netherlands Sub, Chemdal U.K. and SAP Thai for the nine-month period ending September 30, 1999 and the related statements of income, and, with respect to the Company, the related statement of operations, (ii) the unaudited balance sheets of the Company, Chemdal International Sub, Chemdal Netherlands Sub and Chemdal U.K. for the fiscal year ended as of December 31, 1998 and the related statements of income, and, with respect to the Company and Chemdal International Sub, the related statements of cash flows, and (iii) the unaudited balance sheet of the Company, Chemdal International Sub and Chemdal U.K. for the fiscal years ended as of December 31, 1997 and December 31, 1996 and the related statements of income, and, with respect to the Company and Chemdal International Sub, the related statements of cash flows ((i), (ii) and (iii) above being collectively referred to herein as the "Financial Statements") have been delivered by Parent to the Purchaser and are set forth herein at Section 3.07 of the Disclosure Schedule. The Financial Statements (i) were prepared in accordance with the books of account and other financial records of the Company, SAP Thai, Chemdal International Sub, Chemdal Netherlands Sub and Chemdal U.K., and in all material respects and except as otherwise indicated therein or described in Section 3.07 of the Disclosure Schedule, present fairly the financial condition and results of operations of such entities as of the dates thereof or for the periods covered thereby, (ii) have been prepared on a basis consistent with the past practices of the Company, SAP Thai, Chemdal International Sub, Chemdal Netherlands Sub and Chemdal U.K. and (iii) include all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the financial condition of the Company, SAP Thai, Chemdal International Sub, Chemdal Netherlands Sub and Chemdal U.K. and the results of the operations of such entities as of the dates thereof or for the periods covered thereby (subject to, for the purposes only of the financial statements for the period ending September 30, 1999, any normal year-end adjustments which were not and are not expected, individually or in the aggregate, to have a Material Adverse Effect). If adjusted to account for the disclosures described in Paragraph 1 of Section 3.07 of the Disclosure Schedule, the results of the operations of the SAP Business for the periods covered by the Financial Statements shall be no worse than the results of the operations reflected on the Financial Statements for such periods. SECTION 3.08. No Undisclosed Liabilities. Except as disclosed elsewhere in the Disclosure Schedule, and except where the existence of such Liability would not have a Material Adverse Effect, there are no Liabilities of the Company, SAP Thai or the Sellers relating to the SAP Business, other than Liabilities reflected on the Financial Statements or incurred since September 30, 1999 in the ordinary course of the SAP Business consistent with the past practice of Parent, the Company, SAP Thai and the Other Sellers. SECTION 3.09. Receivables. To Parent's Knowledge, all Receivables existing on the Closing Date will have arisen from the sale of Inventory or services to Persons not affiliated with Parent, the Company, SAP Thai or the Other Sellers and in the ordinary course of the business consistent with past practice and, to Parent's Knowledge, in all material respects constitute or will constitute, as the case may be, only valid, undisputed claims of the SAP Business not subject to valid claims of set-off or other defenses or counterclaims other than normal cash discounts and rebates accrued in the ordinary course of the SAP Business consistent with past practice. Notwithstanding the foregoing, nothing in this Agreement shall constitute a guaranty or warranty by Parent or its Affiliates that such Receivables will ultimately be collected. SECTION 3.10. Inventories. The Company, SAP Thai or the Sellers, as the case may be, have good and marketable title to the Inventories free and clear of all Encumbrances. To Parent's Knowledge, the Inventories do not consist of, in any material amount, items that are obsolete or damaged. Except as described in Section 3.10 of the Disclosure Schedule, the Inventories do not consist of any items held on consignment. Neither the Company, SAP Thai nor any Seller is under any obligation or liability with respect to accepting returns of items of Inventory or merchandise in the possession of their customers other than in the ordinary course of business consistent with past practice. To Parent's Knowledge, neither the Company, SAP Thai nor any Seller has acquired or committed to acquire or manufacture Inventory for sale which is not of a quality and quantity usable in the ordinary course of the SAP Business within a reasonable period of time and consistent with past practice, nor has the Company, SAP Thai or a Seller changed the price of any Inventory except for (i) price reductions to reflect any reduction in the cost thereof to the Company, SAP Thai or such Seller, (ii) reductions and increases responsive to normal competitive conditions and consistent with past sales practices, (iii) increases to reflect any increase in the cost thereof to the Company, SAP Thai or such Seller and (iv) increases and reductions made with the written consent of the Purchaser. SECTION 3.11. Conduct in the Ordinary Course; Absence of Certain Changes, Events and Conditions. Since September 30, 1999, except as disclosed in Section 3.11 of the Disclosure Schedule or as would not have a Material Adverse Effect, the SAP Business has been conducted in the ordinary course and consistent with past practice. As amplification and not limitation of the foregoing, except as disclosed in Section 3.11 of the Disclosure Schedule and except as relates to the business and assets of the Sellers other than the SAP Business and the SAP Assets, since September 30, 1999, the Company, SAP Thai and the Sellers have not: (i) made any loan to, guaranteed any Indebtedness of or otherwise incurred any Indebtedness on behalf of any Person; (ii) redeemed any of the capital stock or declared, made or paid any dividends or distributions (whether in cash, securities or other property) to the holders of capital stock of the Company or shares of SAP Thai; (iii) to Parent's Knowledge, made any material changes in the customary methods of operations of the Company, SAP Thai or the Sellers, including, without limitation, practices and policies relating to manufacturing, purchasing, Inventories, marketing, selling and pricing; (iv) merged with, entered into a consolidation with or acquired an interest in any Person or acquired a substantial portion of the assets or business of any Person or any division or line of business thereof, or otherwise acquired any material assets other than in the ordinary course of business consistent with past practice; (v) except as directly related to the construction of the SAP Thai facility in Thailand, issued any sales orders or otherwise agreed to make any purchases involving exchanges in value in excess of $500,000 individually; (vi) sold, transferred, leased, subleased, licensed or otherwise disposed of any properties or assets, real, personal or mixed (including, without limitation, leasehold interests and intangible assets), other than in the ordinary course of business consistent with past practice; (vii) issued or sold any capital stock, notes, bonds or other securities, or any option, warrant or other right to acquire the same, of, or any other interest in, the Company, Chemdal U.K. or SAP Thai; (viii) entered into any agreement, arrangement or transaction with any of the directors, officers, employees or shareholders (or with any relative, beneficiary, spouse or Affiliate thereof) of the SAP Business; (ix) (A) granted any increase, or announced any increase, in the wages, salaries, compensation, bonuses, incentives, pension or other benefits payable by the Company, SAP Thai or a Seller to any of the SAP Employees, including, without limitation, any increase or change pursuant to any Plan or (B) established or increased or promised to increase any benefits under any Plan, in either case except as required by Law, or any collective bargaining agreement, or involving ordinary increases consistent with the past practices of the Company, SAP Thai or a Seller, or a contractual obligation existing on the date hereof; (x) written down or written up (or failed to write down or write up in accordance with U.S. GAAP consistent with past practice) the value of any Inventories or Receivables or revalued any assets of the Company, SAP Thai or any of the SAP Assets, other than in the ordinary course of business consistent with past practice and in accordance with U.S. GAAP; (xi) amended, terminated, canceled or compromised any material claims of the Company, SAP Thai or the Sellers or waived any other rights of substantial value to the SAP Business; (xii) made any change in any method of accounting or accounting practice or policy used by the Company, SAP Thai or the Sellers relating to the SAP Business, other than such changes as are required by U.S. GAAP (or other applicable non-U.S. accounting principals or practices); (xiii) made or revoked any material Tax election, or any change in any method of Tax accounting; (xiv) compromised or settled any material Tax Liability; (xv) failed in any material respect to maintain the SAP Assets in accordance with good business practice and in good operating condition and repair; (xvi) incurred any Indebtedness; (xvii) amended, modified or consented to the termination of any Material Contract or the Company's, SAP Thai's or a Sellers' rights thereunder; (xviii) amended or restated the Certificate of Incorporation or the By-laws (or similar organizational documents) of the Company, SAP Thai or the Sellers; (xix) suffered any Material Adverse Effect; or (xx) agreed, whether in writing or otherwise, to take any of the actions specified in this Section 3.11 or granted any options to purchase, rights of first refusal, rights of first offer or any other similar rights or commitments with respect to any of the actions specified in this Section 3.11, except as expressly contemplated by this Agreement. SECTION 3.12. Litigation. Except as set forth in Section 3.12 of the Disclosure Schedule (which, with respect to each Action and investigation disclosed therein, sets forth: the parties, nature of the proceeding, date commenced, relief sought and, if applicable, paid or granted), there are no Actions or, to Parent's Knowledge, investigations by or against the Company, SAP Thai or an Other Seller (or by or against Parent or any Affiliate thereof and relating to the SAP Business, the Company, SAP Thai or an Other Seller), or affecting the SAP Business or any of the SAP Assets, pending (or, to Parent's Knowledge, threatened to be brought) that has or has had a Material Adverse Effect or could affect the legality, validity or enforceability of this Agreement or the consummation of the transactions contemplated hereby. Except as set forth in Section 3.12 of the Disclosure Schedule, none of the Company, SAP Thai the Other Sellers nor any of the SAP Assets nor Parent is subject to any Governmental Order (nor, to Parent's Knowledge, are there any such Governmental Orders threatened to be imposed by any Governmental Authority) which has, has had or is reasonably likely to have, a Material Adverse Effect. SECTION 3.13. Compliance with Laws. Except as set forth in Section 3.13 of the Disclosure Schedule, the SAP Business has been and continues to be conducted in accordance with all Laws and Governmental Orders applicable to the SAP Business, and neither the Company, SAP Thai nor the Sellers are in violation of any such Law or Governmental Order, except where the failure to be in compliance with such Laws and orders would not have a Material Adverse Effect. SECTION 3.14. Environmental Matters. (a) Except as disclosed in Section 3.14(a) of the Disclosure Schedule or as would not have, or as would not reasonably be expected to have, a Material Adverse Effect: (i) The SAP Business is in compliance with, and has been in compliance with, all applicable Environmental Laws and all Environmental Permits. All past non-compliance with Environmental Laws or Environmental Permits has been resolved without any pending, on-going or future obligation, cost or liability, and there is no requirement proposed for adoption or implementation under any Environmental Law or Environmental Permit. (ii) There are no underground or aboveground storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials are being or have been treated, stored or disposed on any of the SAP Real Property or, to Parent's Knowledge, on any property formerly owned, leased or occupied by, or on behalf of, the Company, SAP Thai, the Sellers or the SAP Business. (iii) Hazardous Materials have not been Released on any of the SAP Real Property or, during their period of ownership, lease or occupancy, on any property formerly owned, leased or occupied by, or on behalf of, the Company, SAP Thai, the Sellers or the SAP Business. (iv) Except as contemplated in Exhibit 5.27 attached hereto, neither the Company, SAP Thai nor the Sellers are conducting, and none of them have undertaken or completed, any Remedial Action relating to any Release or threatened Release of Hazardous Materials at the SAP Real Property or, on behalf of the SAP Business, at any other site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law or Environmental Permit. (v) There is no asbestos or asbestos-containing material on any of the SAP Real Property, the existence of which is a violation of any Environmental Law. (vi) There are no Environmental Claims pending or threatened against the Company, SAP Thai, the Sellers (with respect to the SAP Business), the SAP Business or the SAP Real Property, and, to Parent's Knowledge, there are no circumstances that are reasonably expected to form the basis of any such Environmental Claim, including, without limitation, with respect to any off-site disposal location currently or formerly used by, or on behalf of, the Company, SAP Thai, a Seller or the SAP Business or any of their predecessors or with respect to any previously owned or operated facilities. (vii) The Company, SAP Thai and the Sellers do not require any new or additional Environmental Permits and are not required to modify any existing Environmental Permits and will not require any increase in capital expenditures, in order to produce at present production levels with respect to the SAP Business in compliance with applicable Environmental Laws. (viii) None of the SAP Real Property or, to Parent's Knowledge, any property formerly owned, leased or occupied by or on behalf of the Sellers, the Company, SAP Thai or the SAP Business is listed or proposed for listing, or adjoins any other property that is listed or proposed for listing, on the National Priorities List or the Comprehensive Environmental Response, Compensation and Liability Information System under the federal Comprehensive Environmental Response, Compensation, and Liability Act or any analogous federal, state or local list. (b) The Company, SAP Thai and the Sellers have provided the Purchaser with copies or summaries of (i) all written environmental assessment or audit reports and other similar studies or analyses relating to the SAP Business or the SAP Real Property or the operations of the Company, SAP Thai or the Sellers, as applicable, and (ii) to Parent's Knowledge, all insurance policies issued since December 31, 1995 that may provide coverage for the SAP Business related to environmental matters, provided that no representations or warranties are made by Parent that such policies or the rights and benefits thereunder are transferable to the Purchaser. (c) Except as disclosed in Section 3.14(c) of the Disclosure Schedule, neither the execution of this Agreement nor the consummation of the transactions contemplated in this Agreement will require any Remedial Action or notice to or consent of Governmental Authorities or any third party pursuant to any applicable Environmental Law or Environmental Permit. (d) The Purchaser acknowledges that (i) the representations and warranties contained in this Section 3.14 are the only representations and warranties being made with respect to compliance with or liability under Environmental Laws related to this Agreement or its subject matter, and (ii) no other representation contained in this Agreement shall apply to any such matters and no other representation or warranty, express or implied, is being made with respect thereto. SECTION 3.15. Material Contracts. (a) Section 3.15(a) of the Disclosure Schedule lists each of the following contracts and agreements (including, without limitation, oral agreements) of the Company, SAP Thai and the Sellers relating to the SAP Business (such contracts and agreements, together with all contracts, agreements, leases and subleases concerning the management or operation of any SAP Real Property to which the Company, SAP Thai or any of the Sellers is a party and all agreements relating to Intellectual Property being, the "Material Contracts"): (i) each contract and agreement for the purchase of Inventory, spare parts, other materials or personal property with any supplier or for the furnishing of services to the Company, SAP Thai or the Sellers or otherwise related to the SAP Business under the terms of which the Company, SAP Thai or any of the Sellers: (A) is likely to pay or otherwise give consideration of more than $500,000 in the aggregate during the calendar year ended December 31, 1999, or (B) cannot be canceled by the Company, SAP Thai or a Seller without penalty or further payment and without more than 30 days' notice; (ii) each contract and agreement for the sale of Inventory or other personal property or for the furnishing of services by the Company, SAP Thai or the SAP Business which: (A) is likely to involve consideration of more than $2,500,000 in the aggregate during the calendar year ended December 31, 1999, or (B) cannot be canceled by the Company, SAP Thai or a Seller without penalty or further payment and without more than 30 days' notice; (iii) all material broker, distributor, dealer, manufacturer's representative, franchise, agency, sales promotion, market research, marketing consulting and advertising contracts and agreements to which the Company, SAP Thai or any of the Sellers is a party; (iv) all employment contracts and contracts with independent contractors or consultants (or similar arrangements) to which the Company, SAP Thai or any of the Sellers is a party and which are not cancellable without penalty or further payment and without more than 30 days' notice; (v) all contracts and agreements of the Company and SAP Thai relating to Indebtedness; (vi) all material contracts and agreements with any Governmental Authority to which the Company, SAP Thai or any of the Sellers is a party; (vii) all contracts and agreements that limit or purport to limit the ability of the Company, SAP Thai or the Sellers (as it affects the SAP Business) to compete in any line of business or with any Person or in any geographic area or during any period of time; (viii) all contracts and agreements between or among the Company, SAP Thai or a Seller (as it affects the SAP Business), on the one hand, and Parent or any Affiliate of Parent (other than the Company, SAP Thai and the Other Sellers) on the other hand, other than tax sharing and other intercompany agreements entered into in the ordinary course of business; (ix) all contracts and agreements providing for benefits under any Plan or any policy, including applicable Chemdal U.K. and SAP Thai employee life insurance contracts and other similar documents; and (x) all other contracts and agreements, whether or not made in the ordinary course of business, the absence of which would be expected to have a Material Adverse Effect. (b) Except as disclosed in Section 3.15(b) of the Disclosure Schedule, or as would not have a Material Adverse Effect, each Material Contract: (i) is valid and binding on the respective parties thereto and is in full force and effect and (ii) solely by reason of the consummation of the transactions contemplated by this Agreement, except to the extent that any consents set forth in Section 3.06 of the Disclosure Schedule are not obtained, shall not terminate or impose a penalty or other material adverse consequence on the SAP Business. To Parent's Knowledge, neither the Company, SAP Thai nor any of the Sellers is in breach of, or default under, any Material Contract. (c) Except as disclosed in Section 3.15(c) of the Disclosure Schedule, to Parent's Knowledge, no other party to any Material Contract is in material breach thereof or material default thereunder. (d) Except as disclosed in Section 3.15(d) of the Disclosure Schedule, there is no contract, agreement or other arrangement granting any Person any preferential right to purchase, other than in the ordinary course of business consistent with past practice, any of the properties or assets of the Company, SAP Thai or the Sellers relating to the SAP Business. SECTION 3.16. Intellectual Property. (a) Section 3.16(a)(i) of the Disclosure Schedule sets forth a true and complete list and a brief description of each patent and patent application, and each registration or application for registration, of Business Intellectual Property, Company Intellectual Property, and SAP Thai Intellectual Property and Section 3.16(a)(ii) of the Disclosure Schedule sets forth a true and complete list and a brief description of all Transaction Intellectual Property that is licensed by the Company, SAP Thai or a Seller (the "Licensed Transaction Intellectual Property"). Except as otherwise described in Section 3.16(a)(i) of the Disclosure Schedule, in each case where a registration or patent or application for registration or patent listed in Section 3.16(a)(i) of the Disclosure Schedule is held by assignment, the assignment has been duly recorded with each Governmental Authority from which the original registration issued or before which the application for registration is pending. Except as disclosed in Section 3.16(a)(ii) of the Disclosure Schedule, to Parent's Knowledge, the operation of the SAP Business and the rights of the Company, SAP Thai or a Seller, as the case may be, in or to the Transaction Intellectual Property do not conflict with or infringe the rights of any other Person, and none of Parent, the Company, SAP Thai nor an Other Seller has received any written claim or written notice from any Person to such effect. Except as disclosed in Section 3.16(a)(iii) of the Disclosure Schedule, to Parent's Knowledge, the conduct of the SAP Business does not conflict with or infringe on the rights of any other Person, and none of Parent, the Company, SAP Thai nor an Other Seller has received any written claim or written notice from any Person to such effect. Notwithstanding the foregoing, Parent makes no representation or warranties as to the adequacy of Parent's programs to monitor, use and protect patents, trademarks, trade secrets and know-how. (b) Except as disclosed in Section 3.16(b) of the Disclosure Schedule and except as would not have a Material Adverse Effect: (i) all the Transaction Intellectual Property that is owned by the Company, SAP Thai or a Seller (the "Owned Transaction Intellectual Property") is owned free and clear of any Encumbrance and (ii) to Parent's Knowledge, no Actions have been made or asserted or are pending (nor, to Parent's Knowledge, (x) has there been any written notification sufficient to result in reasonable apprehension that any such action might ensue, nor (y) has any such Action been threatened) against the Company, SAP Thai or a Seller either (A) based upon or challenging or seeking to deny or restrict the use by the Company, SAP Thai or a Seller of any of the Transaction Intellectual Property or (B) alleging that the use of the Transaction Intellectual Property in connection with the SAP Business, or that any services provided, or products manufactured or sold by the Company, SAP Thai or a Seller (with respect to the conduct of the SAP Business infringes any rights of any Person). Except as disclosed in Section 3.16(b) of the Disclosure Schedule, to Parent's Knowledge, no Person is engaging in any activity or is using any Intellectual Property that in any manner infringes upon the Owned Transaction Intellectual Property or Licensed Transaction Intellectual Property or upon the rights of the Company, SAP Thai or a Seller therein. Except as disclosed in Section 3.16(b) of the Disclosure Schedule, none of Parent, the Company, SAP Thai nor an Other Seller has granted any license or other right to any other Person with respect to the Transaction Intellectual Property. The consummation of the transactions contemplated by this Agreement will not result in the termination or impairment of any of the Transaction Intellectual Property. (c) With respect to all Licensed Transaction Intellectual Property and Owned Transaction Intellectual Property, except as would not have a Material Adverse Effect, the registered user provisions (required due to the manner in which the Transaction Intellectual Property is currently being used) of all nations requiring such registrations have been complied with. (d) Parent has, or has caused to be, delivered to the Purchaser correct and complete copies of all the licenses and sublicenses for the Licensed Transaction Intellectual Property and any and all ancillary documents modifying or qualifying or otherwise material thereto (including, without limitation, all amendments, consents and evidence of commencement dates and expiration dates). With respect to each of such licenses and sublicenses: (i) such license or sublicense, together with all ancillary documents delivered pursuant to the first sentence of this Section 3.16(d), is valid and binding and in full force and effect and represents the entire agreement between the respective licensor and licensee with respect to the subject matter of such license or sublicense; (ii) except as otherwise set forth in Section 3.16(d)(ii) of the Disclosure Schedule, such license or sublicense will not cease to be valid and binding and in full force and effect on terms identical to those currently in effect as a result of the consummation of the transactions contemplated by this Agreement, nor will the consummation of the transactions contemplated by this Agreement constitute a breach or default under such license or sublicense or otherwise give the licensor or sublicensor a right to terminate such license or sublicense; (iii) except as otherwise disclosed in Section 3.16(d)(iii) of the Disclosure Schedule, with respect to each such license or sublicense: (A) none of Parent, the Company, SAP Thai nor an Other Seller has received any written notice of termination or cancellation under such license or sublicense and no licensor or sublicensor has any right of termination or cancellation under such license or sublicense except in connection with the default of the Company, SAP Thai or an Other Seller thereunder, (B) none of Parent, the Company, SAP Thai nor an Other Seller has received any notice of a breach or default under such license or sublicense, which breach or default has not been cured, and (C) none of Parent, SAP Thai, the Company nor an Other Seller has granted to any other Person any rights, adverse or otherwise, under such license or sublicense; (iv) none of the Company, SAP Thai, a Seller, nor (to Parent's Knowledge) any other party to such license or sublicense is in breach or default in any material respect, and, to Parent's Knowledge, no event has occurred that, with notice or lapse of time would constitute such a breach or default or permit termination, modification or acceleration under such license or sublicense; (v) to Parent's Knowledge, no Actions have been made or asserted or are pending (nor, to Parent's Knowledge, has any such Action been threatened, nor has there been any notification sufficient to result in reasonable apprehension that any such Action might ensue) against the Company, SAP Thai or a Seller either (A) based upon or challenging or seeking to deny or restrict the use by the Company, SAP Thai or a Seller of any of the Licensed Transaction Intellectual Property or (B) alleging that any Licensed Transaction Intellectual Property is being licensed, sublicensed or used in violation of any Intellectual Property rights of any Person, or (C) alleging that any services provided or products manufactured or sold by the Company, SAP Thai or a Seller using any Licensed Transaction Intellectual Property (with respect to the conduct of the SAP Business) are being provided, manufactured or sold in violation of any patents or trademarks or other rights of any Person; and (vi) to Parent's Knowledge, no Person is using any Intellectual Property that in any manner infringes upon the Licensed Transaction Intellectual Property or upon the rights of the Company, SAP Thai or a Seller therein. (e) Except as set forth in Section 3.16(e) of the Disclosure Schedule, with respect to Transaction Intellectual Property, Parent has not received written notification that any pending applications to register trademarks, service marks or copyrights or any pending patent applications will not be granted or, if granted, will not be valid and enforceable; provided, however, that rejections to requested patents are customarily received from the U.S. Patent and Trademark Office in connection with filed patent applications. The patents and trademarks included in the Transaction Intellectual Property have not been adjudged invalid or unenforceable in whole or part, and to Parent's Knowledge, are valid and enforceable. Parent makes no representation or warranty that any pending patent applications relating to Transaction Intellectual Property will be granted. (f) The Transaction Intellectual Property constitutes all the Intellectual Property used or held or intended to be used by the Company, SAP Thai or a Seller or forming a part of, used, held or intended to be used in the SAP Business and there are no other items of Intellectual Property owned or licensed by Parent that are material to the Company, SAP Thai or the SAP Business. SECTION 3.17. Real Property. (a) Section 3.17(a) of the Disclosure Schedule lists: (i) the street address of each parcel of SAP Real Property, (ii) the date on which each parcel of SAP Real Property was acquired or leased, (iii) the current owner of each such parcel of SAP Real Property, (iv) information relating to the recordation of any deed pursuant to which each such parcel of SAP Real Property was acquired and (v) the current use of each such parcel of SAP Real Property. (b) The Sellers will make available to the Purchaser true and complete copies of each deed for each parcel of SAP Real Property and all the title insurance policies, title reports, licensed surveys, certificates of occupancy, environmental reports and audits, appraisals, Permits, other material title documents for the SAP Real Property which are in their possession or control. Except as described in Section 3.17(b) of the Disclosure Schedule, or as would not have a Material Adverse Effect, (i) there is no violation of any Law (including, without limitation, any building, planning or zoning Law) relating to any of the SAP Real Property, (ii) either the Company, SAP Thai or the Sellers, as the case may be, is in peaceful and undisturbed possession of each parcel of SAP Real Property and there are no contractual or legal restrictions that preclude or restrict the ability to use the premises for the purposes for which they are currently being used, and (iii) to Parent's Knowledge, all existing water, sewer, steam, gas, electricity, telephone and other utilities required for the construction, use, occupancy, operation and maintenance of the SAP Real Property are adequate for the conduct of the business of the Company, SAP Thai and the Sellers as it has been and currently is conducted and there are no material latent defects or adverse physical conditions affecting the SAP Real Property or any of the facilities, buildings, structures, erections, improvements, fixtures, fixed assets and personalty of a permanent nature annexed, affixed or attached to, located on or forming part of the SAP Real Property that would have a Material Adverse Effect. Except as set forth in Section 3.17(b) of the Disclosure Schedule, neither the Company, SAP Thai nor any of the Sellers has leased or subleased any parcel or any portion of any parcel of SAP Real Property to any other Person. (c) There are no condemnation proceedings or eminent domain proceedings of any kind of which Parent has received written notice nor, to Parent's Knowledge, are there any such proceedings threatened against the SAP Real Property. (d) Except as set forth in Section 3.17 of the Disclosure Schedule, all the SAP Real Property is occupied under a valid and current certificate of occupancy or similar permit and, to Parent's Knowledge, the transactions contemplated by this Agreement will not require the issuance of any new or amended certificate of occupancy and, to Parent's Knowledge, there are no facts that would prevent the SAP Real Property from being occupied by the Company, SAP Thai or the Purchaser, as the case may be, after the Closing in substantially the same manner as occupied by the Company, SAP Thai or the Sellers immediately prior to the Closing. (e) Except as set forth in Section 3.17 of the Disclosure Schedule, all improvements on the SAP Real Property constructed by or on behalf of the Company, SAP Thai or the Sellers or, to Parent's Knowledge, constructed by or on behalf of any other Person were constructed in compliance with all applicable Laws (including, without limitation, any building, planning or zoning Laws) affecting such SAP Real Property, except, in each case, as would not have a Material Adverse Effect. (f) No improvements on the SAP Real Property and none of the current uses and conditions thereof violate any applicable deed restrictions or other applicable covenants, restrictions, agreements, existing site plan approvals, zoning or subdivision regulations or urban redevelopment plans as modified by any duly issued variances, and no permits, licenses or certificates pertaining to the ownership or operation of all improvements on the SAP Real Property, other than those required to be assigned to Purchaser pursuant to this Agreement, are required by any Governmental Authority having jurisdiction over the SAP Real Property, except, in each case, as would not have a Material Adverse Effect. (g) Except for fences, curbs, gutters, sidewalks and light fixtures or signs, all improvements on any SAP Real Property are wholly within the lot limits of such SAP Real Property and do not encroach on any adjoining premises, and there are no encroachments on any SAP Real Property by any improvements located on any adjoining premises, except, in each case, as would not have a Material Adverse Effect. SECTION 3.18. Tangible Personal Property. (a) Section 3.18(a) of the Disclosure Schedule lists, as of the date thereof, each material item or distinct group of machinery, equipment, tools, supplies, furniture, fixtures, personalty, vehicles, rolling stock and other tangible personal property other than Inventories (the "Tangible Personal Property") used primarily in the SAP Business or owned or leased by the Company, SAP Thai or a Seller, other than certain Excluded Assets described therein. (b) Parent has, or has caused to be, delivered to the Purchaser true and complete copies of all material leases and subleases for Tangible Personal Property and any and all material ancillary documents modifying or qualifying or otherwise material thereto (including, without limitation, all amendments, consents and evidence of commencement dates and expiration dates). With respect to each of such material leases and subleases: (i) such lease or sublease, together with all ancillary documents delivered pursuant to the first sentence of this Section 3.18(b), is legal, valid, binding, enforceable and in full force and effect and represents the entire agreement between the respective lessor and lessee with respect to such property; (ii) except as set forth in Section 3.18(b) of the Disclosure Schedule, such lease or sublease will not cease to be legal, valid, binding, enforceable and in full force and effect on terms identical to those currently in effect as a result of the consummation of the transactions contemplated by this Agreement, nor will the consummation of the transactions contemplated by this Agreement constitute a breach or default under such lease or sublease or otherwise give the lessor a right to terminate such lease or sublease; (iii) except as otherwise disclosed in Section 3.18(b) of the Disclosure Schedule, with respect to each such lease or sublease: (A) none of Parent, the Company, SAP Thai nor an Other Seller has received any written notice of cancellation or termination under such lease or sublease and no lessor has any right of termination or cancellation under such lease or sublease except as may be provided therein, (B) none of Parent, the Company, SAP Thai nor an Other Seller has received any written notice of a breach or default under such lease or sublease, which breach or default has, to Parent's Knowledge, not been cured, and (C) none of Parent, the Company, SAP Thai nor an Other Seller has granted to any other Person any material rights, adverse or otherwise, under such lease or sublease; and (iv) none of the Company, SAP Thai, the Sellers nor (to Parent's Knowledge) any other party to such lease or sublease, is in breach or default in any material respect and, to Parent's Knowledge, no event has occurred that, with notice or lapse of time, would constitute such a breach or default or permit termination, modification or acceleration under such lease or sublease. (c) Either the Company, SAP Thai or the Sellers, as the case may be, has the full right to exercise any renewal options contained in the leases and subleases pertaining to the Tangible Personal Property on the terms and conditions contained therein and upon due exercise would be entitled to enjoy the use of each item of leased Tangible Personal Property for the full term of such renewal options. SECTION 3.19. Assets. (a) Except as disclosed in the Disclosure Schedule, either the Company, SAP Thai or a Seller, as the case may be, owns, leases or has the legal right to use all the properties and assets used or intended to be used in the conduct of the SAP Business and, with respect to contract rights, is a party to and enjoys the right to the benefits of all contracts, agreements and other arrangements used or intended to be used by the Company, SAP Thai or a Seller in the conduct of the SAP Business (all such assets, properties and contract rights being, the "Transferred Assets"); provided, however, that to the extent that portions of the representations in Sections 3.16(a), 3.16(d)(iv)through(vi) and 3.16(e) are made to Parent's Knowledge, then this sentence shall be similarly qualified as respects such portions of Sections 3.16(a), 3.16(d)(iv)through(vi) and 3.16(e). Either the Company, SAP Thai or a Seller, as the case may be, has good and marketable title to, or, in the case of leased or subleased assets, valid and subsisting leasehold interests in, all such assets, free and clear of all Encumbrances, except (i) as disclosed in Sections 3.15, 3.16, 3.17, 3.18 or 3.19(a) of the Disclosure Schedule or the Agreement, and (ii) Permitted Encumbrances. (b) The Transferred Assets constitute all the properties, assets and rights used, held or intended to be used in, and all such properties, assets and rights as are primarily related to, or necessary in the conduct of, the SAP Business as currently conducted by the Company, SAP Thai or the Sellers, except as described in Section 3.19(b) of the Disclosure Schedule. SECTION 3.20. Employee Benefit Matters. (a) Plans and Material Documents. Section 3.20(a) of the Disclosure Schedule lists (i) each employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and each other bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other material benefit plans, programs, policies or arrangements, and all employment, termination, severance or other contracts or agreements (whether or not in writing), to which the Company, SAP Thai, or a Seller (with respect to the SAP Business) is a party, with respect to which the Company, SAP Thai, or a Seller (with respect to the SAP Business) has any obligations or which are maintained, contributed to or sponsored by the Company, SAP Thai, or a Seller for the benefit of any current or former independent contractor of the Company, SAP Thai, or a Seller (with respect to the SAP Business) or any current or former employee, officer or director of the Company, SAP Thai, or a Seller (with respect to the SAP Business), (ii) each employee benefit plan for which the Company, SAP Thai, or a Seller (with respect to the SAP Business) could incur liability under Section 4069 of ERISA in the event such plan has been or were to be terminated, (iii) any plan in respect of which the Company, SAP Thai, or a Seller (with respect to the SAP Business) could incur liability under Section 4212(c) of ERISA and (iv) any contracts, arrangements or understandings between Parent or any of its Affiliates and any employee of the Company, SAP Thai, or a Seller (with respect to the SAP Business), including, without limitation, any contracts, arrangements or understandings relating to the sale of the Company ((i), (ii), (iii) and (iv) collectively, the "Plans"). Except as described in Section 3.20 of the Disclosure Schedule, each Plan is in writing and Parent has furnished the Purchaser with a complete and accurate copy of each Plan and a complete and accurate copy of each material document prepared in connection with each such Plan including, without limitation, (i) a copy of each trust or other funding arrangement, (ii) each summary plan description and summary of material modifications, (iii) the IRS Form 5500 filed with respect to the most recent plan year, (iv) the most recently received IRS determination letter for each such Plan, and (v) the most recently prepared actuarial report and financial statement in connection with each such Plan. Except as disclosed in Section 3.20(a) of the Disclosure Schedule, there are no other employee benefit plans, programs, arrangements or agreements, whether formal or informal, whether in writing or not, to which the Company, SAP Thai, or a Seller (with respect to the SAP Business) is a party, with respect to which the Company, SAP Thai, or a Seller (with respect to the SAP Business) has any obligation or which are maintained, contributed to or sponsored by the Company, SAP Thai, or a Seller for the benefit of any current or former independent contractor of the Company, SAP Thai, or a Seller (with respect to the SAP Business) or any current or former employee, officer or director of the Company, SAP Thai, or a Seller (with respect to the SAP Business). Neither the Company, SAP Thai nor any Seller (with respect to the SAP Business) has any express or implied commitment (i) to create, incur liability with respect to or cause to exist any other employee benefit plan, program or arrangement, (ii) to enter into any contract or agreement to provide compensation or benefits to any individual or (iii) to modify, change or terminate any Plan, other than with respect to a modification, change or termination required by ERISA or the Code. (b) Absence of Certain Types of Plans. None of the Plans is a multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan") or a single employer pension plan (within the meaning of Section 4001(a)(15) of ERISA) for which the Company, SAP Thai, or a Seller (with respect to the SAP Business) could incur liability under Section 4063 or 4064 of ERISA (a "Multiple Employer Plan"). Except as described in Section 3.20 of the Disclosure Schedule, none of the Plans provides for the payment of separation, severance, termination or similar-type benefits to any Person or obligates, the Company, SAP Thai, or a Seller (as it relates to the SAP Business) to pay separation, severance, termination bonus, retirement, enhanced benefits nor any acceleration, vesting, distribution or increase in benefits or obligations or similar-type benefits solely as a result of any transaction contemplated by this Agreement or as a result of a "change in control", within the meaning of such term under Section 280G of the Code. None of the Plans provides for or promise retiree medical, disability or life insurance benefits to any current or former employee, officer or director of the Company, SAP Thai, or a Seller (with respect to the SAP Business), except to the extent required by Part 6 of Title I of ERISA. (c) Compliance with Applicable Law. Except as would not result in a Material Adverse Effect, (i) each Plan is operated in all respects in accordance with the requirements of all applicable Law, including, without limitation, ERISA and the Code and, to Parent's Knowledge, all Persons who participate in the operation of such Plans and all Plan "fiduciaries" (within the meaning of Section 3(21) of ERISA) are acting in all respects in accordance with the provisions of applicable Law, including, without limitation, ERISA and the Code; (ii) the Company, SAP Thai and each Seller (with respect to the SAP Business) have performed all obligations required to be performed by them under, are not in any respect in default under or in violation of, and have no knowledge of any default or violation by any party to, any Plan; and (iii) no legal action, suit or claim is pending or threatened with respect to any Plan (other than claims for benefits in the ordinary course) and no fact or event exists that could give rise to any such action, suit or claim. (d) Qualification of Certain Plans. Each Plan which is intended to be qualified under Section 401(a) of the Code or Section 401(k) of the Code has received a favorable determination letter from the IRS that it is so qualified and each trust established in connection with any Plan which is intended to be exempt from federal income taxation under Section 501(a) of the Code has received a determination letter from the IRS that it is so exempt and, to Parent's Knowledge, no fact or event has occurred since the date of such determination letter from the IRS to adversely affect the qualified status of any such Plan or the exempt status of any such trust. Each trust maintained or contributed to by, the Company, SAP Thai or a Seller for the benefit of any current or former independent contractor of the Company, SAP Thai or a Seller (with respect to the SAP Business) or any current or former employee, officer or director of the Company, SAP Thai or a Seller (with respect to the SAP Business) which is intended to be qualified as a voluntary employees' beneficiary association and which is intended to be exempt from federal income taxation under Section 501(c)(9) of the Code has received a favorable determination letter from the IRS that it is so qualified and so exempt and, to Parent's Knowledge, no fact or event has occurred since the date of such determination by the IRS to adversely affect such qualified or exempt status. (e) Absence of Certain Liabilities and Events. With respect to the Plans, no event has occurred and, to Parent's Knowledge, there exists no condition or set of circumstances in connection with which the Company, SAP Thai, or a Seller (with respect to the SAP Business) could reasonably be expected to be subject to any liability under the terms of such Plans, ERISA, the Code or any other applicable Law, which in any such case would have a Material Adverse Effect. (f) Plan Contributions and Funding. All contributions, premiums or payments required to be made with respect to any Plan are fully deductible for income tax purposes. Parent has not received notice that any such deduction previously claimed has been challenged by any government entity. (g) Laws Relating to Disability. Except as set forth in Section 3.20(g) of the Disclosure Schedule, the Company, SAP Thai and each Seller (with respect to the SAP Business) are in compliance with the requirements of the Americans With Disabilities Act, the U.K. Disability Discrimination Act 1995, and any applicable Thai Law including, without limitation, the Cripples Capability Reformation Act, B.E. 2534 (1991), except to the extent that failure to comply with such legislation would not have a Material Adverse Effect. (h) WARN Act. The Company, SAP Thai and each Seller have not incurred any liability under, and have complied in all respects with, the Worker Adjustment Retraining Notification Act and the regulations promulgated thereunder and all similar state and local "plant-closing" Laws ("WARN"), and do not reasonably expect to incur any such liability as a result of actions taken or not taken prior to the Closing Date, except to the extent that such liability may be incurred as a result of the transaction contemplated by this Agreement. Section 3.20(h) of the Disclosure Schedule lists (i) all the employees terminated or laid off by the Company during the 90 days prior to the date hereof and (ii) all the employees of the Company who have experienced a reduction in hours of work of more than 50% during any month during the 90 days prior to the date hereof and describes all notices given by the Company in connection with WARN. Parent will, by written notice to the Purchaser, update Section 3.20(h) of the Disclosure Schedule at Closing to include any such terminations, layoffs and reductions in hours from the date hereof through the Closing Date and will furnish the Purchaser with any related information which they may reasonably request. Parent will indemnify and hold harmless the Purchaser with respect to any liability under WARN to the extent arising from the actions or action, of the Company, SAP Thai or each Seller on or prior to the Closing Date except to the extent relating to the transactions contemplated by this Agreement. (i) Foreign Benefit Plans. In addition to the foregoing, with respect to each Plan that is subject to or governed by the Law of any jurisdiction other than the United States or any State or Commonwealth of the United States (each a "Foreign Benefit Plan"), and except for matters that would not have a Material Adverse Effect: (A) all employer and employee contributions to each Foreign Benefit Plan required by Law or by the terms of such Foreign Benefit Plan have been made, or, if applicable, accrued in accordance with normal accounting practices, and a pro rata contribution for the period prior to and including the Closing Date has been made or accrued; (B) the fair market value of the assets of each funded Foreign Benefit Plan, the liability of each insurer for any Foreign Benefit Plan funded through insurance or the book reserve established for any Foreign Benefit Plan, together with any accrued contributions, is sufficient to procure or provide for the benefits determined on an ongoing basis (actual or contingent) calculated to the Closing Date using a methodology consistent with Financial Accounting Standards Board Statement No. 87 ("FAS No. 87") calculating the projected benefit obligations, applying the projected unit credit method, with respect to all current participants under such Foreign Benefit Plan according to the actuarial assumptions and valuations most recently used to determine employer contributions to such Foreign Benefit Plan, and the transactions contemplated by this Agreement shall not cause such assets or insurance obligations to be less than such benefit obligations; (C) each Foreign Benefit Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities and each Foreign Benefit Plan is now and always has been operated in compliance with all applicable non-U.S. Laws; (D) the Company, the Sellers and SAP Thai have provided the Purchaser with true and complete copies of all Foreign Benefit Plans (and in the case where such Foreign Benefit Plans are not in writing, a written description of each such Foreign Benefit Plan) including all information relating to all benefits payable or prospectively payable under each Foreign Benefit Plan (including supplemental benefits). Except as set forth in Section 3.20(i) of the Disclosure Schedule, there are no Foreign Benefit Plans, programs, schemes or arrangements to pay any pension or make any other payment after retirement, death or otherwise with respect to any employee or former employee of the SAP Business and each Seller, SAP Thai and the Company do not sponsor, contribute or maintain any scheme, plan, program or arrangement having as its purpose or one of its purposes the making of such payments or the provision or such benefits; (E) the Company, the Sellers and SAP Thai have provided the Purchaser with a complete and accurate copy of all the documentation (including, without limitation, the trust deeds, rules, announcements and booklets) governing each Foreign Benefit Plan; (F) neither the Company, SAP Thai nor any Seller are engaged in any litigation, arbitration or mediation proceedings with respect to any Foreign Benefit Plan, and there exists no condition or set of circumstances in connection with which the Company, SAP Thai or a Seller (with respect to the SAP Business) could reasonably be expected to be subject to any litigation, arbitration or mediation proceeding with respect to any Foreign Benefit Plan; (G) neither the Company, SAP Thai nor any Seller (with respect to the SAP Business) are in violation of any non-U.S. Laws, including, without limitation, the U.K. Financial Services Act; and (H) with respect to any part-time employees employed by Chemdal U.K. at any time within the preceding 12-month period, to Parent's Knowledge, there have been no terminations of such part-time employees which could result in any Liability under Article 119 of the Treaty of Rome or Section 62 of the Pensions Act, 1995. SECTION 3.21. Labor Matters. With respect to the SAP Business and the Persons employed in connection with the SAP Business, and except as set forth in Section 3.21 of the Disclosure Schedule or as would not have a Material Adverse Effect, (a) neither the Company, SAP Thai, or a Seller is a party to any collective bargaining agreement or other labor union contract applicable to Persons employed by the Company, SAP Thai or a Seller and currently there are no organizational campaigns, petitions or other unionization activities seeking recognition of a collective bargaining unit which could reasonably affect the SAP Business, (b) there are no controversies, strikes, slowdowns or work stoppages pending or, to Parent's Knowledge, threatened between the Company, SAP Thai or a Seller and any of their respective employees, and neither the Company, SAP Thai nor a Seller has experienced any such controversy, strike, slowdown or work stoppage within the past three years, (c) neither the Company, SAP Thai nor any Seller has breached or otherwise failed to comply with the provisions of any applicable collective bargaining or union contract and there are no written grievances outstanding against the Company, SAP Thai or a Seller under any such agreement or contract, (d) neither the Company, SAP Thai nor a Seller has committed unfair labor practices nor has there been any unfair labor practice complaints pending against the Company, SAP Thai or a Seller before the National Labor Relations Board or any other Governmental Authority involving union representation or employees of the Company, SAP Thai or the Sellers, (e) the Company, SAP Thai and the Sellers are currently in compliance with all applicable Laws relating to the employment of labor, including those related to wages, hours, collective bargaining and the payment and withholding of Taxes and other sums as required by the appropriate Governmental Authority and have withheld and paid to the appropriate Governmental Authority or are holding for payment not yet due to such Governmental Authority all amounts required to be withheld from employees of the Company, SAP Thai and each Seller and are not liable for any arrears of wages, Taxes, penalties or other sums for failure to comply with any of the foregoing, (f) the Company, SAP Thai and the Sellers have paid in full to all their respective employees or adequately accrued for in accordance with U.S. GAAP all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees, (g) there is no written claim with respect to payment of wages, salary or overtime pay that has been asserted or is now pending or, to Parent's Knowledge, threatened before any Governmental Authority with respect to any Persons currently or formerly employed by the Company, SAP Thai or a Seller, (h) neither the Company, SAP Thai nor a Seller is a party to, or otherwise bound by, any consent decree with, or citation by, any Governmental Authority relating to employees or employment practices, (i) there is no written charge or proceeding with respect to a violation of any occupational safety or health standards that has been asserted or is now pending or, to Parent's Knowledge, threatened with respect to the Company, SAP Thai or any Seller, and (j) there is no written charge of discrimination in employment or employment practices, as respects any legally protected category, for any reason, including, without limitation, age, gender, race or religion, which has been asserted or is now pending or, to Parent's Knowledge, threatened before the United States Equal Employment Opportunity Commission, or any other Governmental Authority in any jurisdiction in which the Company, SAP Thai or any Sellers have employed or currently employ any Person. SECTION 3.22. Key Employees. All directors, officers, management employees, and technical and professional employees of the Company, SAP Thai and each Seller employed in the SAP Business are under an obligation to the Company, SAP Thai or a Seller to maintain in confidence all confidential or proprietary information acquired by them in the course of their employment and to assign to the Company, SAP Thai or a Seller all inventions made by them within the scope of their employment during such employment and for a reasonable period thereafter. The Company, SAP Thai and the Sellers shall use all reasonable efforts to assign such arrangements to the Purchaser as of the Closing Date. SECTION 3.23. Taxes. (a) Except as set forth in Section 3.23 of the Disclosure Schedule, (i) all returns and reports in respect of Taxes required to be filed by or with respect to the Company, SAP Thai or the Sellers (including the consolidated federal income Tax return of Parent and any state, local or foreign Tax return or report that includes the Company, SAP Thai or any Other Seller on a consolidated or combined basis) have been timely filed, (ii) all Taxes required to be shown on such returns and reports or otherwise due have been timely paid, (iii) all such returns and reports (insofar as they relate to the activities or income of the Company, SAP Thai, the SAP Assets or the SAP Business) are true, correct and complete in all material respects, (iv) no adjustment relating to such returns or reports has been proposed formally or informally by any Tax authority (insofar as either relates to the activities or income of the Company, SAP Thai, the SAP Assets or the SAP Business or could result in Liability of the Company or SAP Thai on the basis of joint and/or several liability) and, to Parent's Knowledge, no basis exists for any such adjustment, (v) there are no pending or, to Parent's Knowledge, threatened actions or proceedings for the assessment or collection of Taxes against the Company, SAP Thai, the SAP Assets or the SAP Business or (insofar as either relates to the activities or income of the Company, SAP Thai, the SAP Assets or the SAP Business or could result in Liability of the Company or SAP Thai on the basis of joint and/or several liability) any corporation that was included in the filing of a return with Parent, the Company, SAP Thai or the Other Sellers on a consolidated or combined basis, (vi) no consent under Section 341(f) of the Code has been filed with respect to the Company or SAP Thai, (vii) there are no Tax liens on any assets of the Company, SAP Thai or any of the SAP Assets, (viii) neither Parent nor any Subsidiary or Affiliate of Parent or any Other Seller is a party to any agreement or arrangement that would result, separately or in the aggregate, in the payment of any "excess parachute payments", within the meaning of Section 280G of the Code (insofar as relates to the Company, SAP Thai or the SAP Business), (ix) no acceleration of the vesting schedule for any property that is substantially unvested within the meaning of the Regulations under Section 83 of the Code will occur in connection with the transactions contemplated by this Agreement (insofar as relates to the Company, SAP Thai or the SAP Business), except for the accelerated vesting of stock options and other benefits pursuant to Article VI hereof; (x) from and after January 1, 1990, the Company has been and continues to be a member of the affiliated group (within the meaning of Section 1504(a)(1) of the Code) for which Parent files a consolidated return as the common parent, and has not been includible in any other consolidated return for any taxable period for which the statute of limitations has not expired, (xi) neither the Company nor SAP Thai has been at any time a member of any partnership or joint venture or the holder of a beneficial interest in any trust for any period for which the statute of limitations for any Tax has not expired, (xii) the Company has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code, (xiii) none of the SAP Assets held by SAP Thai or the Other Sellers constitute U.S. real property interests within the meaning of Section 897(c)(i) of the Code, (xiv) neither the Company, nor SAP Thai is subject to any accumulated earnings Tax penalty or personal holding company Tax, and (xv) SAP Thai has never been included in the filing of a Tax return or report on a consolidated, combined or unitary basis. (b) Except as disclosed in Section 3.23 of the Disclosure Schedule: (i) there are no outstanding waivers or agreements extending the statute of limitations for any period with respect to any Tax to which the Company or SAP Thai may be subject; (ii) the Company (A) has not and is not projected to have an amount includible in its income for the current taxable year under Section 951 of the Code, (B) does not have an unrecaptured overall foreign loss within the meaning of Section 904(f) of the Code and (C) has not participated in or cooperated with an international boycott within the meaning of Section 999 of the Code; (iii) neither the Company nor SAP Thai has any (A) income reportable for a period ending after the Closing Date but attributable to a transaction (e.g., an installment sale) occurring in or a change in accounting method made for a period ending on or prior to the Closing Date which resulted in a deferred reporting of income from such transaction or from such change in accounting method (other than a deferred intercompany transaction), or (B) deferred gain or loss arising out of any deferred intercompany transaction (insofar as either could result in material Taxes to the Company or SAP Thai for any taxable period, or portion of any taxable period, ending after the Closing Date); (iv) there are no requests from any governmental or taxing authority for information currently outstanding that could affect the Taxes of the Company or SAP Thai; (v) there are no proposed reassessments of any property owned by the Company, SAP Thai or of any of the SAP Assets and there are no other proposals from any governmental or taxing authority that could increase the amount of any Tax to which the Purchaser (in respect of the SAP Business), the Company or SAP Thai would be subject, or which would be imposed, in respect of real property of the Company, SAP Thai or the SAP Business; (vi) the Company is not obligated under any agreement with respect to industrial development bonds or similar obligations, with respect to which the excludibility from gross income of the holder for federal income Tax purposes could be affected by the transactions contemplated hereunder; and (vii) no power of attorney that is currently in force has been granted with respect to any request for a ruling or similar matter relating to Taxes that could affect the Company, SAP Thai, the SAP Assets or the SAP Business. (c) (i) Section 3.23(c) of the Disclosure Schedule lists all income, franchise and similar Tax returns and reports (federal, state, local and foreign) filed with respect to the Company and SAP Thai for taxable periods ended on or after December 31, 1997, indicates for which jurisdictions Tax returns and reports have been filed on the basis of a unitary group, indicates the most recent income, franchise or similar Tax return or report for each relevant jurisdiction for which an audit has been completed or the statute of limitations has lapsed and indicates all Tax returns and reports that currently are the subject of audit, (ii) Parent has delivered to the Purchaser correct and complete copies of all federal, state and foreign income, franchise and similar Tax returns and reports, examination reports, and statements of deficiencies assessed against or agreed to by the Company and SAP Thai since January 1, 1996, (iii) Parent has delivered to the Purchaser a true and complete copy of any Tax-sharing or allocation agreement or arrangement involving the Company or SAP Thai and a true and complete description of any such unwritten or informal agreement or arrangement, and (iv) Parent has delivered to the Purchaser complete and correct copies of all pro forma federal income Tax returns of the Company prepared in connection with the Parent's or any other consolidated federal income Tax return, accompanied by a schedule reconciling the items in the pro forma Tax return to the items as included in the consolidated Tax return for all taxable years ending on or after December 31, 1997. SECTION 3.24. Insurance. (a) Section 3.24(a) of the Disclosure Schedule sets forth the following information with respect to each insurance policy (including policies providing property, casualty, liability, including directors' and officers' liability, workers' compensation, and bond and surety arrangements) under which the Company, SAP Thai, an Other Seller or the SAP Business has been an insured, a named insured or otherwise the principal beneficiary of coverage at any time within the past three years: (i) the name, address and telephone number of the agent or broker; (ii) the name of the insurer and the names of the principal insured and each named insured; (iii) the policy number and the period of coverage; (iv) the type, scope (including an indication of whether the coverage was on a claims made, occurrence or other basis) and amount (including deductibles) of coverage; and (v) the premium charged for the policy, including, without limitation, a description of any retroactive premium adjustments or other loss-sharing arrangements. (b) With respect to each such insurance policy: (i) the policy is legal, valid, binding and enforceable in accordance with its terms, subject to bankruptcy, insolvency, moratorium, reorganization or similar Laws affecting the rights of creditors generally and the availability of equitable remedies and, except for policies that have expired under their terms in the ordinary course, is in full force and effect; (ii) neither Parent, the Company, SAP Thai, an Other Seller nor the SAP Business is in breach or default (including any breach or default with respect to the payment of premiums or the giving of notice) and, to Parent's Knowledge, no event has occurred which, with notice or the lapse of time, would constitute such a breach or default or permit termination or modification under the policy; and (iii) no party to the policy has repudiated in writing, or given written notice of an intent to repudiate, any provision thereof. (c) Section 3.24(c) of the Disclosure Schedule sets forth all material risks against which the Company, SAP Thai, an Other Seller or the SAP Business is self-insured or which are covered under any risk retention program in which the Company, SAP Thai or an Other Seller participates, together with information for the last three years of the Company's, SAP Thai's, the Other Sellers' or the SAP Business' loss experience with respect to such risks. (d) To Parent's Knowledge, all material assets, properties and risks of the Company, SAP Thai, each Other Seller and the SAP Business are covered by valid and currently effective insurance policies or binders of insurance (including, without limitation, general liability insurance, property insurance and workers' compensation insurance) issued in favor of the Company, SAP Thai, the Sellers, or the SAP Business, as the case may be, in each case, in such types and amounts and covering such risks as are specified in Section 3.24 of the Disclosure Schedule or as otherwise are consistent with customary practices and standards of companies engaged in businesses and operations similar to those of the Company, SAP Thai, the Sellers, or the SAP Business, as the case may be. (e) To Parent's Knowledge, at no time subsequent to June 30, 1999 has the Company, SAP Thai, any of the Sellers or the SAP Business (i) been denied any material insurance or indemnity bond coverage which it has requested, (ii) made any material reduction in the scope or amount of its insurance coverage, or, except as set forth in Section 3.24(e) of the Disclosure Schedule, received written notice from any of its insurance carriers that any insurance premiums will be subject to increase in an amount materially disproportionate to the amount of the increases with respect thereto (or with respect to similar insurance) in prior years or that any insurance coverage listed in Section 3.24(a) of the Disclosure Schedule will not be available in the future substantially on the same terms as are now in effect or (iii) suffered any extraordinary increase in premium for renewed coverage. Since June 30, 1999, no insurance carrier has canceled, failed to renew or materially reduced any insurance coverage for the Company, SAP Thai, the Sellers or the SAP Business or given any notice or other indication of its intention to cancel, not renew or reduce any such coverage. (f) No insurance policy listed in Section 3.24(a) of the Disclosure Schedule will cease to be legal, valid, binding, enforceable in accordance with its terms and in full force and effect as respects matters arising out of events occurring prior to the Closing Date on terms identical to those in effect as of the date hereof as a result of the consummation of the transactions contemplated by this Agreement. SECTION 3.25. Brokers. Except for Schroder & Co. Inc., no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent. Parent is solely responsible for the fees and expenses of Schroder & Co. Inc. SECTION 3.26. Disclaimer. Except for the representations and warranties specifically set forth in this Article III, none of the Sellers, the Company, SAP Thai nor their Affiliates makes any (or shall in any manner whatsoever be deemed or be construed as having made any) representation or warranty to the Purchaser or any other Person hereunder or otherwise, express or implied. SECTION 3.27. Disclosure Schedule. The Parties hereto acknowledge that the mere inclusion of an item in the Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by the Sellers that such item represents a material exception or fact, event or circumstance or that such item is reasonably likely to result in a Material Adverse Effect. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER As an inducement to Parent to enter into this Agreement, the Purchaser, on behalf of itself and any designated Affiliate that will purchase any of the SAP Assets or the SAP Business pursuant to this Agreement, hereby represents and warrants to Parent as follows: SECTION 4.01. Organization and Authority of the Purchaser. The Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation and has all necessary corporate power and authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The Purchaser is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary, except to the extent that the failure to be so licensed or qualified would not materially adversely affect the ability of the Purchaser to carry out its obligations under, and to consummate the transactions contemplated by, this Agreement. The execution and delivery of this Agreement by the Purchaser, the performance by the Purchaser of its obligations hereunder and the consummation by the Purchaser of the transactions contemplated hereby have been duly authorized by all requisite action on the part of the Purchaser. This Agreement has been duly executed and delivered by the Purchaser, and (assuming due authorization, execution and delivery by Parent) this Agreement constitutes a legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms, subject to bankruptcy, insolvency, moratorium, reorganization or similar Laws affecting the rights of creditors generally and the availability of equitable remedies. SECTION 4.02. No Conflict. Assuming compliance with the notification requirements of the HSR Act and the making and obtaining of all filings, notifications, consents, approvals, authorizations and other actions referred to in Section 4.03, except as may result from any facts or circumstances relating solely to Parent, the execution, delivery and performance of this Agreement by the Purchaser do not and will not (a) violate, conflict with or result in the breach of any provision of the Certificate of Incorporation or By-laws (or similar organizational documents) of the Purchaser, (b) conflict with or violate any Law or Governmental Order applicable to the Purchaser or (c) conflict with, or result in any breach of, constitute a default (or event which with the giving of notice or lapse or time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation, or cancellation of, or result in the creation of any Encumbrance on any of the assets or properties of the Purchaser pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which the Purchaser is a party or by which any of such assets or properties are bound or affected which would have a materially adverse effect on the ability of the Purchaser to consummate the transactions contemplated by this Agreement. SECTION 4.03. Governmental Consents and Approvals. The execution, delivery and performance of this Agreement by the Purchaser do not and will not require any consent, approval, authorization or other order of, action by, filing with, or notification to, any Governmental Authority, except (a) as described in a writing given to Parent by the Purchaser on the date of this Agreement and (b) the notification requirements of the HSR Act and certain applicable filings under non-U.S. merger control and competition Laws. SECTION 4.04. Investment Purpose. The Purchaser is acquiring the Shares solely for the purpose of investment and not with a view to, or for offer or sale in connection with, any distribution thereof. SECTION 4.05. Litigation. Except as disclosed in a writing given to Parent by the Purchaser on the date of this Agreement, no claim, action, proceeding or investigation is pending or, to the knowledge of the Purchaser, threatened, which seeks to delay or prevent the consummation of, or which would be reasonably likely to materially adversely affect the Purchaser's ability to consummate, the transactions contemplated by this Agreement. The Purchaser is not subject to any continuing order of, consent decree, settlement agreement or similar written agreement with, or, to the knowledge of Purchaser, continuing investigation by, any Governmental Authority, or any order, writ, judgment, injunction, decree, determination or award of any Governmental Authority or arbitrator that would prevent the Purchaser from performing its material obligations under this Agreement or prevent or materially delay the consummation of any of the transactions contemplated hereby. SECTION 4.06. Purchaser Financial Statements. True and complete copies of the Purchaser's audited balance sheet for the fiscal year ended as of December 31, 1998, and the related audited statements of income, together with all related notes and schedules thereto, have been delivered by the Purchaser to Parent and are set forth herein at Section 4.06 of the Disclosure Schedule. SECTION 4.07. Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Purchaser. SECTION 4.08. Disclaimer. Except for the representations and warranties specifically set forth in this Article IV, neither the Purchaser nor its Affiliates makes any (or shall in any manner whatsoever be deemed or be construed as having made any) representation or warranty to Parent or to any other Person hereunder or otherwise, express or implied. ARTICLE V ADDITIONAL AGREEMENTS SECTION 5.01. Conduct of Business Prior to the Closing. (a) Parent covenants and agrees that, with respect to the SAP Business and the SAP Assets and except as described in Section 5.01(a) of the Disclosure Schedule or as contemplated by this Agreement, between the date hereof and the time of the Closing, Parent will, and will cause the Company, SAP Thai and each of the Other Sellers to, conduct its business in the ordinary course and consistent with past practice. Without limiting the generality of the foregoing, except as described in Section 5.01(a) of the Disclosure Schedule, Parent will, with respect to the SAP Business, and will cause each of the Company, SAP Thai and each of the Other Sellers to, (i) continue its advertising and promotional activities, and pricing and purchasing policies, in accordance with past practice, (ii) not intentionally shorten or lengthen the customary payment cycles for any of its payables or receivables, (iii) use all reasonable efforts consistent with past practices to (A) preserve intact its business organizations and the business organization of the SAP Business, (B) keep available to the Purchaser the services of the employees of the Company, SAP Thai and the SAP Business, (C) continue in full force and effect without material modification all existing policies or binders of insurance currently maintained in respect of the Company, SAP Thai, the Other Sellers and the SAP Business and (D) preserve the current relationships with its customers, suppliers and other Persons with which it has significant business relationships, (iv) exercise, but only after notice to the Purchaser and receipt of the Purchaser's prior written approval, any rights of renewal pursuant to the terms of any of the leases or subleases relating to the SAP Business which by their terms would otherwise expire, and (v) not engage in any practice, take any action, fail to take any action or enter into any transaction which could cause any representation or warranty of the Sellers to be untrue or result in a breach of any covenant made by the Sellers in this Agreement. (b) Except as described in Section 5.01(b) of the Disclosure Schedule, Parent covenants and agrees that, prior to the Closing, without the prior written consent of the Purchaser, neither the Company, SAP Thai nor the Sellers (with respect to the SAP Business) will: (i) do any of the things enumerated in the second sentence of Section 3.11 (including, without limitation, clauses (i) through (xx) thereof, except for those actions specifically contemplated by Section 6.10 hereof); or (ii) agree to employ any new hire on terms that would pay any such Person an annual base salary in excess of U.S.$50,000 or annual aggregate compensation in excess of U.S.$75,000. Notwithstanding anything to the contrary contained in this Section 5.01(b), prior to the Closing, Parent may cause the Company and/or SAP Thai to convey to Parent or one of its Affiliates (i) any cash or cash equivalents owned by the Company or SAP Thai; (ii) any Intellectual Property (including Intellectual Property used in the Poly-Pore Business) owned by or licensed to the Company or SAP Thai that is not used primarily in, developed primarily for, or related primarily to, the SAP Business (it being understood that Parent may not cause the Company and/or SAP Thai to convey to Parent or one of its Affiliates any Company Intellectual Property or SAP Thai Intellectual Property); and (iii) all rights to the name "AMCOL" and all related trademarks, logos, tradenames, telephone numbers and internet domain names. SECTION 5.02. Access to Information. (a) From the date hereof until the Closing, upon reasonable notice, Parent will, and will cause the Company, SAP Thai and the Other Sellers and each of its and the Company's, SAP Thai's and the Other Sellers' officers, directors, employees, agents, representatives, accountants and counsel to: (i) afford the officers, employees and authorized agents, accountants, counsel, financing sources and representatives of the Purchaser reasonable access, during normal business hours, to the offices, properties, plants, other facilities, books and records of Parent (to the extent such offices, plants, facilities, books and records relate to the SAP Business), the Company, SAP Thai, the Other Sellers and to those officers, directors, employees, agents, accountants and counsel of Parent, the Company, SAP Thai and of each of the Other Sellers who have any knowledge relating to the Company, SAP Thai, the Other Sellers or the SAP Business and (ii) furnish to the officers, employees and authorized agents, accountants, counsel, financing sources and representatives of the Purchaser such additional financial and operating data and other information regarding the assets, properties and goodwill of the Company, SAP Thai, the Other Sellers and the SAP Business (or legible copies thereof) as the Purchaser may from time to time reasonably request; provided, however, that the Company shall not be required by this provision to waive or impair its right to assert any attorney-client privilege that may exist as respects any Actions or other matters; provided, further, however, that none of the Purchaser or its representatives shall contact or have any communication with any employees of Parent or any of its Subsidiaries without the prior written approval of Parent, except for those employees of Parent and its Subsidiaries listed on Exhibit 5.02 attached hereto. (b) In order to facilitate the resolution of any claims made against or incurred by Parent prior to the Closing, or for any other reasonable purpose, for a period of seven years after the Closing, the Purchaser shall (i) retain the books and records of the Company, SAP Thai and the SAP Business relating to periods prior to the Closing in a manner reasonably consistent with the prior practice of the Company, SAP Thai and the Sellers (with respect to the SAP Business) and (ii) upon reasonable notice, afford the officers, employees and authorized agents and representatives of Parent reasonable access (including the right to make, at Parent's expense, photocopies), during normal business hours, to such books and records. (c) In order to facilitate the resolution of any claims made by or against or incurred by the Purchaser, the Company, SAP Thai or the SAP Business after the Closing or for any other reasonable purpose, for a period of seven years following the Closing, Parent shall (i) retain the books and records of Parent which relate to the Company, SAP Thai and the SAP Business for periods prior to the Closing and which shall not otherwise have been delivered to the Purchaser, the Company or SAP Thai and (ii) upon reasonable notice, afford the officers, employees and authorized agents and representatives of the Purchaser, the Company or SAP Thai reasonable access (including the right to make photocopies, at the expense of the Purchaser or the Company), during normal business hours, to such books and records. SECTION 5.03. Confidentiality. All information obtained by the Purchaser pursuant to Section 5.02 shall be kept confidential in accordance with the confidentiality agreement (the "Confidentiality Agreement") between the Purchaser and Parent, dated May 17, 1999. SECTION 5.04. Stockholders' Meeting. Parent, acting through the Board, shall, in accordance with applicable Law and Parent's Restated Certificate of Incorporation and By-laws, (i) duly call, give notice of, convene and hold a meeting of its stockholders as soon as practicable following the date hereof for the purpose of considering and taking action on this Agreement and the transactions contemplated hereby (the "Stockholders' Meeting") and (ii) except as the Board determines is required by its fiduciary duties under applicable Law after having received advice from outside legal counsel (A) include in the Proxy Statement (as defined herein) the recommendation of the Board that the stockholders of Parent approve and adopt this Agreement and the transactions contemplated hereby, (B) not subsequently withdraw, modify or change in any manner adverse to the Purchaser such recommendation, and (C) use its reasonable efforts to obtain such approval and adoption. SECTION 5.05. Proxy Statement. (a) As promptly as practicable after the execution of this Agreement, Parent (i) will prepare and file with the Securities and Exchange Commission (the "SEC") the Proxy Statement (as defined below) relating to the Stockholders' Meeting to be held to consider approval of this Agreement and the transactions contemplated hereby and (ii) mail the Proxy Statement to its stockholders. The Proxy Statement to be sent to the stockholders of Parent in connection with the Stockholders' Meeting (such proxy statement or information statement, as amended or supplemented, being referred to herein as the "Proxy Statement") shall not, at the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to stockholders of Parent, and at the time of the Stockholder's Meeting, contain any statement which, at the time and in light of the circumstances under which it was made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Stockholders' Meeting which shall have become false or misleading. Any information provided by the Purchaser to Parent which is included in the Proxy Statement shall not, on the date provided to Parent, contain any statement which, at the time and in light of the circumstances under which it was made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Stockholders' Meeting which shall have become false or misleading. The Proxy Statement shall comply in all material respects as to form with the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder. (b) The Proxy Statement shall include the recommendation of Parent's Board to the stockholders of the Company in favor of approval of this Agreement and the transactions contemplated hereby; provided, however, that the Board may, prior to the Stockholders' Meeting, withdraw, modify or change any such recommendation only as it may determine is required by its fiduciary duties under applicable Law after having received advice from outside legal counsel; provided, further, that, notwithstanding anything to the contrary contained in this Agreement, such a withdrawal, modification or change in such recommendation shall not relieve Parent in any way whatsoever of its other obligations under Section 5.04 or 5.05(a) of this Agreement. (c) Parent shall advise the Purchaser of any request by the SEC for amendment of the Proxy Statement or comments thereon and responses thereto or requests by the SEC for additional information. SECTION 5.06. Regulatory and Other Authorizations; Notices and Consents. (a) Parent shall use all reasonable efforts to obtain (or cause the Company, SAP Thai and the Other Sellers to obtain) all authorizations, consents, orders and approvals of all Governmental Authorities and officials that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to, this Agreement and will cooperate fully with the Purchaser in promptly seeking to obtain all such authorizations, consents, orders and approvals. Each party hereto agrees to make an appropriate filing, if necessary, pursuant to the HSR Act with respect to the transactions contemplated by this Agreement within five Business Days of the date hereof and to supply as promptly as practicable to the appropriate Governmental Authorities any additional information and documentary material that may be requested pursuant to the HSR Act. In addition, each Party agrees to make, or cause to be made, promptly any filing that the Purchaser identifies to Parent as being required under any other non-United States antitrust, merger control or competition Law or by any other antitrust, merger control or competition authority. The Purchaser will be responsible for paying the normal filing fees incurred by the Purchaser and Parent in connection with the HSR Act filings and the similar merger control or competition Law filings being made by the parties in the United Kingdom and Germany; provided, however, that the Purchaser shall not be responsible for paying any other fees or expenses incurred by Parent (including, without limitation, counsel fees) in connection with the preparation of such filings. (b) Parent shall, or shall cause the Company, SAP Thai and the Other Sellers to, give promptly such notices to third parties and use its or their reasonable efforts to obtain such third party consents as the Purchaser may reasonably deem necessary or desirable in connection with the transactions contemplated by this Agreement. (c) The Purchaser shall cooperate and use all reasonable efforts to assist Parent in giving such notices and obtaining such consents. (d) In connection with any consent that may be requested by Parent or Purchaser, neither party to this Agreement shall have any obligation to give any guarantee or other financial or similar consideration of any nature in connection with any notice or consent or to consent to any change in the terms of any agreement or arrangement which either party in its sole and absolute discretion may deem adverse to the interests of such party, the Company, SAP Thai or the SAP Business. (e) Parent and the Purchaser agree that, in the event any consent, approval or authorization necessary or desirable to preserve for the SAP Business, the Company or SAP Thai or any right or benefit under any lease, license, contract, commitment or other agreement or arrangement to which Parent, the Company, SAP Thai or an Other Seller is a party is not obtained prior to the Closing (and the parties acknowledge and agree that, except as set forth herein, no such consent, approval or authorization shall be a condition to the Purchaser's obligation to close), Parent will, subsequent to the Closing, cooperate with the Purchaser, the Company and SAP Thai in attempting to obtain such consent, approval or authorization as promptly thereafter as practicable. If such consent, approval or authorization cannot be obtained, except with respect to customer contracts, Parent shall use its reasonable efforts to provide the Purchaser, the Company, SAP Thai or the SAP Business, as the case may be, with the rights and benefits of the affected lease, license, contract, commitment or other agreement or arrangement for the term of such lease, license, contract or other agreement or arrangement, and, if Parent provides any such rights and benefits, the Purchaser, the Company or SAP Thai, as the case may be, shall assume the obligations and burdens thereunder. SECTION 5.07. Notice of Developments. Prior to the Closing, Parent shall promptly notify the Purchaser in writing of (i) all events, circumstances, facts and occurrences arising subsequent to the date of this Agreement of which Parent becomes aware and which could result in any material breach of a representation or warranty or covenant of the Sellers in this Agreement or which could have the effect of making any representation or warranty of the Sellers in this Agreement untrue or incorrect in any material respect and (ii) all other developments of which Parent becomes aware and affecting the Liabilities, business, financial condition or prospects of the Company, SAP Thai or the SAP Business, other than changes affecting the economy or the SAP industry generally, which developments could have a Material Adverse Effect. SECTION 5.08. No Solicitation or Negotiation. Parent agrees that between the date of this Agreement and the earlier of (i) the Closing and (ii) the termination of this Agreement, none of Parent, the Company, SAP Thai, the Other Sellers nor any of their respective Affiliates, officers, directors, representatives or agents will (a) solicit, initiate, consider, encourage or accept (except to the extent permitted below) any other proposals or offers from any Person (i) relating to any acquisition or purchase of all or any portion of the capital stock of the Company, SAP Thai or an Other Seller or all or a substantial portion of the assets of the Company, SAP Thai, an Other Seller or the SAP Business (other than Inventory to be sold in the ordinary course of business consistent with past practice), or (ii) relating to any business combination with the Company, SAP Thai or any Other Seller, or (iii) relating to any other extraordinary business transaction involving or otherwise relating to the Company, SAP Thai, any Other Seller or the SAP Business, or (iv) relating to (x) any acquisition or purchase of, or tender offer or exchange offer for, more than 20% of the equity securities of Parent, or (y) any merger, consolidation or business combination with Parent, or other extraordinary business transaction involving or otherwise relating to Parent that would result in any other Person owning in excess of 20% of the outstanding equity securities of Parent (any of the events described in (i), (ii), (iii) and (iv) being an ("Acquisition Proposal")) (it being understood that any transaction, the sole purpose of which is to spin-off the SAP Business to the shareholders of Parent on a pro rata basis, shall not constitute an Acquisition Proposal for purposes of this Agreement provided that such spin-off is not part of a transaction, or series of transactions, the intended result of which is that a controlling interest in the shares or the assets of the SAP Business will be transferred to a non-affiliated third party (other than such shareholders of Parent)) or (b) except as required by the fiduciary duties of the Board of Directors of Parent as such duties would exist in the absence of any limitations in this Agreement, participate in any discussions, conversations, negotiations and other communications regarding, or furnish to any other Person any information with respect to, or otherwise cooperate in any way, assist or participate in, facilitate or encourage any effort or attempt by any other Person to seek or to consummate an Acquisition Proposal; provided, however, that prior to the consummation of the transaction contemplated hereby, nothing contained in Section 5.08 shall prohibit the Board from (i) furnishing information to, or entering into discussions or negotiations with, any Person that after the date hereof makes an unsolicited Acquisition Proposal, if, and only to the extent that, (A) prior to furnishing such information to, or entering into discussions or negotiations with such Person or agreeing to or endorsing any Acquisition Proposal, the Board determines in good faith, after consultation with and based upon the advice of counsel and a financial advisor of a nationally recognized reputation, that such Acquisition Proposal is, or may reasonably be expected to lead to, a Superior Proposal, (B) prior to furnishing such information to, or entering into discussions or negotiations with, such Person, Parent provides written notice to the Purchaser to the effect that it is furnishing information to, or entering into discussions or negotiations with, such Person and, in any such notice to the Purchaser, indicating in reasonable detail the terms and conditions of such Acquisition Proposal, offer, inquiry or other contact, and (C) such information to be so furnished has been previously delivered to the Purchaser or (ii) complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal. Parent shall notify the Purchaser promptly if any such Acquisition Proposal or offer, or any inquiry or other contact with any Person with respect thereto is made. Parent agrees not to, and to cause the Company, SAP Thai and each Other Seller not to, without the prior written consent of the Purchaser, release any Person from, or waive any provision of, any confidentiality or standstill agreement to which Parent, the Company, SAP Thai or an Other Seller is a party, except in the event the Parent Board determines in good faith, after consultation with and based upon the advice of counsel and a financial advisor of a nationally recognized reputation, that such release or waiver is reasonably expected to lead to a Superior Proposal. Except as required by the fiduciary duties of the Board of Directors of Parent, Parent immediately shall cease and cause to be terminated all existing discussions, conversations, negotiations and other communications with any Persons conducted heretofore with respect to any of the foregoing. SECTION 5.09. Use of Intellectual Property. (a) Parent acknowledges that from and after the Closing, the name "Chemdal" and all similar names, marks and logos (all of such names, marks and logos being the "Chemdal Names") shall be owned by the Purchaser, one of its designated Affiliates, the Company or SAP Thai and that neither Parent nor any of its Affiliates shall have any rights in the Chemdal Names, and that neither Parent nor any of its Affiliates will contest the ownership or validity of any rights of the Purchaser, its designated Affiliates, SAP Thai or the Company in or to the Chemdal Names. (b) Except as otherwise provided in the ION Exchange License Agreement (as defined in Section 5.19 of the Agreement), from and after the Closing, neither the Sellers nor any of their Affiliates shall use or disclose any of the Business Intellectual Property or the Company Intellectual Property or the SAP Thai Intellectual Property. SECTION 5.10. Non-Competition. (a) For a period of three (3) years after the Closing in the European Community and for a period of ten (10) years after the Closing in every other location or, in each case, for such shorter period as may be required by applicable Law (in each case, the "Restricted Period"), Parent and its Affiliates shall not engage, directly or indirectly, in any business anywhere in the world that researches, develops, manufactures, markets, distributes, sells, produces or supplies products or services of the kind researched, developed, manufactured, marketed, distributed, sold, produced or supplied by the SAP Business, the Company or SAP Thai, in each case, for the Traditional SAP Market Segments as of the Closing Date or, without the prior written consent of the Purchaser, directly or indirectly, own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, partner, stockholder, consultant or otherwise, any Person that competes with the Company, SAP Thai or the SAP Business in researching, developing, manufacturing, marketing, distributing, selling, producing or supplying products or services of the kind researched, developed, manufactured, marketed, distributed, sold, produced or supplied by the Company, SAP Thai or the SAP Business for the Traditional SAP Market Segments as of the Closing; provided, however, that, for the purposes of this Section 5.10, ownership of securities having no more than three percent of the outstanding voting power of any competitor which are listed on any national securities exchange or traded actively in the national over-the-counter market shall not be deemed to be in violation of this Section 5.10 so long as the Person owning such securities has no other connection or relationship with such competitor. (b) As a separate and independent covenant, Parent agrees with the Purchaser that, for a period of three (3) years after the Closing in the European Community and for a period of ten (10) years after the Closing in every other location or, in each case, for such shorter period as may be required by applicable Law, Parent will not, and will not permit its Affiliates to, in any way, directly or indirectly, for the purpose of conducting or engaging in any business that researches, develops, manufactures, markets, distributes, sells, produces or supplies products or services of the kind researched, developed, manufactured, marketed, distributed, sold, produced or supplied by the SAP Business, the Company or SAP Thai, in each case, for the Traditional SAP Market Segments as of the Closing, call upon, solicit, advise or otherwise do, or attempt to do, business in the Traditional SAP Market Segments with any customers of the SAP Business with whom the SAP Business had any dealings in the Traditional SAP Market Segments during the period of time in which the SAP Business, the Company and SAP Thai was owned by Parent, or take away or interfere or attempt to interfere with any custom, trade, business or patronage of the SAP Business in the Traditional SAP Market Segments. (c) Parent will not, and will not permit any of its Affiliates to, directly or indirectly, solicit the employment of, attempt to employ, or employ any Transferred Employee or U.K. Designated Employee during the period commencing on the Closing Date and ending twelve months thereafter, and the Purchaser will not and will not permit any of its Affiliates to, directly or indirectly, solicit the employment of, attempt to employ, or employ any employees of Parent or any of is Affiliates during the period commencing on the Closing Date and ending twelve months thereafter; provided, however, that the forgoing will not prohibit a general solicitation to the public or general advertising; provided, further, that the foregoing will also not prohibit (i) Parent or one of its Affiliates from employing any Transferred Employee or U.K. Designated Employee that is terminated by the Purchaser or one of its Affiliates without cause following the Closing Date or (ii) the Purchaser or one of its Affiliates from employing any employee of Parent or any of its Affiliates that is terminated by Parent or one of its Affiliates without cause following the Closing Date or (iii) Parent or one of its Affiliates from employing any Person listed on Exhibit 5.10(c) so long as such employee accepts employment with Parent or one of its Affiliates on or prior to the Closing Date. (d) The Restricted Period shall be extended by the length of any period during which Parent or any of its Affiliates is in breach of the terms of this Section 5.10. (e) Parent acknowledges that the covenants of Parent set forth in this Section 5.10 are an essential element of this Agreement and that, but for the agreement of Parent to comply with these covenants, the Purchaser would not have entered into this Agreement. Parent acknowledges that this Section 5.10 constitutes an independent covenant and shall not be affected by performance or nonperformance of any other provision of this Agreement by the Purchaser. Parent has independently consulted with its counsel and after such consultation agrees that the covenants set forth in this Section 5.10 are reasonable and proper. SECTION 5.11. Release of Indemnity Obligations. Parent covenants and agrees, on or prior to the Closing, to execute and deliver to the Purchaser, for the benefit of the Purchaser, a general release and discharge, in the form attached as Exhibit 5.11 hereto, releasing and discharging the Company, SAP Thai and the SAP Business from any and all obligations to indemnify Parent or any of its Affiliates or otherwise defend it or them or hold it or them harmless pursuant to any agreement or other arrangement (other than this Agreement and the agreements contemplated hereby) entered into prior to the Closing. SECTION 5.12. Termination of Intercompany Agreements. Except for the contracts or arrangements set forth on Exhibit 5.12 attached hereto, and except for the Continuing Intercompany Indebtedness, prior to the Closing Date, Parent shall cause the termination of any contracts, arrangements or agreements between or among the Company, SAP Thai or a Seller (as it affects the SAP Business), on the one hand, and Parent or any Affiliate of Parent (other than the Company or SAP Thai) on the other hand, including any intercompany agreements entered into in the ordinary course of business. SECTION 5.13. Transition Services Agreement. At the Closing, Parent and the Purchaser shall enter into a transition services agreement (the "Transition Services Agreement"), substantially in the form attached hereto as Exhibit 5.13. SECTION 5.14. CETCO Supply Agreement. At the Closing, Parent and the Purchaser or one of its designated Affiliates shall enter into the CETCO supply agreement (the "CETCO Supply Agreement"), substantially on the terms set forth on Exhibit 5.14 attached hereto. SECTION 5.15. Acrylic Acid Supply Agreement. Immediately prior to Closing, Parent will cause Chemdal U.K. to enter into an acrylic acid supply agreement (the "Acrylic Acid Supply Agreement") with BASF (Antwerp), a Belgian corporation and a wholly owned Subsidiary of the Purchaser, substantially on the terms set forth on Exhibit 5.15 attached hereto. On the Closing Date, but immediately following the Closing, the Acrylic Acid Supply Agreement will be assigned by Chemdal U.K. to one of the Purchaser's designated Affiliates, and such designated Affiliate will assume all of Chemdal U.K.'s obligations under the Acrylic Acid Supply Agreement at such time; provided, however, that the designated Affiliate shall not be entitled to and shall not receive any portion of the Signing Premium and, simultaneously with such assignment, such designated Affiliate shall deliver a release and novation to Parent releasing Parent, Sellers and their Affiliates (including Chemdal U.K.) from any further Liability or obligation under the Acrylic Acid Supply Agreement. SECTION 5.16. License Agreement. At the Closing, Parent and the Purchaser shall enter into a license agreement (the "License Agreement"), substantially in the form attached hereto as Exhibit 5.16. SECTION 5.17. SAP Subleases. At the Closing, Purchaser will execute and deliver to Parent subleases (the "SAP Subleases") of certain properties utilized by the Company and the Sellers in the SAP Business, substantially on the terms set forth on Exhibit 5.17 attached hereto. SECTION 5.18. Product/Material Rebates. Prior to December 31, 1999, the Purchaser shall have paid Parent in full for all amounts due to Parent from the Purchaser and its Affiliates on account of all rebates (the "Rebates") resulting from the purchase of products and materials by Parent and its Affiliates from the Purchaser and such Affiliates during calendar year 1999 and, prior to Closing, the Purchaser shall have paid Parent in full for all Rebates resulting from the purchase of products and materials by Parent and its Affiliates from the Purchaser and such Affiliates from December 31, 1999 to the date of Closing. SECTION 5.19. ION Exchange License Agreement. At the Closing, Parent and the Purchaser shall enter into a license agreement (the "ION Exchange License Agreement"), substantially in the form attached hereto as Exhibit 5.19. SECTION 5.20. Mixed-Use Assets. Except as may be provided for in the Transition Services Agreement and the License Agreement, to the extent that, following the Closing, the Sellers have retained any assets that were used, but not primarily used, in the operation of the SAP Business prior to the Closing, Parent will, and will cause its Subsidiaries to, permit the Purchaser, its designated Affiliates, the Company and SAP Thai to use such assets in the operation of the SAP Business following the Closing, on substantially the same terms as such assets were used in the conduct of the SAP Business prior to the Closing and as may be reasonably requested by the Purchaser, such designated Affiliates, the Company and SAP Thai. SECTION 5.21. Termination of SAP Indebtedness. Prior to the Closing, Parent shall, and shall cause its Subsidiaries to, take all necessary action, including, without limitation, the repayment of any outstanding third-party Indebtedness relating to the Company, SAP Thai or the SAP Business, so that, at the Closing Date, there is no outstanding Indebtedness relating to the Company, SAP Thai or the SAP Business, other than the Continuing Intercompany Indebtedness. SECTION 5.22. Termination of the Celanese Supply Agreement. Upon receipt of written instructions from the Purchaser or one of its Affiliates, Parent will promptly (but in no event later than seven Business Days following receipt of such instructions) cause the termination, effective December 31, 2001, of the Supply Agreement (96-SMS-08) dated April 8, 1997, as amended, between Celanese Ltd. and the Company (the "Celanese Agreement"), such termination to be effected in accordance with the terms of the Celanese Agreement; provided, however, that should the Closing not occur for any reason whatsoever, and should Celanese be unwilling to enter into a new supply contract with Parent or the Company on substantially similar terms to those contained in the Celanese Agreement, then the Purchaser will supply Parent with glacial acrylic acid from December 31, 2001 until December 31, 2003 on terms and conditions substantially similar to those contained in the Celanese Agreement. SECTION 5.23. Uncashed Cheques. Parent understands and agrees that to the extent any cheques (the "Unpaid SAP Cheques") are drawn prior to the Closing on the account of the Company, SAP Thai or otherwise relating to the SAP Business and such cheques are presented for payment following the Closing (i) none of the Purchaser, its Affiliates, the Company, SAP Thai or the SAP Business shall have any obligation, responsibility or liability for any such Unpaid SAP Cheques, except to the extent that (i) Parent and its Affiliates have delivered any cash to the Purchaser at Closing or (ii) Parent has permitted the Company or SAP Thai to retain any cash at Closing, in each case, for the purpose of satisfying such unpaid SAP Cheques and (ii) Parent and its Affiliates shall be responsible for all such Unpaid SAP Cheques and shall indemnify the Purchaser, the Company, SAP Thai or any of their Affiliates for any Losses or Liabilities incurred by them as a result of the Unpaid SAP Cheques, except to the extent that (i) Parent and its Affiliates have delivered any cash to the Purchaser at Closing or (ii) Parent has permitted the Company or SAP Thai to retain any cash at Closing, in each case, for the purpose of satisfying such unpaid SAP Cheques. SECTION 5.24. Access to Insurance. Notwithstanding anything to the contrary contained in this Agreement, to the extent that the Purchaser, the Company, SAP Thai or the SAP Business suffer or incur any Losses or Liabilities (a "Loss Event") by reason of, or arising out of, any action, inaction, event, condition, liability or obligation of the Company, SAP Thai, the Sellers or the SAP Business which occurred or existed prior to the Closing, or by reason of or in connection with any claim or cause of action of any third party relating to the conduct of the SAP Business prior to Closing, then upon receipt of notice from the Purchaser or one of its Affiliates of such Loss Event, Parent shall, and shall cause its Affiliates to, promptly (i) use all reasonable efforts to access any of its (or any of its Affiliates) applicable insurance policies on behalf of the Purchaser, the Company, SAP Thai or the SAP Business, as applicable, in connection with such Loss Event in a manner that is consistent with the terms of such policies, all such reasonable efforts to include, without limitation, Parent (or any of its Affiliates) using all reasonable efforts to pursue any claims denied under such applicable insurance policies and (ii) indemnify the Purchaser, the Company, SAP Thai or the SAP Business, as applicable, for any such Loss Event up to an amount which is equal to the aggregate amount of any proceeds actually received by Parent (or any of its Affiliates) under any and all of its applicable insurance policies in connection with such Loss Event; provided that under no circumstances whatsoever shall Parent or its Affiliates have any obligation to indemnify the Purchaser or its Affiliates pursuant to this provision of the Agreement by reason of any denial under the policies of all or any portion of the claim or claims submitted under the policies by Parent or their Affiliates. Any reasonable out-of-pocket expenses incurred by Parent in pursuing any claims denied under the applicable policies shall promptly be reimbursed by the Purchaser. SECTION 5.25. Patent Opinions. Following the Closing, the Purchaser shall permit Parent and its Affiliates to rely on the SAP Opinions as reasonably necessary for the purpose of defending any claims of patent infringement, and the Purchaser shall provide the Patent Opinions to Parent and its Affiliates as reasonably requested by Parent for such purpose. SECTION 5.26. Thai Facility. At the Closing, Parent shall cause the delivery of the Thai Facility to the Purchaser, which Thai Facility shall be "Mechanically Complete" as defined in Exhibit 5.26 attached hereto. SECTION 5.27. * Obligations. Promptly following the date hereof, Parent and the Purchaser will undertake to satisfy their respective * obligations as specifically described in, and in the manner contemplated by, Exhibit 5.27 attached hereto. SECTION 5.28. * Assistance Grants. Parent understands and agrees that (i) as a result of the execution of this Agreement and the transactions contemplated hereby, all or a portion of the financial assistance granted by certain Governmental Authorities to the SAP Business pursuant to the * Assistance Grants may become immediately due and payable to such Governmental Authorities and (ii) in the event any such amounts become due and payable to such Governmental Authorities pursuant to the * Assistance Grants solely as a result of the entering into of this Agreement or the consummation of the transactions contemplated hereby, (x) Parent will be responsible for promptly paying such amounts to the applicable Governmental Authority or (y) Parent will indemnify the Purchaser and its Affiliates from any Losses or Liabilities incurred as a result of the failure of Parent to pay such amounts that become due and payable as described in clause (ii) above. SECTION 5.29. Thai Facility Construction Contracts. Following the Closing, the Purchaser shall permit Parent and its Affiliates to rely on the Thai Facility Construction Contracts as reasonably necessary for the purpose of pursuing any rights and remedies thereunder against the counter-parties thereto, to the extent the pursuit of such rights and remedies is necessary to satisfy any obligations and Liabilities of Parent and its Affiliates to the Purchaser and its Affiliates under this Agreement or the transactions contemplated hereby including, without limitation, pursuant to Section 5.26 hereof (it being understood that Parent and its Affiliates shall transfer to Purchaser and its Affiliates any recoveries and awards resulting from the pursuit of such rights and remedies to the extent that such recoveries and awards exceed (i) the aggregate amounts actually paid by Parent and its Affiliates to Purchaser and its Affiliates to satisfy the obligations and Liabilities described above, and (ii) any out-of-pocket costs and amounts incurred by Parent and its Affiliates in pursuing such rights and remedies, including, without limitation, legal fees and other costs of the suit; provided that Parent and its Affiliates shall not be entitled to any such costs and amounts to the extent Parent has not previously paid to Purchaser and its Affiliates all amounts owing to satisfy the obligations described above). SECTION 5.30. Further Action. Each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things necessary, proper or advisable under applicable Law, and execute and deliver such documents and other papers, as may be necessary to carry out the provisions of this Agreement and consummate and make effective the transactions contemplated by this Agreement. ARTICLE VI EMPLOYEE MATTERS SECTION 6.01. Transferred Employees. Each hourly and salaried employee of the Company and SAP Thai (a list of which employees is attached hereto at Section 6.01 of the Disclosure Schedule) who is employed with the Purchaser or its Affiliates immediately following the Closing shall hereinafter be referred to as a "Transferred Employee". SECTION 6.02. Severance Obligations. The Sellers and the Purchaser agree that the transactions contemplated by this Agreement shall not constitute a severance of employment of any Transferred Employees or U.K. Designated Employees (as defined below) under any severance plan, program or arrangement of any Seller, SAP Thai or the Company and that such employees shall be deemed to have continuous and uninterrupted employment before and immediately after the Closing. If any Transferred Employee or U.K. Designated Employee incurs or is deemed pursuant to Law or any severance plan, program or arrangement to have incurred a severance of employment before the Closing, then Parent shall be responsible for all severance obligations with respect to each Transferred Employee and U.K. Designated Employee. The Purchaser shall be responsible for any severance obligations incurred pursuant to any severance plan, program, arrangement or agreement of the Company, SAP Thai or any Other Seller with respect to the termination of a Transferred Employee or a U.K. Designated Employee on or after the Closing. Except as provided in this Section 6.02, Parent agrees, pursuant to Section 9.02, to indemnify and hold harmless the Purchaser against any severance claim and against any loss, damage, liability or expense, including attorney fees, incurred in connection with any claim for severance benefits brought by any employees or former employees of Parent, the Company, SAP Thai or the Other Sellers. SECTION 6.03. (a) Employee Benefit Plans. For a period of one year after the Closing Date, the Purchaser shall provide the Transferred Employees who are employed by the Company within the United States (the "U.S. Transferred Employees") with a level of employee benefit plans and arrangements substantially comparable in the aggregate to the level of employee benefits provided to similar situated employees of the Purchaser. To the extent that service is relevant for purposes of eligibility, participation, vesting or benefit accrual under any employee benefit plan, program or arrangement established, maintained or contributed to by the Purchaser or any of its Affiliates (excluding benefit accrual under the Purchaser Defined Benefit Plan), U.S. Transferred Employees shall be credited for service prior to the Closing with the Sellers or the Company to the extent that such service was recognized under a comparable employee benefit plan, program or arrangement under which such applicable U.S. Transferred Employee was participating immediately prior to the Closing; provided, however, that such crediting of service does not result in the duplication of benefits or an unintended windfall with respect to the accrual of benefits. (b) Medical, Dental and Life Insurance Plans. Effective as of the Closing Date, each U.S. Transferred Employee and their eligible dependents who are participating in the Sellers' welfare benefit plans shall become entitled to participate in the medical, dental, life insurance and other welfare benefit plans sponsored by the Purchaser or its Affiliates on the Closing Date. To the extent that any welfare benefit plan in which any U.S. Transferred Employee participates after the Closing Date (i) imposes any pre-existing condition limitation, such condition shall be waived or (ii) has a deductible or requires a co-payment by the U.S. Transferred Employee that is subject to maximum out-of-pocket limitation, each U.S. Transferred Employee will receive credit for any co-payments and deductibles for any costs paid during the portion of the relevant plan year or other period preceding the Closing in which the Closing Date occurs which have been submitted to the plan administrator of the Purchaser's welfare benefit plans as of the 90th day following the Closing Date. The Purchaser shall provide notification to all U.S. Transferred Employees if any co-payments or deductibles for any period preceding the Closing must be submitted to the plan administrator of the Purchaser's welfare benefit plans as of the 90th day following the Closing Date. The Purchaser shall not be responsible for medical, dental and other welfare benefit claims incurred, but not paid, in the ordinary course on or prior to the Closing Date with respect to U.S. Transferred Employees, which shall remain the responsibility of the Sellers. (c) COBRA. The Purchaser shall assume all responsibility for providing benefits required under Part 6 of Title I of ERISA ("COBRA Benefits") in respect of qualifying events occurring after the Closing for U.S. Transferred Employees and their qualified beneficiaries. (d) Vacation. The Purchaser shall provide, without duplication of benefits, all Transferred Employees and U.K. Designated Employees who were employees of the Sellers, the Company or SAP Thai immediately prior to the Closing Date with paid vacation time rather than cash in lieu of vacation time for all vacation earned and unpaid through the Closing Date. (e) Miscellaneous. No employee or any other Person (except the parties to this Agreement) shall be entitled to assert any claim against the Purchaser, the Company, SAP Thai or any of the Sellers relating to the employment, compensation, employee benefits or benefit plans or programs based on or arising from any provisions of this Agreement. SECTION 6.04. Pension Plans. Effective as of the Closing Date, the U.S. Transferred Employees shall be considered terminated participants in accordance with the terms of the Parent Savings Plan (the "Seller Defined Contribution Plan") and the Parent Pension Plan (the "Seller Defined Benefit Plan"; and together with the Seller Defined Contribution Plan, the "Seller Pension Plans") and as soon as administratively practical following the Closing Date, Parent shall take all such action as may be required to achieve this result, including, without limitation, advising participants in the Seller Pension Plans who are U.S. Transferred Employees of their right to elect to receive a rollover distribution of their individual nonforfeitable account balances and nonforfeitable accrued benefits, respectively, in accordance with the terms of the Seller Pension Plans by reason of the transactions contemplated by this Agreement, which distribution or distributions may to the extent permitted by Law be transferred by the participant to the Purchaser Salaried Employees' Savings Plan (the "Purchaser Defined Contribution Plan") in a directed rollover; provided, however, that the Seller Pension Plans shall not be required to permit distributions or transfers by U.S. Transferred Employees to the extent that such distributions or transfers would adversely affect the qualified status of the Seller Pension Plans. Parent and the Purchaser may agree to allow participants to elect direct rollover distributions from the Seller Pension Plans to the Purchaser Defined Contribution Plan. U.S. Transferred Employees who are participants in the Seller Pension Plans shall be 100% vested in their accrued benefits and individual account balances under the Seller Pension Plans as of the Closing Date. Effective as of the Closing Date, the Purchaser shall amend the Purchaser Defined Contribution Plan to the extent necessary to enable U.S. Transferred Employees who were participants in the Seller Pension Plans to elect rollover distributions, which in the discretion of the plan administrator for the Purchaser Defined Contribution Plan, may include any outstanding loan notes from the Seller Defined Contribution Plan in accordance with Section 402 of the Code. In order to rollover an outstanding loan note, U.S. Transferred Employees shall be required to execute (i) an acknowledgment that the Purchaser Defined Contribution Plan will be substituted for the Seller Defined Contribution Plan as the obligee of the loan note, (ii) a payroll authorization form and (iii) any other forms deemed necessary by the plan administrator for the Purchaser Defined Contribution Plan. No other assets shall be transferred from the Seller Pension Plans to the Purchaser Defined Contribution Plan other than as specified herein. All directed rollovers between the Seller Pension Plans and the Purchaser Defined Contribution Plan will be in the form of cash. Service of the U.S. Transferred Employees prior to the Closing Date which was recognized under the Seller Pension Plans shall be credited to the U.S. Transferred Employees for purposes of eligibility and vesting under the Purchaser Defined Contribution Plan. SECTION 6.05. U.S. Employee Information. No later than ten (10) calendar days after the Closing Date, Parent shall furnish to the Purchaser the following information with respect to each U.S. Transferred Employee, as applicable: (a) social security number; (b) years and months of service as of the Closing Date; and (c) base salary and bonus for the three calendar years immediately preceding the Closing Date and current base salary. SECTION 6.06. Workers' Compensation Obligation for U.S. Transferred Employees. With respect to U.S. Transferred Employees, the Sellers shall retain and shall assume and be responsible for any and all workers' compensation benefits in connection with claims which are incurred on or before the Closing Date, and the Purchaser shall assume, bear and discharge all liabilities for workers' compensation benefits in connection with claims incurred after the Closing Date. SECTION 6.07. Provisions Relating to U.K. Employees. (a) Each employee of the Company and the Sellers with respect to the SAP Business whose normal place of work is the United Kingdom who is listed on Section 6.07 of the Disclosure Schedule shall hereinafter be referred to as a "U.K. Designated Employee". (b) The Purchaser acknowledges that the Acquired Rights Directive (77/187 EEC) as enacted in the Member States of the European Union and similar Laws in other jurisdictions which safeguard the rights of employees in transfers of undertakings, businesses or parts of businesses (collectively, the "Transfer Laws") may operate to automatically transfer all or some of the U.K. Designated Employees to the Purchaser. If any contract of employment of a Person who is not a U.K. Designated Employee of the Purchaser has effect as if originally made between the Sellers and such Person as a result of the application of the Transfer Laws: (i) then such Seller may, within thirty (30) days of becoming aware of the application of the Transfer Laws to such contract, give notice to such Person to terminate such contract and (ii) any losses arising out of or in connection with such contract to the date of such termination shall be assumed or retained by the Sellers and shall be Excluded Liabilities. (c) The Sellers and the Purchaser shall comply with their respective obligations under the Transfer Laws, including, without limitation, the provision of information to and/or consultation with representatives of the U.K. Designated Employees in relation to the transactions contemplated under this Agreement whether pursuant to the Transfer Laws or any other legal requirement as enacted in the Member States of the European Union and similar Laws in other jurisdictions or any collective agreement or otherwise. (d) The employment of each U.K. Designated Employee shall, at the Closing Date, be transferred to the Purchaser in accordance with the Transfer of Undertakings (Protection of Employment) Regulations 1981 (as amended) (the "U.K. Regulations"), which are in force in the United Kingdom to implement the Acquired Rights Directive in the United Kingdom. (e) Effective as of the Closing Date, the U.K. Designated Employees shall: (i) be offered membership in a retirement benefits scheme nominated by the Purchaser (the "Purchaser's Scheme") subject to satisfying its eligibility provisions and (ii) be permitted to transfer the value of their past service pension rights secured under the pension arrangements operated by the Sellers to the Purchaser's Scheme, provided that the exempt approved status of the Purchaser's Scheme under the Income and Corporation Taxes Act 1988 is not adversely affected by such transfer. SECTION 6.08. Provisions Relating to Thai Employees. (a) Each Transferred Employee who is employed by SAP Thai within Thailand (and who is listed on Section 6.01 of the Disclosure Schedule) shall hereinafter be referred to as a"Thai Transferred Employee". (b) The Sellers and the Purchaser shall comply with their respective obligations under any Laws relating to the transfer of employment of the Thai Transferred Employees. (c) The employment of each Thai Transferred Employee shall, at the Closing Date, be transferred to the Purchaser in accordance with any regulations regarding such transfer which are in force in Thailand. SECTION 6.09. Retained Obligations of Parent. Parent expressly agrees to retain (i) all obligations or Liabilities with respect to the employees who are not Transferred Employees or U.K. Designated Employees and (ii) any obligations or Liabilities of Parent or any of its Affiliates with respect to any former employee of the SAP Business or as a result of actions taken by, or omissions of, Parent or any of its Affiliates prior to the Closing Date with respect to any Transferred Employee or U.K. Designated Employee. SECTION 6.10 Employee Stock Options. (a) Effective on or prior to the Closing Date, Parent shall cause each vested and unvested stock option to purchase shares of Parent common stock (each a "Stock Option") that was granted to Transferred Employees and U.K. Designated Employees pursuant to the Stock Option Plans (other than unvested stock options granted pursuant to the Chemdal U.K. 1995 Share Option Scheme) or otherwise that remains outstanding on the Closing Date to become fully vested and exercisable and to remain exercisable for a period of at least 90 days following the Closing Date; provided, however, that such 90 day period shall not extend beyond the term of the Stock Option as set forth in the relevant Stock Option Plan or stock option agreement. (b) To the extent any required U.K. Inland Revenue approvals can reasonably be obtained prior to the Closing Date that will permit any and all amendments to the Chemdal U.K. 1995 Share Option Scheme necessary to provide for the full vesting and immediate exercise of all outstanding Stock Options granted thereunder, then, effective on or prior to the Closing Date, Parent shall cause each outstanding Stock Option that was granted to Transferred Employees and U.K. Designated Employees pursuant to the Chemdal U.K. 1995 Share Option Scheme to become fully vested and immediately exercisable and to remain exercisable for a period of at least 90 days following the Closing Date; provided, however, that such 90 day period shall not extend beyond the term of the Stock Option as set forth in the Chemdal U.K. 1995 Share Option Scheme or the related stock option agreement. In the event that such U.K. Inland Revenue approvals cannot be obtained at least 3 Business Days prior to the Closing Date, Parent may, in its discretion: (i) take such action as may be necessary to cause each Stock Option granted pursuant to the Chemdal U.K. 1995 Share Option Scheme that is held by a Transferred Employee or U.K. Designated Employee and that remains outstanding on the Closing Date (an "Unvested Stock Option") to be automatically replaced effective as of the Closing Date with a stock option granted pursuant to another Stock Option Plan or any successor plan (a "Substituted Stock Option"). Such Substituted Stock Option shall be subject to the same terms and conditions as the replaced Stock Option granted pursuant to the Chemdal U.K. 1995 Share Option Scheme (including, without limitation, the exercise price of such Stock Option); provided, however, that such Substituted Stock Option shall be fully vested and immediately exercisable as of the Closing Date and shall remain exercisable for a period of at least 90 days following the Closing Date. As promptly as practicable after the Closing Date, Parent shall issue to each holder of a Substituted Stock Option a document evidencing such Substituted Stock Option; or (ii) within 3 Business Days following the Closing Date, pay a special cash bonus to each Transferred Employee or U.K. Designated Employee who holds an Unvested Stock Option in an amount equal to the product of (y) the number of shares of Parent common stock subject to such Unvested Stock Option and (z) the excess, if any, of the closing price on the New York Stock Exchange of Parent common stock on the last trading day immediately prior to the Closing Date over the exercise price per share of Parent common stock subject to such Unvested Stock Option. (c) Parent shall use all reasonable efforts to cause each holder of an Unvested Stock Option to consent to the cancellation of such Unvested Stock Option in consideration of the payment or the Substituted Stock Option, as applicable, and as provided for in subparagraph (b)(i) and (ii) above and Parent may require such consent as a condition to such payment or Substituted Stock Option. The Company, SAP Thai, the Sellers and the Purchaser shall cooperate to take all such action as may be necessary to carry out the terms of Section 6.10. ARTICLE VII TAX MATTERS SECTION 7.01. Indemnity. (a) Parent agrees to indemnify on an After-Tax Basis and hold harmless the Purchaser, each of its Subsidiaries, the Company and SAP Thai against the following Taxes and against any loss, damage, liability or expense, including reasonable costs for in-house or outside attorneys, accountants and other consultants, incurred in contesting or otherwise in connection with any such Taxes: (i) Taxes imposed on the Company, SAP Thai or attributable to the SAP Assets or the SAP Business with respect to taxable periods ending on or before the Closing Date; (ii) with respect to taxable periods beginning before the Closing Date and ending after the Closing Date, Taxes imposed on the Company, SAP Thai or attributable to the SAP Assets or the SAP Business which are allocable, pursuant to Section 7.01(b), to the portion of such period ending on the Closing Date; (iii) Taxes imposed on the Seller, the Other Sellers, any of their Subsidiaries or any member of any affiliated group with which the Company or SAP Thai files or has filed a Tax return on a consolidated, unitary or combined basis for a taxable period (or portion of a taxable period) ending on or before the Closing Date; (iv) Taxes imposed on the Purchaser, any of its Subsidiaries, the Company or SAP Thai as a result of any breach of warranty or misrepresentation under Section 3.23; and (v) Taxes resulting from any election described in Section 7.07 of this Agreement. (b) In the case of Taxes that are payable with respect to a taxable period that begins before the Closing Date and ends after the Closing Date, the portion of any such Tax that is allocable to the portion of the period ending on the Closing Date shall be: (i) in the case of Taxes that are either (x) based upon or related to income or receipts or (y) imposed in connection with any sale or other transfer or assignment of property (real or personal, tangible or intangible) (other than conveyances pursuant to this Agreement, as provided under Section 7.06), deemed equal to the amount which would be payable if the taxable year ended with the Closing Date; and (ii) in the case of Taxes imposed on a periodic basis with respect to the assets of the Company, SAP Thai or the SAP Assets or that are otherwise measured by the level of any item, deemed to be the amount of such Taxes for the entire period, multiplied by a fraction the numerator of which is the number of calendar days in the period ending on the Closing Date and the denominator of which is the number of calendar days in the entire period. (c) Refunds of any Taxes paid by Parent or its Affiliates by or on behalf of the Company or SAP Thai relating to any taxable period, or any portion of any taxable period, ending on or prior to the Closing Date, shall be for the account of Parent and its Affiliates (and will promptly be paid by Purchaser and its Affiliates, if received by them, to Parent), except to the extent that such refunds were reflected in the Statement of Working Capital. SECTION 7.02. Returns and Payments. (a) From the date of this Agreement through and after the Closing Date, Parent shall prepare and file or otherwise furnish in proper form to the appropriate governmental or taxing authority (or cause to be prepared and filed or so furnished) in a timely manner all Tax returns, reports and forms ("Returns") relating to the Company, SAP Thai, the SAP Assets or the SAP Business that are due on or before or relate to any taxable period ending on or before the Closing Date (and the Purchaser shall do the same for any Returns for which it or the Company or SAP Thai are responsible for any taxable period that ends after the Closing Date). Returns of the Company or SAP Thai not yet filed for any taxable period that begins before the Closing Date shall be prepared in a manner consistent with past practices employed with respect to the Company or SAP Thai (except to the extent counsel for Parent or the Purchaser renders a legal opinion that there is no reasonable basis in Law therefor or determines that a Return cannot be so prepared and filed without being subject to penalties). With respect to any Return required to be filed by the Purchaser or Parent with respect to the Company or SAP Thai or attributable to the SAP Assets or the SAP Business, and as to which an amount of Tax is allocable to the other party under Section 7.01(b), the filing party shall provide the other party and its authorized representatives with a copy of such completed Return and a statement certifying the amount of Tax shown on such Return that is allocable to such other party pursuant to Section 7.01(b), together with appropriate supporting information and schedules, at least 20 Business Days prior to the due date (including any extension thereof) for the filing of such Return. Such other party and its authorized representatives shall have the right to review and comment on such Return and statement prior to the filing of such Return, and the reasonable comments of such other party and its authorized representatives shall be considered by the filing party in good faith. (b) Parent shall pay or cause to be paid when due and payable all Taxes with respect to the Company or SAP Thai or attributable to the SAP Assets or the SAP Business for any taxable period ending on or before the Closing Date, and the Purchaser shall so pay or cause to be paid Taxes with respect to the Company or SAP Thai, or for which the Purchaser is responsible in respect of the SAP Business or the SAP Assets, for any taxable period ending after the Closing Date (subject to the Purchaser's right of indemnification from Parent by the date set forth in Section 7.04 for Taxes attributable to the portion of any Tax period that includes the Closing Date pursuant to Sections 7.01(a) and 7.01(b)). SECTION 7.03. Contests. (a) After the Closing, the Purchaser shall promptly notify Parent in writing of any notice received by the Purchaser or any of its Subsidiaries of a proposed assessment or claim in an audit or administrative or judicial proceeding of the Purchaser or any of its Subsidiaries, or of the Company or SAP Thai, which, if determined adversely to the taxpayer, would be grounds for indemnification under this Article VII. If, following the receipt by the Purchaser or any of its Subsidiaries of notice of such a proposed assessment or claim, the Purchaser fails to give Parent the prompt notice required by the preceding sentence of this Section 7.03, then (i) if Parent is precluded by such failure from contesting the asserted Tax liability in question, Parent shall not have any obligation to indemnify the Purchaser under this Article VII for any loss or damage arising out of such asserted Tax liability, and (ii) if Parent is not precluded from contesting the asserted Tax liability in question, but such failure results in a monetary detriment to Parent, any amount which Parent otherwise would be required to pay the Purchaser pursuant to this Article VII with respect to such liability shall be reduced by the amount of such detriment. (b) In the case of an audit or administrative or judicial proceeding that relates to periods ending on or before the Closing Date, provided that Parent acknowledges in writing its liability under this Agreement to hold the Purchaser and its Subsidiaries and the Company and SAP Thai harmless against the full amount of any adjustment which may be made as a result of such audit or proceeding that relates to periods ending on or before the Closing Date (or, in the case of any taxable year that includes the Closing Date, against an adjustment allocable under Section 7.01(b) to the portion of such year ending on or before the Closing Date), Parent shall have the right at its expense to participate in and control the conduct of such audit or proceeding but only to the extent that such audit or proceeding relates solely to a potential adjustment for which Parent has acknowledged its liability; the Purchaser also may participate in any such audit or proceeding and, if Parent does not assume the defense of any such audit or proceeding, the Purchaser may defend the same in such manner as it may deem appropriate, including, without limitation, settling such audit or proceeding after giving five days' prior written notice to Parent setting forth the terms and conditions of settlement. In the event that issues relating to a potential adjustment for which Parent has acknowledged its liability are required to be dealt with in the same proceeding as separate issues relating to a potential adjustment for which the Purchaser would be liable, the Purchaser shall have the right, at its expense, to control the audit or proceeding with respect to the latter issues. (c) With respect to issues relating to a potential adjustment for which both Parent (as evidenced by its acknowledgment under this Section 7.03) and any of the Purchaser, one of its Subsidiaries or the Company or SAP Thai could be liable, (i) each party may participate in the audit or proceeding and (ii) the audit or proceeding shall be controlled by that party which would bear the burden of the greater portion of the sum of the adjustment and any corresponding adjustments that may reasonably be anticipated for future Tax periods. The principle set forth in the immediately preceding sentence shall govern also for purposes of deciding any issue that must be decided jointly (including, without limitation, choice of judicial forum) in situations in which separate issues are otherwise controlled under this Article VII by the Purchaser and Parent. (d) Neither the Purchaser nor Parent shall enter into any compromise or agree to settle any claim pursuant to any Tax audit or proceeding which would adversely affect the other party for such year or a subsequent year without the written consent of the other party, which consent may not be unreasonably withheld. The Purchaser and Parent agree to cooperate in the defense against or compromise of any claim in any audit or proceeding. SECTION 7.04. Time of Payment. Payment by Parent of any amounts due under this Article VII in respect of Taxes shall be made (i) at least three Business Days before the due date of the applicable estimated or final Return required to be filed by the Purchaser on which is required to be reported income for a period ending after the Closing Date for which Parent is responsible under Sections 7.01(a) and 7.01(b) without regard to whether the Return shows overall net income or loss for such period and (ii) within three Business Days following an agreement between Parent and the Purchaser that an indemnity amount is payable, an assessment of a Tax by a taxing authority, or a "determination" as defined in Section 1313(a) of the Code. If liability under this Article VII is in respect of costs or expenses other than Taxes, payment by Parent of any amounts due under this Article VII shall be made within five Business Days after the date when Parent has been notified by the Purchaser that Parent has a liability for a determinable amount under this Article VII and is provided with calculations or other materials supporting such liability. SECTION 7.05. Cooperation and Exchange of Information. Parent and the Purchaser will provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Return, amended Return or claim for refund, determining a liability for Taxes or a right to a refund of Taxes, participating in or conducting any audit or other proceeding in respect of Taxes or making representations to or furnishing information to parties subsequently desiring to purchase the Company or SAP Thai or any part of the SAP Business from the Purchaser. Such cooperation and information shall include providing copies of relevant Returns or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by Tax authorities. Parent and the Purchaser shall each make its employees available on a basis mutually convenient to both parties to provide explanations of any documents or information provided hereunder. Each of Parent and the Purchaser shall retain all Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Company or SAP Thai or of the SAP Assets or SAP Business, for each taxable period first ending after the Closing Date and for all prior taxable periods until the later of (i) the expiration of the statute of limitations of the taxable periods to which such Returns and other documents relate, without regard to extensions except to the extent notified by the other party in writing of such extensions for the respective Tax periods or (ii) six years following the due date (without extension) for such Returns. Any information obtained under this Section 7.05 shall be kept confidential except as may be otherwise necessary in connection with the filing of Returns or claims for refund or in conducting an audit or other proceeding. SECTION 7.06. Conveyance Taxes. The Purchaser and Parent agree to share equally any sales, use, transfer, value added, stamp, stock transfer, real property transfer or gains and any similar Taxes, and any recording, registration and other fees, incurred as a result of the transactions contemplated hereby. SECTION 7.07. Section 338 Election. (a) Parent agrees to join the Purchaser in making an election under Section 338(g) and 338(h)(10) of the Code, and under any comparable provisions of state, local or non-U.S. Tax Law, with respect to the sale of the Company to the Purchaser. On or prior to the Closing Date, Parent shall duly execute (or cause to be duly executed by the appropriate Subsidiary or Affiliate), and shall deliver to the Purchaser, IRS Form 8023 (or successor form), and any comparable forms that are required by applicable state, local or non-U.S. Tax Laws, for purposes of making the elections contemplated by this Section 7.07. Parent shall provide the Purchasers with reasonable cooperation in the preparation and filing of any and all such elections (and in taking all steps necessary to effectuate the same). In accordance with Section 7.01 hereof, Parent agrees to indemnify the Purchaser, its Subsidiaries, the Company or SAP Thai against all Taxes relating to such elections. (b) For purposes of making the elections required by paragraph (a) of this Section 7.07, the Purchaser shall determine the value of the tangible and intangible assets of the Company and shall provide Parent with a proposed allocation of the Purchaser's "adjusted grossed-up basis" in the Company Shares (within the meaning of the Treasury Regulations under Section 338 of the Code) to such assets within 15 days of the due date for the filing of the election under Section 338(g) and Section 338(h)(10) of the Code with respect to the sale of the Company Shares to the Purchaser (the "Allocation"). For purposes of allocating the "deemed selling price" (within the meaning of the Treasury Regulations under Section 338 of the Code) among the assets of the Company, (i) if all disputes regarding the proposed Allocation are resolved by the parties on or prior to the due date for the filing of the election under Section 338(g) and Section 338(h)(10) of the Code with respect to the sale of the Company Shares to the Purchaser, then the agreed-to Allocation shall be binding upon the Purchaser and Parent, and (ii) if the parties are unable to resolve all disputes regarding the proposed Allocation, then the Allocation shall be considered binding upon the Purchaser and Parent with respect to any items which are not in dispute, and each of Purchaser and Parent shall be responsible for determining its treatment of any disputed items. In any case, appropriate adjustments shall be made to the Allocation to reflect any Purchase Price adjustments pursuant to this Agreement or adjustments required by Law. SECTION 7.08. Miscellaneous. (a) Parent and the Purchaser agree to treat all payments made by either of them to or for the benefit of the other (including any payments to the Company or SAP Thai) under this Article VII, under other indemnity provisions of this Agreement and for any misrepresentations or breaches of warranties or covenants as adjustments to the Purchase Price or as capital contributions for Tax purposes, and further agree that such treatment shall govern for purposes hereof except to the extent that the Laws of a particular jurisdiction provide otherwise, in which case such payments shall be made in an amount sufficient to indemnify the relevant party on an After-Tax Basis. (b) Any Tax sharing agreement or arrangement between Parent and any of its Subsidiaries, on the one hand, and the Company or SAP Thai, on the other hand, shall be terminated immediately prior to the Closing. (c) Notwithstanding any provision in this Agreement to the contrary, the obligations of Parent to indemnify and hold harmless the Purchaser, its Subsidiaries, the Company and SAP Thai pursuant to this Article VII, and the representations and warranties contained in Section 3.23, shall terminate at the close of business on the 120th day following the expiration of the applicable statute of limitations with respect to the Tax liabilities in question (giving effect to any waiver, mitigation or extension thereof). (d) From and after the date of this Agreement, Parent shall not without the prior written consent of the Purchaser (which may, in its sole and absolute discretion, withhold such consent) change, make or revoke, or cause or permit to be changed, made or revoked, any Tax election, adopt or change, or cause to permit to be adopted or changed, any method of Tax accounting, or settle or compromise, or cause or permit to be settled or compromised, any Tax liability that would materially affect the Company, SAP Thai, the SAP Assets or the SAP Business. (e) Each of Parent and the Purchaser shall be entitled to recover professional fees and related costs that it may reasonably incur to enforce the provisions of this Article VII. (f) Parent shall cause the Company to deliver to the Purchaser at the Closing a statement pursuant to Regulation Section 1.897-2(h), in form and substance satisfactory to the Purchaser, duly executed and acknowledged, certifying that the Company Shares are not a U.S. real property interest within the meaning of Section 897(c)(i) of the Code, and Parent or the Other Sellers shall provide the Purchaser with statements, duly executed and acknowledged, certifying as to the facts that exempt the sale of SAP Thai and the SAP Assets from withholding in accordance with Section 1445 of the Code. ARTICLE VIII CONDITIONS TO CLOSING SECTION 8.01. Conditions to Obligations of Parent. The obligations of Parent to consummate the transactions contemplated by this Agreement shall be subject to the fulfilment, at or prior to the Closing, of each of the following conditions: (a) Representations and Warranties. Each of the representations and warranties of the Purchaser contained in this Agreement shall have been true and correct in all material respects when made and shall be true and correct in all material respects as of the Closing Date, with the same force and effect as if made as of the Closing Date (other than such representations and warranties as are made as of another date, which shall be true and correct in all material respects as of such date), except where the failure to be so true and correct would not materially and adversely effect the consummation of the Closing, or otherwise prevent the Purchaser from performing its material obligations under this Agreement, and Parent shall have received a certificate from the Purchaser to such effect signed by a duly authorized officer thereof; (b) Covenants. Each of the covenants and agreements contained in this Agreement to be complied with by the Purchaser on or before the Closing shall have been complied with in all material respects, and Parent shall have received a certificate from the Purchaser to such effect signed by a duly authorized officer thereof; (c) HSR Act. Any waiting period (and any extension thereof) under the HSR Act or under the applicable merger control or competition Laws of Germany and the United Kingdom applicable to the purchase of the Shares and the SAP Assets contemplated hereby shall have expired or shall have been terminated; (d) No Proceeding or Litigation. No Action shall have been commenced by or before any Governmental Authority against either the Sellers or the Purchaser, seeking to restrain or materially and adversely alter the transactions contemplated by this Agreement which, in the reasonable, good faith determination of Parent, is likely to render it impossible or unlawful to consummate such transactions; provided, however, that the provisions of this Section 8.01(d) shall not apply if Parent has directly or indirectly solicited or encouraged any such Action; (e) Resolutions. Parent shall have received a true and complete copy, certified by the General Counsel of the Purchaser, of the written approval of the Board of Directors of the Purchaser evidencing its authorization of the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; (f) Incumbency Certificate. Parent shall have received a certificate, signed by the General Counsel of the Purchaser, certifying the names and signatures of the employees of the Purchaser authorized to sign this Agreement and the other documents to be delivered hereunder and to bind the Purchaser hereby; (g) Stockholder Approval. This Agreement shall have been approved and adopted by the affirmative vote of the stockholders of Parent in accordance with applicable Law and Parent's Restated Certificate of Incorporation and By-Laws; (h) Transition Services Agreement. The Purchaser shall have executed and delivered to Parent the Transition Services Agreement; (i) SAP Subleases. The Purchaser or one of its designated Affiliates shall have executed and delivered to Parent the SAP Subleases; (j) CETCO Supply Agreement. The Purchaser shall have executed and delivered to Parent the CETCO Supply Agreement; (k) ION Exchange License Agreement. The Purchaser shall have executed and delivered to Parent the ION Exchange License Agreement; (l) Certain Rebates. The Purchaser shall have paid Parent in full for the Rebates; (m) Acrylic Acid Supply Agreement. The Purchaser shall have executed and delivered to Chemdal U.K. the Acrylic Acid Supply Agreement, together with the related release and novation described in Section 5.15 hereof; and (n) License Agreement. The Purchaser shall have executed and delivered to Parent the License Agreement. SECTION 8.02. Conditions to Obligations of the Purchaser. The obligations of the Purchaser to consummate the transactions contemplated by this Agreement shall be subject to the fulfilment, at or prior to the Closing, of each of the following conditions: (a) Representations and Warranties. Each of the representations and warranties of the Sellers contained in this Agreement shall have been true and correct in all respects when made and shall be true and correct in all respects as of the Closing Date, with the same force and effect as if made as of the Closing Date (other than such representations and warranties as are made as of another date, which shall be true and correct in all respects as of such date), except where the failure to be so true and correct would not have a Material Adverse Effect, and the Purchaser shall have received a certificate from each of the Sellers to such effect signed by a duly authorized officer thereof; (b) Covenants. Each of the covenants and agreements contained in this Agreement to be complied with by the Sellers on or before the Closing shall have been complied with in all material respects, and the Purchaser shall have received a certificate from each of the Sellers to such effect signed by a duly authorized officer thereof; (c) HSR Act. Any waiting period (and any extension thereof) under the HSR Act or under the applicable merger control or competition Laws of Germany and the United Kingdom applicable to the purchase of the Shares and the SAP Assets contemplated hereby shall have expired or shall have been terminated; (d) No Proceeding or Litigation. No Action shall have been commenced or threatened by or before any Governmental Authority against the Sellers or the Purchaser, seeking to restrain or materially and adversely alter the transactions contemplated hereby which, in the reasonable, good faith determination of the Purchaser, is likely to render it impossible or unlawful to consummate the transactions contemplated by this Agreement or which could have a Material Adverse Effect; provided, however, that the provisions of this Section 8.02(d) shall not apply if the Purchaser has solicited or encouraged any such Action; (e) Resolutions of the Sellers. The Purchaser shall have received a true and complete copy, certified by the Secretary or an Assistant Secretary of each of the Sellers, of the resolutions duly and validly adopted by the board of directors of each of the Sellers evidencing its authorization of the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, as applicable; (f) Incumbency Certificate of the Sellers. The Purchaser shall have received a certificate of the Secretary or an Assistant Secretary of each of the Sellers certifying the names and signatures of the officers of such Sellers authorized to sign this Agreement and the other documents to be delivered hereunder, as applicable; (g) Resignations of the Directors of the Company and SAP Thai. The Purchaser shall have received the resignations, effective as of the Closing, of all the directors and officers of the Company and SAP Thai, except for such Persons, if any, as shall have been designated in writing prior to the Closing by the Purchaser to Parent; (h) Release of Indemnity Obligations. The Purchaser shall have received the general release and discharge from Parent described in Section 5.11 of this Agreement; (i) Stockholder Approval. This Agreement shall have been approved and adopted by the affirmative vote of the stockholders of Parent in accordance with applicable Law and Parent's Restated Certificate of Incorporation and By-Laws; (j) No Material Adverse Effect. No event or events shall have occurred, or be reasonably likely to occur, which, individually or in the aggregate, have, or is reasonably likely to have, a Material Adverse Effect, it being understood and agreed that the termination of customer contracts shall not be considered a Material Adverse Effect for purposes of this paragraph; (k) Transition Services Agreement. Parent shall have executed and delivered to the Purchaser the Transition Services Agreement; (l) SAP Subleases. Parent or one of its designated Affiliates shall have executed and delivered to the Purchaser the SAP Subleases; (m) CETCO Supply Agreement. Parent shall have executed and delivered to the Purchaser the CETCO Supply Agreement; (n) ION Exchange License Agreement. Parent shall have executed and delivered to the Purchaser the ION Exchange License Agreement; (o) License Agreement. Parent shall have executed and delivered to the Purchaser the License Agreement; (p) Acrylic Acid Supply Agreement. Chemdal U.K. shall have executed and delivered to the Purchaser the Acrylic Acid Supply Agreement; (q) Tax Forms and Certificates. The Purchaser shall have received the Tax forms and certifications required to be delivered by Parent and the Other Sellers pursuant to Sections 7.07(a) and 7.08(f) of this Agreement; (r) Thai Plant Facility. The manufacturing facility being constructed by Parent and its Affiliates in Rayong, Thailand (the "Thai Facility") shall be delivered to the Purchaser and shall be Mechanically Complete as defined in Exhibit 5.26 attached hereto; and (s) Thai Recordings. Parent shall have delivered, or shall have caused to be delivered, to the Purchaser, certificates from a duly authorized officer of Parent as shall reasonably be required for the Purchaser to make the Thai Recordings, each in form and substance satisfactory to the Purchaser acting reasonably. ARTICLE IX INDEMNIFICATION SECTION 9.01. Survival of Representations and Warranties. The representations and warranties contained in this Agreement and the obligations of the parties pursuant to Sections 9.02(i), 9.02(v), 9.02(viii), 9.02(ix) and 9.03(a)(i) hereof shall survive the Closing and remain in full force and effect for a period of 15 months following the Closing Date (it being understood that, subject to Sections 9.01(a), 9.01(b) and 9.01(c) hereof, and subject to the effect of any applicable statute of limitations, the obligations of the parties pursuant to the remaining provisions of Sections 9.02 and 9.03 hereof shall survive Closing indefinitely); provided, however, that (a) the representations and warranties contained in Sections 3.20, 3.21 and 3.23 shall survive for the period provided in Section 7.08(c) (it being understood that the representations and warranties contained in Sections 3.20 and 3.21 shall survive for the period provided in Section 7.08(c) only to the extent of resulting Tax liabilities and otherwise shall remain in full force and effect for a period of 15 months following the Closing Date); (b) the representations and warranties contained in Section 3.14 and the obligations of the parties pursuant to Section 9.02(vii) hereof shall survive the Closing and remain in full force and effect until the fourth anniversary of the Closing Date; and (c) the obligations of the parties pursuant to Section 9.02(x) shall survive the Closing and remain in full force and effect until the 120th day following the expiration of the applicable statute of limitations with respect to the Loss or Liabilities in question (giving effect to any waiver, mitigation or extension thereof). If written notice of a claim has been given prior to the expiration of the applicable representations and warranties by the Purchaser to Parent, or by Parent to the Purchaser, then the relevant representations and warranties shall survive as to such claim, until such claim has been finally resolved. SECTION 9.02. Indemnification by Parent. The Purchaser, its Affiliates and their successors and assigns, and the officers, directors, employees and agents of the Purchaser, its Affiliates and their successors and assigns (each, a "Purchaser Indemnified Party") shall be indemnified and held harmless by Parent for any and all Liabilities, losses, damages, claims, costs and expenses, interest, awards, judgments and penalties (including, without limitation, attorneys' and consultants' fees and expenses) actually suffered or incurred by them (including, without limitation, any Action or investigation brought or otherwise initiated by any of them) (hereinafter, a "Loss"), arising out of or resulting from: (i) the breach of any representation or warranty made by the Sellers contained in this Agreement (it being understood that for purposes of this Article IX, and except for the representations and warranties contained at Section 3.15 of the Agreement, such representations and warranties will be interpreted without giving effect to any qualifications or limitations as to "materiality" or "Material Adverse Effect"); or (ii) the breach of any covenant or agreement by the Sellers contained in this Agreement; or (iii) the Excluded Liabilities; or (iv) all Liabilities, whether arising before or after the Closing Date, arising from or relating to the Remco Businesses; or (v) any and all Liabilities or Losses suffered or incurred by the Purchaser or the Company or SAP Thai or the SAP Business, including by reason of or in connection with any claim or cause of action of any third party, to the extent arising out of any action, inaction, event, condition, liability or obligation of the Company, SAP Thai, the Sellers or the SAP Business occurring or existing prior to the Closing, but only to the extent that the existence of such Liability or Loss constitutes a breach by the Sellers of their representations and warranties in this Agreement; or (vi) the Excluded Assets; or (vii) except for any Offsite Environmental Liabilities, and except for the matter specifically described in Exhibit 5.27 attached hereto which shall be resolved in the manner contemplated therein, any and all Losses or Liabilities pursuant to any Environmental Law, or related to gases occurring naturally, geologically or otherwise, in each case, arising from or related to any action, event, circumstance or condition related to the SAP Business and occurring or existing on or before the Closing Date, including, without limitation, (A) any Release of Hazardous Materials into the Environment at, to or from the SAP Real Property or any property formerly owned or operated in connection with the SAP Business, in each case on or prior to the Closing (and any additional migration of such Release after the Closing Date) to the extent such Release is in violation of any Environmental Law or is in a quantity, concentration or any other form that is reportable or requires investigation, remediation or other action pursuant to any Environmental Law, (B) any and all Environmental Claims arising at any time that relate to the SAP Business or the SAP Real Property on or prior to the Closing and (C) any and all non-compliances with or violations of any applicable Environmental Law or Environmental Permit relating to the Company, SAP Thai, the Sellers, the SAP Real Property or the SAP Business on or prior to the Closing (and any continuance of such non-compliance or violation after the Closing Date, except, with respect to this Section 9.02(vii)(C), to the extent (i) the Purchaser was or should have been aware of such noncompliance or violation on or before the Closing Date, or (ii) the condition constituting such noncompliance or violation is altered or changed by Purchaser and its Affiliates after the Closing Date); or (viii) any Losses arising from claims made by any Person in connection with the transfer of the employment of the U.K. Designated Employees, or as a result of the subsequent expiry of notice given to them by the Sellers, or arising from any earlier termination of any Person's employment (whether such claim shall be for wrongful or unfair dismissal, statutory gross redundancy payments, contractual or other redundancy payment, compensation for failure to consult, pay in lieu of notice, dismissal at common law or otherwise) and from and against all actions, losses, costs, claims, proceedings, demands, judgments, liabilities and expenses incurred or suffered by the Purchaser in connection with or as a result of any liability or obligation to any U.K. Designated Employee in relation to the foregoing (it being understood that Parent shall have no obligation to indemnify a Purchaser Indemnified Party for any Losses specifically arising out of, or specifically attributed to, the Purchaser satisfying its obligations under Article VI hereof); or (ix) any Losses arising out of any breach prior to the Closing Date by the Sellers of the U.K. Regulations or of any obligation in connection with or under any contract of employment of any U.K. Designated Employee to the extent that the event giving rise to the cause of action in respect of any such claim arose prior to the Closing Date; or (x) any claim that the manufacture, use, importation, offering for sale or sale of Indemnified Products infringes the * Patents, notwithstanding the inclusion of such matters on the Disclosure Schedule, but only to the extent of the Losses arising from the aggregate volumes of Indemnified Products that the manufacturing facilities included in the SAP Businesses were capable of manufacturing as of the Closing Date (including, for this purpose, the anticipated production capacity of 20,000 metric tons annually in the Thai Facility); provided, however, that the Purchaser agrees to reasonably cooperate with Parent, at Parent's cost, in responding to and defending any such assertion of infringement or infringement claims; and provided, further, however, that the Purchaser acts in a commercially reasonable manner (which shall not require the Purchaser to impair or jeopardize the SAP Business) to mitigate the Losses that result from or potentially could result from such infringement or alleged infringement; or (xi) any Loss or Liability arising out of any expenditures or amounts payable in connection with construction of the Thai Facility in accordance with the Thai Facility Construction Contracts. SECTION 9.03. Indemnification by the Purchaser. (a) Subject to the provisions of Section 9.03(b), Parent, its Affiliates and their successors and assigns, and the officers, directors, employees and agents of Parent, its Affiliates and their successors and assigns (each, a "Seller Indemnified Party") shall be indemnified and held harmless by the Purchaser for any and all Losses arising out of or resulting from: (i) the breach of any representation or warranty made by the Purchaser contained in this Agreement; or (ii) the breach of any covenant or agreement by the Purchaser contained in this Agreement; or (iii) any Assumed Liabilities; or (iv) any third party claims to the extent arising primarily out of, or relating primarily to, the conduct of the SAP Business before or after the Closing, except (i) to the extent that Parent is obligated to indemnify the Purchaser with respect to such Losses pursuant to Sections 9.02 and 7.01 hereof, or (ii) as otherwise contemplated by this Agreement (it being understood that the Purchaser shall have no obligation to indemnify a Seller Indemnified Party hereunder for any Losses to the extent actually paid, satisfied or resolved prior to the date hereof ); or (v) any claim arising out of the employment or discharge at any time on or after the Closing Date by the Purchaser, the Company or SAP Thai of any employee listed on Section 6.01 of the Disclosure Schedule and Section 6.08 of the Disclosure Schedule attached hereto or otherwise, including, without limitation, any failure by the Purchaser to satisfy its obligations under Article 6 hereof, and any severance amounts payable to such employees arising as a result of his or her discharge or termination of employment by the Purchaser, the Company or SAP Thai following the Closing Date; or (vi) subject to the terms of Section 9.02(viii), any Losses arising from claims made by any U.K. Designated Employees against the Sellers in connection with the transfer of their employment pursuant to the U.K. Regulations or as a result of any termination of their employment by the Purchaser (whether such claim shall be for wrongful or unfair dismissal, redundancy payment or dismissal at common law or otherwise) where such termination takes place after the Closing Date. (b) Notwithstanding anything to the contrary contained in Section 9.03(a) herein, in the event the Purchaser is required to indemnify a Seller Indemnified Party for any Loss pursuant to this Article IX, the Purchaser shall not have any obligation or otherwise be required to pay any amount to such Seller Indemnified Party on account of such Loss unless and until the Seller Indemnified Party has used its reasonable efforts to access any of its (or any of its Affiliate's) applicable insurance policies in a manner that is consistent with the terms of such policies, such reasonable efforts to include, without limitation, the Seller Indemnified Party using reasonable efforts to pursue any claims denied under such applicable insurance policies; provided, however, that, subject to the provisions of Section 9.05(b), the Purchaser shall then only be obligated to pay the Seller Indemnified Party (i) the amount, if any, equal to the difference between the amount the Purchaser would otherwise have been required to pay to such Seller Indemnified Party hereunder and the aggregate amount of any insurance proceeds actually paid to the Seller Indemnified Party on account of the Loss giving rise to the Purchaser's obligation to reimburse the Seller Indemnified Party, and (ii) the aggregate amount of any deductible payments actually paid by the Seller Indemnified Party to an insurance carrier in connection with accessing any applicable insurance policies. SECTION 9.04. Indemnification Procedures. A Purchaser Indemnified Party or a Seller Indemnified Party, as the case may be (for purposes of this Article IX, an "Indemnified Party"), shall give the indemnifying party under Section 9.02 or 9.03, as applicable (for purposes of this Section 9.04, an "Indemnifying Party"), prompt written notice of any matter which an Indemnified Party has determined has given or could give rise to a right of indemnification under this Agreement, and in any case within 60 days of such determination, stating the amount of the claim, if known, and method of computation thereof, and containing a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed or arises. The obligations and Liabilities of the Indemnifying Party under this Article IX with respect to Losses arising from claims of any third party which are subject to the indemnification provided for in this Article IX ("Third Party Claims") shall be governed by and contingent upon the following additional terms and conditions: if an Indemnified Party shall receive notice of any Third Party Claim, the Indemnified Party shall give the Indemnifying Party written notice of such Third Party Claim within 30 days of the receipt by the Indemnified Party of such written notice; provided, however, that if such notice of a Third Party Claim is in the form of a Complaint (or other similar legal document commencing litigation), the Indemnified Party shall give the Indemnifying Party written notice of such Third Party Claim within 15 days of the receipt by the Indemnified Party of such Complaint (or other similar document); provided, further, however, that the failure to provide such written notice shall not release the Indemnifying Party from any of its obligations under this Article IX except to the extent the Indemnifying Party is materially prejudiced by such failure and shall not relieve the Indemnifying Party from any other obligation or Liability that it may have to any Indemnified Party otherwise than under this Article IX. If the Indemnifying Party acknowledges in writing its obligation to indemnify the Indemnified Party hereunder against any Losses that may result from such Third Party Claim, then the Indemnifying Party shall be entitled to assume and control the defense of such Third Party Claim at its expense and through counsel of its choice if it gives written notice of its intention to do so to the Indemnified Party within 90 days of the receipt of such written notice from the Indemnified Party (it being understood that, during such 90 day period, the Indemnifying Party may assume and control the defense of such Third Party Claim at its own expense and through counsel of its choice, and, regardless of whether the Indemnifying Party has assumed control of the defense during the 90 day period, the Indemnified Party may not settle such Third Party Claim during such 90 day period without the prior written consent of the Indemnifying Party, such consent not to be unreasonably withheld, unless the Indemnifying Party is given a full and complete release of any and all liability by all relevant parties relating thereto); provided, however, that if there exists or is reasonably likely to exist a conflict of interest that would make it inappropriate in the judgment of the Indemnified Party, in its reasonable discretion, for the same counsel to represent both the Indemnified Party and the Indemnifying Party, then the Indemnified Party shall be entitled to retain its own counsel, in each jurisdiction for which the Indemnified Party determines counsel is required, at the expense of the Indemnifying Party. If, prior to the expiration of such 90 day period, the Indemnifying Party does not acknowledge in writing its obligation to indemnify the Indemnified Party for any Losses which may result from the Third Party Claim, the Indemnified Party (i) may elect to assume and control the defense of such Third Party Claim at the Indemnifying Party's expense; and (ii) the Indemnified Party shall have the right to settle such Third Party Claim without the consent of the Indemnifying Party after reasonable prior written notice to the Indemnifying Party of the material terms of such proposed settlement. In the event the Indemnified Party is, directly or indirectly, conducting the defense against any such Third Party Claim, the Indemnifying Party shall cooperate with the Indemnified Party in such defense and make available to the Indemnified Party, at the Indemnified Party's expense, all such witnesses, records, materials and information in the Indemnifying Party's possession or under the Indemnifying Party's control relating thereto as is reasonably required by the Indemnified Party. In the event the Indemnifying Party elects to control the defense of any Third Party Claim by notifying the Indemnified Party of such decision within the 90 day period provided above, then (x) the Indemnified Party shall cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party, at the Indemnifying Party's expense, all witnesses, pertinent records, materials and information in the Indemnified Party's possession or under the Indemnified Party's control relating thereto as is reasonably required by the Indemnifying Party and (y) the Indemnifying Party may not settle such Third Party Claim without the prior consent of the Indemnified Party, such consent not to be unreasonably withheld, unless the Indemnified Party is given a full and complete release of any and all liability by all relevant parties relating thereto. If the Indemnifying Party shall elect to assume the defense of a Third Party Claim by notifying the Indemnified Party of its obligation to indemnify such party during the 90 day period as provided above, then it shall do so at its own expense; provided, however, that all other matters described above as being at the expense of the Indemnifying Party shall only become payable by the Indemnifying Party if, when and to the extent that the Indemnifying Party is ultimately determined to be obligated to indemnify the Indemnified Party pursuant to this Article IX. SECTION 9.05. Limits on Indemnification. (a) Any indemnity payment required to be made under this Agreement shall include any amount necessary to hold the Indemnified Party harmless on an After-Tax Basis. (b) Notwithstanding anything to the contrary contained in this Agreement, (i) an Indemnifying Party shall not be liable for any claim for indemnification pursuant to Section 9.02(i), 9.02(v), 9.02(vii) or 9.03(a)(i) hereof, as applicable, unless and until the aggregate amount of Losses incurred by an Indemnified Party or group of Indemnified Parties pursuant to all claims made pursuant to all such Sections in the aggregate equals or exceeds $5,000,000, after which the Indemnifying Party shall be liable only for those Losses in excess of $5,000,000, (ii) no Losses shall be claimed under Sections 9.02(i), 9.02(v), 9.02(vii) or 9.03(a)(i) by an Indemnified Party or group of Indemnified Parties or shall be reimbursable by an Indemnifying Party pursuant to this Article IX, or shall be included in calculating the aggregate Losses in clause (i) of this paragraph, other than Losses in excess of $150,000 resulting from any single or aggregated claims arising out of the same facts, event or circumstances and (iii) in no event shall the Indemnifying Party be liable for aggregate Losses arising under Section 9.02(i), 9.02(v), 9.02(vii), 9.02(x), 9.02(xi) or 9.03(a)(i), as applicable, in excess of the Purchase Price. SECTION 9.06. Waiver of Other Remedies. The rights and remedies provided in this Agreement are cumulative, but absent fraud, shall be the exclusive remedies of the parties hereto with respect to claims for monetary damages related to the matters addressed herein and with respect to the transactions contemplated hereby, and the parties shall have no other liability for monetary damages to each other under any statutory or common law right; provided, however, that nothing herein shall be construed as limiting the right of a party hereto to equitable relief, other than monetary damages, for a breach of this Agreement. Any election of one available remedy by a party hereto shall not constitute a waiver of any other available remedy. An Indemnified Party may claim indemnification hereunder for consequential damages; provided, however, that an Indemnified Party shall not claim indemnification for lost profits. ARTICLE X TERMINATION AND WAIVER SECTION 10.01. Termination. This Agreement may be terminated at any time prior to the Closing: (a) by the Purchaser if, between the date hereof and the time scheduled for the Closing: (i) an event or condition occurs that has resulted in or that is reasonably likely to result in a Material Adverse Effect or (ii) Parent, the Company, SAP Thai or an Other Seller makes a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against Parent, the Company, SAP Thai or an Other Seller seeking to adjudicate any of them a bankrupt or insolvent, or seeking liquidation, winding up or reorganization, arrangement, adjustment, protection, relief or composition of its debts under any Law relating to bankruptcy, insolvency or reorganization, and such proceeding is not dismissed within 90 days; or (b) by the Purchaser, upon a breach of any representation, warranty, covenant or agreement on the part of the Sellers set forth in this Agreement, or if any representation or warranty of the Sellers shall have become untrue, in either case, such that the conditions set forth in Section 8.02(a) or Section 8.02(b) would not be satisfied ("Terminating Sellers' Breach"); provided, however, that, if such Terminating Sellers' Breach is curable by the Sellers through the exercise of their reasonable efforts and for so long as the Sellers continue to exercise such reasonable efforts, the Purchaser may not terminate this Agreement under this Section 10.01(b); or (c) by Parent upon a breach of any representation, warranty, covenant or agreement on the part of the Purchaser set forth in this Agreement, or if any representation or warranty of the Purchaser shall have become untrue, in either case such that the conditions set forth in Section 8.01(a) or Section 8.01(b) would not be satisfied ("Terminating Purchaser Breach"); provided, however, that, if such Terminating Purchaser Breach is curable by the Purchaser through the exercise of its reasonable efforts and for so long as the Purchaser continues to exercise such reasonable efforts, Parent may not terminate this Agreement under this Section 10.01(c); or (d) by either Parent or the Purchaser if the Closing shall not have occurred by May 31, 2000; provided, however, that the right to terminate this Agreement under this Section 10.01(d) shall not be available to any party whose failure to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date; or (e) by the Purchaser or Parent if, at such time as this Agreement is submitted for approval to a vote of the stockholders of Parent, Parent's stockholders vote against approval and adoption of this Agreement; or (f) by either the Purchaser or Parent in the event that any Governmental Authority shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable; or (g) by Parent in order to enter into a definitive agreement with respect to a Superior Proposal; provided, however, that (x) Parent must provide the Purchaser with written notice of such Superior Proposal, including a reasonable description of the material terms thereof, and (y) Parent shall not take any action in respect of such Superior Proposal, including terminating this Agreement or entering into an agreement relating to the Superior Proposal, for a period of five Business Days following receipt of such notice by the Purchaser and until such time as Parent's Board of Directors has considered any response to such notice provided by the Purchaser to Parent during such five Business Day period; provided, further, however, that no such termination by Parent pursuant to this Section 10.01(g) shall be effective until after Parent has paid the Purchaser the Fee (as defined herein) set forth in Section 10.03 of this Agreement; or (h) by the mutual written consent of Parent and the Purchaser. SECTION 10.02. Effect of Termination. In the event of termination of this Agreement as provided in Section 10.01, this Agreement shall forthwith become void and there shall be no liability on the part of either party hereto except (a) as set forth in Sections 5.03 and 10.03 and (b) that nothing herein shall relieve either party from liability for any breach of this Agreement. SECTION 10.03. Fees and Expenses. (a) In the event that: (i) (x) this Agreement is terminated pursuant to Section 10.01(e) and at or prior to the time of the vote of Parent's stockholders with respect to the Agreement, an Acquisition Proposal shall have been made public and (y) Parent enters into an agreement with respect to an Acquisition Proposal, or an Acquisition Proposal is consummated, in each case within 12 months after such termination of this Agreement; or (ii) this Agreement is terminated pursuant to Section 10.01(g); or (iii) (x) this Agreement is terminated for any reason, other than pursuant to Section 10.01(a)(i), Section 10.01(a)(ii), Section 10.01(c), Section 10.01(f) or Section 10.01(h), and (y) Parent enters into an agreement with respect to a Superior Proposal, or a Superior Proposal is consummated, in each case within 12 months after such termination of this Agreement; then, in any such event, Parent shall pay the Purchaser a fee of U.S.$20,000,000 (the "Fee"), which amount shall be payable in immediately available funds, plus all Expenses (as hereinafter defined). Should the Fee and Expenses become payable to the Purchaser pursuant to (x) Section 10.03(a)(i), then Parent shall pay such Fee and Expenses to the Purchaser promptly (but in no event later than one Business Day after consummation of the Acquisition Proposal), or (y) Section 10.03(a)(iii), then Parent shall pay such Fee and Expenses to the Purchaser promptly (but in no event later than one Business Day after consummation of the Superior Proposal) or (z) Section 10.03(a)(ii), then Parent shall pay such Fee and Expenses to the Purchaser prior to termination of the Agreement pursuant to Section 10.01(g). For the purposes of this Section 10.03(a), "Expenses" shall mean all out-of-pocket expenses and fees up to U.S.$3,000,000, in the aggregate (including, without limitation, fees and expenses payable to all banks and investment banking firms and all fees of counsel, accountants, experts and consultants to the Purchaser) actually incurred or accrued by, or on behalf of, the Purchaser in connection with this Agreement and the transactions contemplated hereby. (b) In the event that Parent shall fail to pay the Fee and any Expenses when due, the term "Expenses" shall be deemed to include the costs and expenses actually incurred or accrued (including, without limitation, fees and expenses of counsel) by the Purchaser in connection with the collection under and enforcement of this Section 10.03, together with interest on such unpaid Expenses and Fee, commencing on the date that the Expenses and such Fee, as applicable, became due, at a rate equal to the rate of interest publicly announced by Citibank, N.A., from time to time, in the City of New York, as such bank's Base Rate plus 2%. ARTICLE XI GENERAL PROVISIONS SECTION 11.01. Expenses. Except as otherwise provided in Sections 5.06(a), 7.06, and 10.03, and as otherwise may be contemplated by this Agreement, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred. SECTION 11.02. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in Person, by telecopy, cable, telegram or telex or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 11.02): if to the Purchaser: BASF Aktiengesellschaft Carl-Bosch-Strasse 38 67056 Ludwigshafen Germany Telecopier No.: 011-49-621-609-2502 Attention: Mr. Harald Schultheiss with a copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Telecopier No: (212) 848-7179 Attention: Peter D. Lyons, Esq. with a copy to: BASF Corporation 3000 Continental Drive North Mount Olive, NJ 07828-1234 Telecopier No.: (973) 426-3052 Attention: Mr. Cenan Ozmeral if to Parent: AMCOL International Corporation One North Arlington 1500 West Shure Drive Arlington Heights, IL 60004 Telecopier No.: (847) 394-8730 Attention: Mr. Paul Shelton with a copy to: Lord, Bissell & Brook 115 South La Salle Street Chicago, Illinois 60603 Telecopier No: (312) 443-0336 Attention: Clarence O. Redman, Esq. SECTION 11.03. Public Announcements. The Purchaser and Parent shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement and the transactions contemplated hereby and shall not issue any such press release or make any such public statement prior to such consultation and agreement on such press release, except as may be required by Law or any listing agreement with a national securities exchange to which the Purchaser or Parent is a party. SECTION 11.04. Headings. The descriptive headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 11.05. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any Law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. SECTION 11.06. Entire Agreement. This Agreement and the Transaction Agreements constitute the entire agreement of the parties hereto with respect to the subject matter hereof and thereof and, except for the Confidentiality Agreement, supersede all prior agreements and undertakings, both written and oral, between Parent and the Purchaser with respect to the subject matter hereof and thereof. SECTION 11.07. Assignment. This Agreement shall not be assigned by operation of Law or otherwise, except that the Purchaser may assign all or any of its rights and obligations hereunder to any Affiliate of the Purchaser, provided, however, that no such assignment shall relieve the Purchaser of its obligations hereunder if such assignee does not perform such obligations. SECTION 11.08. Third Party Beneficiaries. Except for the provisions of Article IX and Article VII relating to Indemnified Parties, (a) the provisions of this Agreement are solely for the benefit of the parties and are not intended to confer upon any Person except the parties any rights or remedies hereunder and (b) there are no third party beneficiaries of this Agreement and this Agreement shall not provide any third Person with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. SECTION 11.09. Amendment. This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, Parent and the Purchaser or (b) by a waiver in accordance with Section 11.10. SECTION 11.10. Waiver. Either party to this Agreement may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered by the other party pursuant hereto or (c) waive compliance with any of the agreements or conditions of the other party contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party to be bound thereby, and shall thereafter, except as otherwise specified in such writing, operate as a waiver (or satisfaction) of such condition for all purposes of this Agreement. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition, of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any of such rights. SECTION 11.11. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware applicable to contracts executed in and to be performed in that State. All actions and proceedings arising out of or relating to this Agreement shall be heard and determined in any Delaware state or federal court sitting in Wilmington. The parties hereto hereby (i) submit to the exclusive jurisdiction of any Delaware state or federal court sitting in Wilmington for the purpose of any Action arising out of or relating to this Agreement brought by any party hereto and (ii) waive, and agree not to assert by way of motion, defense, or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the Action is brought in an inconvenient forum, that the venue of the Action is improper, or that this Agreement or the transactions contemplated hereby may not be enforced in or by any of the above-named courts. SECTION 11.12. Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. SECTION 11.13. Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. IN WITNESS WHEREOF, Parent and the Purchaser have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. AMCOL INTERNATIONAL CORPORATION By: /s/ John Hughes Name: John Hughes Title: Chairman & CEO BASF AKTIENGESELLSCHAFT By: /s/ Jorg Buchmuller Name: Jorg Buchmuller Title: Director, Legal BASF AKTIENGESELLSCHAFT By: /s/ Harald Schultheiss Name: Harald Schultheiss Title: Director [Schroder & Co. Inc. Letterhead] November 22, 1999 The Board of Directors AMCOL International Corporation 1500 West Shore Drive Suite 500 Arlington Heights, IL 60004 Members of the Board of Directors: We understand that AMCOL International Corporation ("AMCOL" or the "Company") is entering into a transaction (the "Transaction") pursuant to which the Company would sell substantially all of the assets and certain liabilities (as described in the Agreement (as defined below)) associated with the Superabsorbent Polymers Business (the "SAP Business") to BASF AG ("BASF") for cash consideration of $656.5 million, subject to adjustment as provided in the Agreement (the "Transaction Consideration"). The Agreement provides for an adjustment of the Transaction Consideration to the extent that the actual net working capital of the SAP Business is greater or less than the targeted working capital amount as indicated by management of approximately $34,175,000. You have requested that Schroder & Co. Inc. ("Schroders") render an opinion (the "Opinion"), as investment bankers, as to the fairness to AMCOL, from a financial point of view, of the Transaction Consideration being paid to AMCOL. Schroders, as part of its investment banking business, is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. Schroders has acted as financial advisor to AMCOL with respect to the Transaction for which we will receive a fee for our services, a significant portion of which is contingent upon consummation of the Transaction. In connection with the Opinion set forth herein, we have, among other things: 1. Reviewed certain publicly available business and financial information relating to AMCOL and the SAP Business that we deemed relevant; 2. Reviewed certain unaudited historical financial and operating information relating to the SAP Business provided to us by AMCOL; 3. Reviewed certain other information, including financial and operating forecasts of the SAP Business, provided to us by AMCOL; 4. Held discussions with senior management and representatives of AMCOL regarding the business, operations and prospects of the SAP Business and its products; 5. Reviewed a draft Asset Purchase Agreement dated November 19, 1999, between AMCOL and BASF relating to the Transaction (the "Agreement"); 6. Performed various valuation analyses, as we deemed appropriate, of the SAP Business using generally accepted analytical methodologies, including (i) the application to the financial results of the SAP Business of the public trading multiples of companies which we deemed comparable; (ii) the application to the financial results of the SAP Business of the multiples reflected in recent mergers and acquisitions for businesses which we deemed comparable; (iii) discounted cash flow analyses of the SAP Business' operations and (iv) leveraged buyout analysis of the SAP Business' operations; 7. Considered the results of solicitations of interest from third parties regarding potential business combinations involving the SAP Business; and 8. Performed such other financial studies, analyses, inquiries and investigations, as we deemed appropriate including an assessment of the current economic and market conditions. In rendering the Opinion, we have assumed and relied upon the accuracy and completeness of all information (including the assumptions and bases used in connection with preparation of forecasts and projections) supplied or otherwise made available to us by the Company and the SAP Business or obtained by us from publicly available sources, and upon the assurance of the Company's management that they are not aware of any information or facts that would make the information provided to us incomplete or misleading. We have also assumed that there will be no decrease in the Transaction Consideration as a result of the working capital adjustment provided for in the Agreement. We have not independently verified such information, undertaken an independent appraisal of the assets or liabilities (contingent or otherwise) of the SAP Business, or been furnished with any such appraisals. With respect to financial forecasts for the SAP Business, we have been advised by the Company, and we have assumed, without independent investigation, that they have been reasonably prepared and reflect the best currently available estimates and judgment as to the expected future financial performance of the SAP Business. You have advised us that the Company does not disclose internal forecasts or projections of the type provided to Schroders and therefore such forecasts and projections were not prepared with expectation of public disclosure. You have advised us that such forecasts and projections were based upon numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in such projections. The Opinion is necessarily based upon financial, economic, market and other conditions as they exist, and the information made available to us, as of the date hereof. We disclaim any undertakings or obligations to advise any person of any change in any fact or matter affecting the Opinion which may come or be brought to our attention after the date of the Opinion. In the ordinary course of our business, we may hold and actively trade debt or equity securities of AMCOL for our own account or for the accounts of our customers and, accordingly, may at any time hold a long or short position in such securities. The Opinion does not constitute a recommendation as to any action the Board of Directors of the Company or any stockholder of the Company should take in connection with the Transaction or any aspect thereof. The Opinion relates solely to the fairness from a financial point of view of the Transaction Consideration being paid to AMCOL. We have not taken into account nor are we opining on any tax liabilities related to or resulting from the Transaction which the Company may incur. We express no opinion herein as to the structure, terms or effect of any other aspect of the Transaction or as to the merits of the underlying decision of the Company to enter into the Transaction. This letter is for the information of the Board of Directors of AMCOL solely for its use in evaluating the fairness from a financial point of view of the Transaction Consideration being paid to AMCOL. It may not be used for any other purpose or referred to without our prior written consent. Based upon and subject to all of the foregoing, we are of the opinion, as investment bankers, that as of the date hereof, the Transaction Consideration being paid is fair, from a financial point of view, to AMCOL. Very truly yours, /s/SCHRODER & CO. INC. EX-21 3 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 AMCOL INTERNATIONAL CORPORATION SUBSIDIARY LISTING
Company Name Country State Ownership % ACP Export, Inc. U.S. Virgin Islands 100 AMCOL (Holdings) Ltd. England 100 AMCOL Holdings Canada Ltd. Canada Ontario 100 AMCOL International Corporation USA DE Parent American Colloid Company USA DE 100 Ameri-Co Carriers, Inc. USA NE 100 Ashapura Minechem Ltd. India 20 Ashapura Volclay Private Ltd. India 50 CETCO (Europe) Limited England 100 CETCO AS Norway 100 CETCO Asia Sdn. Bhd. Malaysia 100 CETCO Australia Pty. Ltd. Australia 100 CETCO Environmental Technologies Pte Ltd Singapore 100 CETCO Holdings B.V. Netherlands 100 CETCO Korea Ltd. Korea 100 CETCO Poland Sp. z o.o. Poland 100 Chemdal Asia Ltd. Thailand 100 Chemdal Corporation USA DE 100 Chemdal Holdings B.V. Netherlands 100 Chemdal International Corporation USA DE 100 Chemdal Limited England 100 Chemdal Pty. Ltd. Australia 100 Chemdal Sp. z o.o. Poland 100 Colloid Abwassertechnik GmbH Germany 100 Colloid Environmental Technologies Company (CETCO) USA DE 100 Egypt Bentonite & Derivatives Company Egypt 25 Egypt Mining & Drilling Chemicals Company Egypt 25 Montana Minerals Development Company USA MT 100 Nanocor, Inc. USA DE 100 Nanocor, Ltd. England 100 Nationwide Freight Service, Inc. USA NE 100 Nissho Iwai Bentonite Co., Ltd. Japan 19 Redhill Volclay Co. Ltd. China 49 Volclay de Mexico, S.A. de C.V. Mexico 49 Volclay Holdings B.V. Netherlands 100 Volclay International Corp. USA DE 100 Volclay Korea Ltd. Korea 100 Volclay Limited England 100 Volclay Pty., Ltd. Australia 100 Volclay Siam Ltd. Thailand 100
EX-23 4 CONSENTS OF EXPERTS AND COUNSEL EXHIBIT 23 Consent of KPMG LLP The Board of Directors AMCOL International We consent to incorporation by reference in the registration statements (Nos. 33-34109, 33-55540, 33-73350 and 333-56017) on Form S-8 of AMCOL International Corporation of our report dated March 2, 2000, relating to the consolidated balance sheets of AMCOL International Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999, and related schedule which report appears in the December 31, 1999, annual report on Form 10-K of AMCOL International Corporation. /s/ KPMG LLP Chicago, Illinois March 2, 2000 EX-27 5 FDS --
5 0000813621 AMCOL INTERNATIONAL CORPORATION 1,000 USD 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1.00 3,815 0 111,231 4,415 40,680 164,770 351,375 178,967 349,007 59,715 0 0 0 320 0 349,007 552,052 552,052 414,256 508,619 1,338 0 6,396 35,699 13,913 22,234 0 0 0 22,234 0.83 0.82
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