-----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, BI62il1t45d0mnoDGpQZ+zsTHZks0ogK+EWoMefnjveIPbqYKJsVv6JaMhqGc1ry Ng9jVwTC1BrnApaGt1dTHA== 0000950152-97-002060.txt : 19970324 0000950152-97-002060.hdr.sgml : 19970324 ACCESSION NUMBER: 0000950152-97-002060 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970321 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OM GROUP INC CENTRAL INDEX KEY: 0000899723 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 521736882 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-12515 FILM NUMBER: 97560337 BUSINESS ADDRESS: STREET 1: 3800 TERMINAL TOWER STREET 2: 3800 TERMINAL TOWER CITY: CLEVELAND STATE: OH ZIP: 44113-2204 BUSINESS PHONE: 2167810083 MAIL ADDRESS: STREET 1: 3900 TERMINAL TOWER CITY: CLEVELAND STATE: OH ZIP: 44113 10-K405 1 OM GROUP 1 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 [FEE REQUIRED] For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ___________ to ____________ Commission file number 0-22572 OM GROUP, INC. (Exact name of Registrant as specified in charter) Delaware 52-1736882 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 50 Public Square, 3800 Terminal Tower, Cleveland, Ohio 44113-2204 (Address of principal executive offices) (Zip Code) 216-781-0083 Registrant's telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, par value $0.01 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 the Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of Common Stock, par value $.01 per share, held by non-affiliates (based upon the closing sale price on the NYSE) on March 14, 1997 was approximately $528,283,310. As of March 14, 1997, there were 18,617,914 shares of Common Stock, par value $.01 per share, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement dated April 4, 1996 for the annual meeting of stockholders to be held on May 6, 1997 are incorporated by reference. 2 PAGE 2 Part I Item 1 BUSINESS OM Group, Inc. (the Company) is a leading, vertically integrated, producer and international marketer of value-added metal-based specialty chemicals. The Company manufactures and sells more than 250 specialty chemical and powder products for diverse applications in more than 15 industries. The Company's major products include custom catalysts used in petroleum refining and chemical processing, specialty additives used to accelerate the drying of paints and inks, bonding agents used in steel-belted radial tires, coloring agents used in pigments, ceramics and glass, specialty powders used to make machine, mining and drilling cutting tools and heat stabilizers incorporated in flexible polyvinyl chloride products. These specialty chemicals and powders are usually a small, but essential part of a customer's product and represent a low percentage of the customer's overall cost. The Company operates in a single business segment with product lines comprised of metal-based specialty chemicals and powders. COMPETITION The Company's businesses are very competitive. Several of the Company's competitors are divisions or subsidiaries of companies that are substantially larger and have greater financial resources than the Company. However, the Company believes it is the only producer that manufactures and markets three categories of metal-based specialty chemicals and powders -- carboxylates, inorganic salts and powders. The Company believes it is the world's leading producer of cobalt carboxylates and cobalt and nickel specialty inorganic salts, and the world's second largest producer of cobalt extra-fine powders. The Company believes that its focus on metal-based specialty chemicals and powders as a core business is an important competitive advantage. The degree of profitability of the Company depends, in part, on the Company's ability to maintain the differential between its product prices and raw material prices. Generally, the Company is able to pass along to its customers increases and decreases in raw material prices by increasing or decreasing, respectively, the prices of its products. The timing and amount of such adjustments in its product prices depends upon the type of product sold and the inventories and market share positions of the Company and its competitors. The Company's flexibility with respect to the timing of its price adjustments is greater with respect to carboxylates than with inorganic salts and powders. Inorganic salt and powder prices respond almost immediately to changes in the raw material base metal prices. 3 PAGE 3 Part I Item 1 CUSTOMERS The Company serves over 1,000 customers with no single customer accounting for 10% or more of the Company's net sales. During 1996, approximately 40% of the Company's net sales were to customers in the Americas, 40% were to customers in Europe, and 20% were to customers in the Asia Pacific. While customer demand for the Company's products is generally non-seasonal, supply/demand and price perception dynamics of cobalt do periodically cause customers to either accelerate or delay purchases of the Company's products, generating short-term results that may not be indicative of longer-term trends. RAW MATERIALS The primary raw materials used by the Company in manufacturing its products are cobalt and nickel. The cost of raw materials fluctuates due to supply and demand and changes in availability from suppliers. Cobalt is produced primarily in Australia, Canada, Cuba, Zaire and Zambia. While the Company has never experienced a material shortage of cobalt, production problems and instability in certain producer countries may in the future affect the supply and the market prices of cobalt metal. The Company attempts to mitigate changes in prices and availability by entering into long-term supply contracts with a variety of producers. The Company does not anticipate any substantial interruption in its raw materials supply that would have a material adverse effect on the Company's operations. Increases in the cost of raw materials can result in higher working capital needs, when the price of cobalt, the Company's primary raw material, increases significantly. The Company has had sufficient cash availability and borrowing capacity to finance higher cost inventory as needed. RESEARCH AND DEVELOPMENT The Company's research and new product development program is an integral part of its business. Research and development focuses on adapting proprietary technologies to develop new products and working with customers to meet their specific requirements. New products include new chemical formulations, concentrations of various components, product forms and packaging methods. Research and development expenses were approximately $3.8 million, $3.4 million, and $2.8 million for 1996, 1995, and 1994, respectively. The Company's research staff of 30 persons conducts carboxylate, metal salts and powders research and development at the Company's laboratories located in Cleveland, Ohio and Kokkola, Finland. The company also maintains a research agreement with Outokumpu Research Oy. PATENTS The Company holds 37 patents related to the manufacturing, processing and use of metallo-organic and metal-based compounds. In addition, the Company has the right to use, and in certain instances license and sell, technology covered by 16 patents in the areas of hydrometallurgical processes, solvent extraction, agitators and metal powders. The Company does not consider any single patent to be material to its business as a whole. 4 PAGE 4 Part I Item 1 ENVIRONMENTAL MATTERS Since 1970, a wide variety of environmental laws and regulations have been adopted by the United States and by foreign governments. Such laws and regulations continue to be adopted and amended. The Company is subject to a number of these laws and regulations as a result of its operations and use of certain substances that are, or have been, used, produced or discharged by the Company's plants. Annual environmental compliance costs have approximated $1.0 million in each of the past three years. Such ongoing expenses include waste water analysis and disposal, solid waste analysis and disposal, sea water control and related staff costs. The Company anticipates expenditures at increasing levels for the foreseeable future, as discharge limits are lowered. The Company has also made capital expenditures of approximately $1.0 million in each of the last three fiscal years in connection with environmental compliance. The Company anticipates that capital expenditures for such purposes will not exceed $1.0 million in either 1997 or 1998. Because environmental laws and regulations are becoming increasingly stringent, the Company's environmental compliance costs may increase in the future. In addition, due to the possibility of unanticipated factual or regulatory developments, the amount and timing of future environmental expenditures could vary significantly from those currently anticipated. EMPLOYEES At December 31, 1996, the Company had 442 full-time employees of which 190 were located in the United States, 209 in Finland, 36 in Western Europe and 7 in Taiwan. Employees at the Company's facilities in Franklin, Pennsylvania; St. George, Utah; and Ezanville, France are non-unionized. Employees at the Company's facilities in Kokkola, Finland are members of several national workers' unions under various union agreements. Generally, such union agreements have two-year terms. INTERNATIONAL OPERATIONS Financial information related to international operations is contained in Note H on page 25 of this report. The Company's products are manufactured at facilities located in Franklin, Pennsylvania; St. George, Utah; Kokkola, Finland; and Ezanville, France. The Company conducts its marketing and sales from its offices in Cleveland, Ohio; Dusseldorf, Germany; and Taipei, Taiwan. Although most of the Company's raw material purchases and product sales are transacted in U.S. Dollars, liabilities for non-U.S. operating expenses and income taxes are denominated in local currencies. Accordingly, fluctuations in currency prices may affect the Company's operating results and net income. Specifically, when the Finnish Markka weakens against the U. S. Dollar, there is a net favorable effect on the Company due to lower operating expenses and lower net balance sheet liabilities when translated into U. S. Dollars. The reverse is true when the Finnish Markka strengthens against the U. S. Dollar. 5 PAGE 5 Part I Item 2 PROPERTIES The Company believes that its plants and facilities, which are of varying ages and of different construction types, have been satisfactorily maintained, are in good condition, are suitable for the Company's operations and generally provide sufficient capacity to meet the Company's production requirements. The land on which the Kokkola plant is located is leased with a remaining term of 94 years. The land on which the St. George, Utah plant is located is leased with a remaining term, including options, of 48 years. Otherwise, the real properties comprising the Company's manufacturing facilities are owned by the Company.
Location Products Manufactured Technology ---------------------------------------------------------------------------- Franklin, Pennsylvania Carboxylates, Salts Semicontinuous, batch processing St. George, Utah Salts Semicontinuous, batch processing Kokkola, Finland Carboxylates, Salts, Powders Automated, continuous and batch processing Ezanville, France Carboxylates Batch processing
The Company's Kokkola, Finland production facility (KCO) is situated on property owned by Outokumpu Zinc Oy. KCO and Outokumpu Zinc Oy share certain physical facilities, services and utilities under agreements with varying expiration dates. General property and administrative services are provided under a service agreement, which expires in 1998, but are priced separately and subject to yearly renegotiation in anticipation of phasing out Outokumpu Zinc's role as a service provider. Utilities and raw material purchase assistance contracts provide that KCO jointly purchase with, or pay a fee to, affiliates of Outokumpu Oy for assistance in negotiating contracts and securing bulk quantity discounts. The Company maintains its principal executive offices at Tower City, 50 Public Square, 3800 Terminal Tower, Cleveland, Ohio 44113-2204. Certain information regarding the Company's offices and research and product development facilities is set forth below:
Approximate Location Facility Function Square Feet --------------------------------------------------------------------------------------------------- Cleveland, Ohio Corporate headquarters (leased) 5,800 Research and development facility (land lease) 11,400 Americas marketing and administration offices (land lease) 14,800 Dusseldorf, Germany European marketing and administration offices (leased) 3,800 Taipei, Taiwan Asia Pacific marketing and administration offices (leased) 1,500
Item 3 LEGAL PROCEEDINGS Manufacturers of specialty chemical products, including the Company, are subject to various legal and administrative proceedings incidental to such business. In the opinion of the Company, disposition of all suits and claims should not in the aggregate have a material adverse effect on the Company's business or financial position. Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 6 PAGE 6 Part I EXECUTIVE OFFICERS OF THE REGISTRANT There is set forth below the name, age, positions and offices held by each of the Company's executive officers as of March 21, 1997 as well as their business experiences during the past five years. Years indicate the year the individual was named to the indicated position. There is no family relationship between any of the Company's executive officers. James P. Mooney - 49 Chairman and Chief Executive Officer, 1994 Chairman, President and Chief Executive Officer, 1993 President and Chief Executive Officer, 1991 President and Chief Executive Officer, Mooney Chemicals, Inc., 1979 Eugene Bak - 63 President and Chief Operating Officer, 1994 Executive Vice President, 1993 President, Mooney Chemicals, Inc., 1992 Senior Vice President, Operations, Mooney Chemicals, Inc., 1989 James M. Materna - 51 Chief Financial Officer, 1992 Principal, Ashley Management, 1986 Thomas E. Fleming - 51 President, OMG Americas, Inc., 1994 Vice President, Marketing, Mooney Chemicals, Inc., 1987 J. R. Hwang - 48 President, OMG Asia Pacific Co., Ltd., 1994 Director of Far East Operations, The Hall Chemical Company, 1982 Kari Muuraiskangas - 52 President, OMG Europe GmbH, 1992 President, Outokumpu Chemicals Oy, 1989 H. Burnham Tinker - 57 Vice President, Corporate Development, 1994 Vice President, Research and Development, Mooney Chemicals, Inc., 1990 Antti Aaltonen - 49 President, OMG Kokkola Chemicals Oy, 1996 Vice President, Operations, OMG Kokkola Chemicals Oy, 1992 Production Manager, Kokkola Chemicals Oy, 1982 Michael J. Scott - 46 Vice President, Human Resources, General Counsel and Secretary, 1995 General Counsel and Secretary, 1991 General Counsel, Mooney Chemicals, Inc., 1983 John R. Holtzhauser - 40 Corporate Controller, 1993 Controller, Mooney Chemicals, Inc., 1986 Terry Guckes - 47 Vice President, Planning and Development, 1996 Vice President, Lubrizol International Management Company, Lubrizol Corporation, 1993 7 PAGE 7 Part II Item 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information relating to the recent price and dividend history of the Company's Common Stock is contained on page 26 of this report. The Company's Common Stock is traded on the New York Stock Exchange under the symbol "OMP." At March 14, 1997, the Company had approximately 5,700 shareowners. Item 6 SELECTED FINANCIAL DATA Selected financial data for each of the last five years is included on page 13 of this report. Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Management's Discussion and Analysis of Financial Condition and Results of Operations is contained on pages 14 through 16, inclusive, of this report. Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company and its subsidiaries, together with the independent auditors' report relating thereto, is contained on pages 17 through 26, inclusive, of this report. The quarterly data (unaudited) is contained on page 26 of this report. Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There are no such changes or disagreements. 8 PAGE 8 Part III Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information relating to directors of the Company contained under the heading "Election of Directors" on pages 2 and 3 of the Company's Proxy Statement dated April 4, 1997, is incorporated herein by reference. Information relative to executive officers of the Company is contained under Part I of this report. Item 11 EXECUTIVE COMPENSATION The information relating to executive compensation contained under the headings "Committees and Meetings of the Board of Directors" on page 5 and "Executive Compensation" on pages 6 through 9, inclusive, of the Company's Proxy Statement dated April 4, 1997, is incorporated herein by reference. Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information relating to security ownership set forth under the heading "Security Ownership of Directors and Officers, and Certain Beneficial Owners" on pages 4 and 5 of the Company's Proxy Statement dated April 4, 1997, is incorporated herein by reference. Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information relating to the related transactions set forth under the heading "Related Party Transactions" on page 10 of the Company's Proxy Statement dated April 4, 1997, is incorporated herein by reference. 9 PAGE 9 Part IV Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this Annual Report on Form 10-K (1) The following Consolidated Financial Statements of OM Group, Inc. are filed as a separate section of this report: Consolidated Balance Sheets at December 31, 1996 and 1995 - page 17. Statements of Consolidated Income for the years ended December 31, 1996, 1995, and 1994 - page 18. Statements of Consolidated Stockholders' Equity for the years ended December 31, 1996, 1995, and 1994 - page 18. Statements of Consolidated Cash Flows for the years ended December 31, 1996, 1995 and 1994 - page 19. Notes to Consolidated Financial Statements (2) All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (3) Exhibits
(3) Articles of Incorporation and by-laws 3.1 Amended and Restated Certificate of Incorporation of the Company ** 3.2 Amended and Restated Bylaws of the Company ** (4) Instruments defining rights of security holders, including indentures 4.1 Form of Common Stock Certificate of the Company ** 4.2 Second Amended and Restated Credit Agreement dated as of January 21, 1997 among National City Bank as Agent and ABN Amro Bank N.V., Key Bank National Association and Mellon Bank N.A. and OM Group, Inc., as Borrower. 4.3 Note Purchase Agreement among OM Group, Inc. as Seller and The Mutual Life Insurance Company of New York, Nationwide Life Insurance Company and Great-West Life & Annuity Insurance Company as Purchaser, dated August 30, 1995 (filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference). 4.4 Stockholder Rights Agreement dated as of November 5, 1996 between OM Group, Inc. and National City Bank (filed as Exhibit 1 to the Company's current report on Form 8-K filed on December 5, 1996 which exhibit is incorporated herein by reference). 4.5 Certificate of Designation, Preferences and Rights of Series A Participatory Preferred Stock (filed as Exhibit to Current Report on Form 8-K filed November 27, 1996 and incorporated herein by reference) (10) Material Contracts 10.1 Agreement for Sale of Cobalt Sulfide between Kokkola Chemicals Oy and Queensland Nickel Joint Venture dated March 6, 1992, as novated and amended on January 31, 1996. ** 10.2 Cobalt Slag Purchase Agreement between Kokkola Chemicals Oy and La Generale des Carrieres et des Mines - Exploitation and La Generale des Carrieres et des Mines pour la Commercialisation, dated November 21, 1992. **
10 PAGE 10 Part IV Item 14
10.3 Contract for Handling, Transportation and Follow-up of the Cobalt Slags [sic] between Kokkola Chemicals Oy and La Generale des Carrieres et des Mines - Exploitation and La Societe New Baron Leveque International dated November 23, 1992. ** 10.4 Nickel Concentrate Sales Agreement between Outokumpu Chemicals Oy and Outokumpu Finnmines Oy dated December 21, 1991 ** 10.5 Service Agreement between Kokkola Chemicals Oy and Outokumpu Kokkola Zinc Oy dated March 22, 1993. ** 10.6 Agreement between Kokkola Chemicals Oy and Outokumpu Mintec Oy dated March 31, 1993 regarding technical services ** 10.7 Lease Agreement between Outokumpu Chemicals Oy and Outokumpu Kokkola Zinc Oy dated December 11, 1991. ** 10.8 Amendment No. 1 to Lease Agreement among Kokkola Chemicals Oy, Outokumpu Metals & Resources Oy and Outokumpu Kokkola Zinc Oy dated March 22, 1993. ** 10.9 Heath [sic] Energy Contract NR 172 between Imatran Voima Oy and Outokumpu Chemicals Oy dated December 16, 1991. ** 10.10 Electricity Contract NR 9 between Outokumpu Oy Electricity Energy Services and Kokkola Chemicals Oy dated March 23, 1993. ** 10.11 Agreement on Transmission of Electricity -- Supplementary Contract to Electricity Contracts NROS 2 and 9 between Outokumpu Oy, Outokumpu Kokkola Zinc Oy and Kokkola Chemicals Oy dated March 22, 1993. ** 10.12 Agreement between Outokumpu Research Oy and Kokkola Chemicals Oy dated March 25, 1993. ** 10.13 Technology Agreement among Outokumpu Oy, Outokumpu Engineering Contractors Oy, Outokumpu Research Oy, Outokumpu Harjavalta Metals Oy and Kokkola Chemicals Oy dated March 24, 1993. ** 10.14 Agreement for Delivery and Disposal of Residue between Outokumpu Finnmines Oy and Kokkola Chemicals Oy dated March 29, 1993. *10.15 OM Group, Inc. Long-Term Incentive Compensation Plan. ** *10.16 Amendment to OM Group, Inc. Long-Term Incentive Compensation Plan (filed as Exhibit 99(b) to the OM Group, Inc. Form S-8 Registration Statement filed on February 1, 1994, and incorporated herein by *** reference). *10.17 Mooney Chemicals, Inc. Welfare Benefit Plan. ** *10.18 Mooney Chemicals, Inc. Profit Sharing Plan. ** *10.19 Amendment to Mooney Chemicals, Inc. Profit Sharing Plan. *10.20 OM Group, Inc. Bonus Program for Key Executives and Middle Management. ** *10.21 Employment Agreement between Mooney Acquisition Corporation and James P. Mooney dated September 30, 1991. ** *10.22 Amendment to Employment Agreement between OM Group, Inc. and James P. Mooney dated August 19, 1992. ** *10.23 Employment Agreement between OM Group, Inc. and Kari Muuraiskangas dated January 1, 1993. **
11 PAGE 11 Part IV Item 14
*10.24 Employment Agreement between OM Group, Inc. and James M. Materna dated January 1, 1993. ** *10.25 Employment Agreement between Mooney Chemicals, Inc. and Eugene Bak dated August 19, 1991. ** *10.26 Amendment to Employment Agreement between Mooney Chemicals, Inc. and Eugene Bak dated September 1, 1992. ** *10.27 Employment Agreement between OM Group, Inc. and Thomas E. Fleming dated August 19, 1991. ** *10.28 Amendment to Employment Agreement between OM Group, Inc. and Thomas E. Fleming dated August 19, 1991. ** *10.29 Employment Agreement between Mooney Chemicals, Inc. and H. Burnham Tinker dated August 19, 1991. ** *10.30 Amendment to Employment Agreement between OM Group, Inc. and H. Burnham Tinker dated August 19, 1991. ** *10.31 Employment Agreement between OM Group, Inc. and Antti Aaltonen. ** *10.32 Employment Agreement between OM Group, Inc. and John R. Holtzhauser and Amendment thereto (filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). *10.33 Employment Agreement between OM Group, Inc. and Michael J. Scott (filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). *10.34 Employment Agreement between OM Group, Inc. and J.R. Hwang (filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.35 OM Group, Inc. Non-employee Directors' Plan dated May 9, 1995 (filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.36 Cobalt-Nickel Hydrate Purchase Agreement between Kokkola Chemicals Oy and La Generale des Carrieres et des Mines, dated November 29, 1995 (filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference). 10.37 Note Purchase Agreement among OM Group, Inc. as Seller and The Mutual Life Insurance Company of New York, Nationwide Life Insurance Company and Great-West Life & Annuity Insurance Company as Purchaser, dated August 30, 1995 (filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference). *10.38 OM Group, Inc. Benefit Restoration Plan, effective January 1, 1995 (filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference). *10.39 Trust under OM Group, Inc. Benefit Restoration Plan, effective January 1, 1995 (filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference). *10.40 Retirement Benefit Agreement, Eugene Bak, dated January 1, 1995 (filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference). *10.41 OMG/Mooney Chemicals, Inc. Employee Profit Sharing Plan (January 1, 1994 restatement) (filed as Exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference). *10.42 Employment Agreement between OM Group, Inc. and Terry L. Guckes. 10.43 Stockholder Rights Agreement dated as of November 5, 1996 between OM Group, Inc. and National City Bank (filed as Exhibit 1 to the Company's current report on Form 8-K filed on December 5, 1996 which exhibit is incorporated herein by reference). 10.44 Stock Purchase Agreement between SUSI Corporation and OM Group, Inc. dated December 20, 1996. *10.45 Amendment to OM Group, Inc. Long-Term Incentive Compensation Plan (filed as Exhibit 99 to the OM Group, Inc. Form S-8 Registration Statement filed on July 3, 1996, and incorporated herein by reference).
12 PAGE 12 Part IV Item 14 *10.46 Amendment to OMG Americas, Inc. Profit-Sharing Plan (filed as Exhibit 99 to the Om Group, Inc. Form S-8 Registration Statement filed on July 3, 1996, and incorporated herein by reference). (11) Statement Regarding Computation of Earnings Per Share (filed as a separate section of this report) (21) List of Subsidiaries (filed as a separate section of this report) (23) Consent of Ernst & Young LLP (filed as a separate section of this report) (24) Power of Attorney (filed as a separate section of this report) (27) Financial Data Schedule (filed as a separate section of this report) (b) The following reports on Form 8-K have been filed during the last quarter of 1996: 1) Current report on Form 8-K filed on December 5, 1996 regarding the Stockholder Rights Agreement between OM Group, Inc. and National City Bank. * Indicates a management contract, executive compensation plan or arrangement. ** These documents were filed as exhibits to the Company's Form S-1 Registration Statement (Registration No. 33-60444) which became effective on October 12, 1993, and are incorporated herein by reference. *** Filed as Exhibit 99(b) to the OM Group, Inc. Form S-8 Registration Statement filed on February 1, 1994, and incorporated herein by reference. 13 PAGE 13 The following information is being filed as separate sections to this Annual Report on Form 10-K in response to Part II, Items 5 through 8: FINANCIAL REVIEW - --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (in millions, except per share data) Year Ended December 31, 1996 1995 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA: Net sales $ 388.0 $ 361.0 $ 251.3 $ 179.5 $ 201.2 Gross profit 84.0 74.6 60.6 45.8 38.6 Selling, general and administrative expenses 32.6 30.6 25.4 20.7 20.4 Income from operations 51.4 44.0 35.2 25.1 18.2 Other income (expense) (7.0) (5.5) (4.1) (2.0) .6 Net income $ 30.0 $ 25.9 $ 20.7 $ 15.4 $ 12.0 Net income per share $ 1.56 $ 1.36 $ 1.09 $ 0.95 $ 0.77 BALANCE SHEET DATA: Total assets $ 438.6 $ 358.0 $ 278.0 $ 217.3 $ 172.6 Long-term debt 109.3 89.8 46.6 30.6 48.5 All share and per share amounts have been retroactively adjusted to reflect the December 2, 1996 three-for-two stock split.
14 PAGE 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- The following management's discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements of the Company and the notes thereto appearing elsewhere in this Annual Report. Set forth below is summary consolidated financial information of the Company for the years ended December 31, 1996, 1995, and 1994.
(Thousands of dollars) Year Ended December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------- INCOME STATEMENT DATA: Net sales $ 387,999 $ 360,959 $ 251,275 Gross profit 83,974 74,563 60,574 Selling, general and administrative expenses 32,553 30,594 25,413 ------------------------------------------- Income from operations 51,421 43,969 35,161 Other expense (7,018) (5,451) (4,133) Income tax expense (14,356) (12,585) (10,286) ------------------------------------------- Net income $ 30,047 $ 25,933 $ 20,742 =========================================== PRODUCTS SOLD: (millions of pounds) Carboxylates 43.1 39.7 37.0 Salts 50.7 46.4 42.9 Powders 2.9 2.4 1.6 ------------------------------------------- Total 96.7 88.5 81.5 ===========================================
RESULTS OF OPERATIONS Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Net sales for 1996 were $388 million, an increase of 7.5% compared to 1995. The increase in sales resulted principally from increases in physical volume of products sold and from changes in product mix, more than offsetting a decline in the Company's product prices resulting from decreasing cobalt market prices. Cobalt market prices ranged from $20 to $32 per pound during 1996 compared to $27 to $32 per pound during 1995. The market price of nickel ranged from $2.92 to $3.78 per pound during 1996 compared to $3.17 to $4.57 per pound during 1995. Pounds of product sold by the Company were approximately 96.7 million pounds during 1996 compared to 88.5 million pounds in 1995. The increase in carboxylate products sold resulted principally from higher sales in Europe. The increase in salt products sold resulted principally from higher sales of cobalt based products. The increase in powders sold resulted principally from higher sales of coarse grade powders. Gross profit increased to $84 million in 1996, a 12.6% increase from 1995. The improvement in gross profit was primarily the result of higher physical volume of products sold and changes in product mix, including increases in cobalt based products. Cost of products sold decreased to 78.4% of net sales for the year ended 1996 from 79.3% of net sales in 1995 primarily because of lower cobalt market prices. Selling, general and administrative expenses remained approximately the same at 8.4% of net sales in 1996 and 1995. Other expenses were $7 million in 1996 compared to $5.5 million in 1995 due primarily to increased interest expense on higher outstanding borrowings, offset by gains on foreign exchange. Income taxes as a percentage of income before tax decreased to 32% in 1996 from 33% in 1995 as a greater percentage of total income was earned in Finland, which has a lower statutory tax rate (28%) than in the United States. Net income for 1996 was $30 million, an increase of $4.1 million from 1995, primarily due to the aforementioned factors. 15 PAGE 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 Net sales for 1995 were $361 million, an increase of 43.7% compared to 1994. The increase in sales resulted principally from increases in the Company's selling prices resulting from increasing cobalt market prices, as well as increases in physical volume of products sold. Cobalt market prices ranged from $27 to $32 per pound during 1995 compared to $14 to $30 per pound during 1994. The market price of nickel ranged from $3.17 to $4.57 per pound during 1995 compared to $2.37 to $4.02 per pound during 1994. Pounds of product sold by the Company were approximately 88.5 million pounds during 1995 compared to 81.5 million pounds in 1994. The increase in physical volume of carboxylate products sold resulted primarily from increased sales of PVC heat stabilizers. The increase in salt products sold resulted primarily from higher sales of cobalt salts. The increase in powder products sold resulted from increases in both extra fine and coarse grade powder sales. Gross profit increased to $74.6 million in 1995, a 23.1% increase from 1994. The improvement in gross profit was primarily the result of higher physical volume of products sold, a more favorable product mix, and relatively more stable market prices. Because certain of the Company's products are sold at a relatively fixed dollar amount over raw material costs, the Company's percentage gross margin decreased to 20.7% in 1995 from 24.1% in 1994 as cobalt market prices increased to higher levels in 1995. Selling, general and administrative expenses decreased to 8.5% of net sales in 1995 from 10.1% of net sales in 1994. This improvement resulted from higher overall increases in net sales relative to increases of $5.2 million in expenses due to higher administrative costs to support the Company's growth in global markets. Other expenses were $5.5 million in 1995 compared to $4.1 million in 1994 due primarily to increased interest expense on higher outstanding borrowings offset by lower losses on foreign exchange. Income taxes as a percentage of income before tax remained approximately the same at 33% in both 1995 and 1994. In 1995, a greater percentage of total income was earned in Finland, which has a lower statutory tax rate than the United States. Offsetting this, however, were adjustments of worldwide tax liabilities and a change in Finland's statutory tax rate to 28% for 1996. Net income for 1995 was $25.9 million, an increase of $5.2 million from 1994, primarily due to the aforementioned factors. LIQUIDITY AND CAPITAL RESOURCES The Company has used available cash flow from operations, increased borrowings, and proceeds from the sale of common stock to finance increases in working capital and capital expenditures. The Company believes that it will have sufficient cash generated by operations to provide for its future working capital and capital expenditure requirements and to pay quarterly cash dividends on its common stock, subject to the Board's discretion. In February, 1997, the Board of Directors authorized an increase in quarterly dividends to $.08 per share. Subject to several limitations in its revolving credit facilities and its note purchase agreement, the Company may incur additional borrowings to finance working capital and certain capital expenditures, including, without limitation, the purchase of additional raw materials. The Company had higher working capital needs in 1995 and 1996 resulting from its substantial growth, and for funding advance payments for certain raw materials. 16 PAGE 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company has ongoing capital expenditure programs to improve its processing technology and plant and equipment, and to expand capacity to accommodate its substantial growth. The Company anticipates that capital spending, exclusive of acquisitions or joint ventures, will approximate $30 million per year through 1998. The Company enters into long-term inventory supply arrangements and in 1995 took delivery of and title to 53,000 wet metric tons of cobalt slag at its Kokkola facilities from a major supplier. The Company was not required to pay for such slag until used, but has at times made advance payments. During 1996, the Company took delivery of an additional 80,000 wet metric tons. In 1994, the Company entered into an interest rate swap agreement for the three year period ending December 20, 1997 to convert the variable interest rate on an aggregate contract amount of $30 million to a fixed rate of 7.28% plus .35% to .75%. The purpose of entering into the interest rate swap is to protect the Company from the possibility of higher interest rates on what it views as base borrowings under its variable rate revolving credit facility. The Company's revolving credit facility was revised in October, 1996 to increase available credit from $60 to $120 million and expand its sources of capital by adding two new institutions. In connection with the acquisition of SCM Metal Products, Inc. (SCM), the Company's revolving credit facility was further expanded to $240 million in January, 1997, with a $10 million sublimit for letters of credit. Although most of the Company's raw material purchases and product sales are transacted in U.S. Dollars, liabilities for non-U.S. operating expenses and income taxes are denominated in local currencies. Accordingly, fluctuations in currency prices may affect the Company's operating results and net income. Specifically, when the Finnish Markka weakens against the U.S. Dollar, there is a net favorable effect on the Company due to lower operating expenses and lower net balance sheet liabilities when translated into U.S. Dollars. The reverse is true when the Finnish Markka strengthens against the U.S. Dollar. In order to partially hedge the balance sheet exposure to fluctuating rates, the Company enters into forward contracts to purchase Finnish Markka. FORWARD LOOKING STATEMENTS The Company is making this statement in order to satisfy the "safe harbor" provisions contained in the Private Securities Litigation Reform Act of 1995. The foregoing discussion includes forward-looking statements relating to the business of the Company. Forward-looking statements contained herein or in other statements made by the Company are subject to uncertainties and factors relating to the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company, that could cause actual results of the Company to differ materially from those matters expressed in or implied by such forward-looking statements. The Company believes that the following factors, among others, could affect its future performance and cause actual results of the Company to differ materially from those expressed in or implied by forward-looking statements made by or on behalf of the Company: (a) the price and supply of raw materials, particularly cobalt, nickel and copper; (b) continued growth in demand for the Company's products; (c) risks associated with environmental liability inherent in the nature of a chemical business; (d) uncertainty relating to the Company's ability to identify suitable acquisition candidates and to finance, consummate and assimilate such future acquisitions; (e) the effect of fluctuations in currency exchange rates upon the Company's international operations; and (f) the effect of non-currency risks of investing in and conducting operations in foreign countries, including those relating to political, social, economic and regulatory factors. 17 PAGE 17
CONSOLIDATED BALANCE SHEETS (Thousands of dollars) December 31, 1996 1995 - --------------------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 7,818 $ 9,098 Accounts receivable, less allowance of $210 in 1996 and $194 in 1995 60,054 71,959 Inventories 195,050 139,067 Other current assets 8,245 13,817 -------------------------- TOTAL CURRENT ASSETS 271,167 233,941 Property, plant and equipment: Land 467 331 Buildings and improvements 40,569 33,607 Machinery and equipment 122,695 102,576 Furniture and fixtures 4,074 3,427 -------------------------- 167,805 139,941 Less accumulated depreciation 57,184 42,661 -------------------------- 110,621 97,280 Other assets: Unprocessed inventory 27,499 Goodwill and other intangible assets, less accumulated amortization of $4,967 in 1996 and $4,088 in 1995 23,036 23,842 Other assets 6,310 2,979 -------------------------- TOTAL ASSETS $ 438,633 $ 358,042 ========================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 3,586 $ 5,263 Accounts payable 77,330 61,917 Accrued income taxes 2,753 9,484 Other accrued expenses 13,637 10,282 -------------------------- TOTAL CURRENT LIABILITIES 97,306 86,946 Long-term debt 109,295 89,845 Contract payable 27,499 Deferred income taxes 17,773 18,597 Other long-term liabilities 1,438 1,226 Stockholders' equity: Preferred stock, $.01 par value: Authorized 2,000,000 shares; no shares issued or outstanding Common stock, $.01 par value: Authorized 30,000,000 shares; issued 18,759,346 shares 188 125 Capital in excess of par value 102,125 102,088 Retained earnings 86,345 61,763 Treasury stock (141,432 shares in 1996 and 129,168 shares in 1995, at cost) (3,095) (2,512) Foreign currency translation adjustments (241) (36) -------------------------- TOTAL STOCKHOLDERS' EQUITY 185,322 161,428 -------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 438,633 $ 358,042 ========================== See accompanying notes to consolidated financial statements.
18 PAGE 18 STATEMENTS OF CONSOLIDATED INCOME
(Thousands of dollars, except per share data) Year Ended December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------- OPERATIONS Net sales $ 387,999 $ 360,959 $ 251,275 Cost of products sold 304,025 286,396 190,701 ------------------------------------------- 83,974 74,563 60,574 Selling, general and administrative expenses 32,553 30,594 25,413 ------------------------------------------- INCOME FROM OPERATIONS 51,421 43,969 35,161 OTHER INCOME (EXPENSE) Interest expense (7,485) (5,516) (3,150) Interest income 244 398 366 Foreign exchange gain (loss) 223 (333) (1,349) ------------------------------------------- (7,018) (5,451) (4,133) ------------------------------------------- Income before income taxes 44,403 38,518 31,028 Income taxes 14,356 12,585 10,286 ------------------------------------------- Net income $ 30,047 $ 25,933 $ 20,742 =========================================== NET INCOME PER SHARE $ 1.56 $ 1.36 $ 1.09 =========================================== See accompanying notes to consolidated financial statements.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
Foreign Capital in Currency Common Excess of Retained Treasury Translation (Thousands of dollars) Stock Par Value Earnings Stock Adjustments Total - ----------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 1994 $125 $102,088 $23,058 $(389) $124,882 Net income 20,742 20,742 Translation adjustment 205 205 Dividends paid (3,496) (3,496) Treasury stock purchased $(1,158) (1,158) ------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1994 125 102,088 40,304 (1,158) (184) 141,175 Net income 25,933 25,933 Translation adjustment 148 148 Dividends paid (4,474) (4,474) Treasury stock purchased (1,354) (1,354) ------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1995 125 102,088 61,763 (2,512) (36) 161,428 Net income 30,047 30,047 Non-employee directors' compensation 100 100 Translation adjustment (205) (205) Dividends paid (5,465) (5,465) Treasury stock purchased (583) (583) Three-for-two stock split 63 (63) 0 ------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1996 $188 $102,125 $86,345 $(3,095) $(241) $185,322 ======================================================================== See accompanying notes to consolidated financial statements.
19 PAGE 19
STATEMENTS OF CONSOLIDATED CASH FLOWS (Thousands of dollars) Year Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 30,047 $ 25,933 $ 20,742 Items not affecting cash: Depreciation and amortization 15,814 13,734 10,689 Foreign exchange (gain) loss (223) 333 1,349 Deferred income taxes 7,841 1,552 2,962 Changes in operating assets and liabilities: Accounts receivable 11,905 (25,336) (21,401) Inventories (83,482) (14,081) (48,635) Accounts payable and other accruals 34,765 7,342 41,338 Other (851) (5,833) (1,181) ------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 15,816 3,644 5,863 INVESTING ACTIVITIES Expenditures for property, plant and equipment--net (28,129) (31,215) (19,674) Acquisitions of businesses (395) (14,511) ------------------------------------ NET CASH USED IN INVESTING ACTIVITIES (28,524) (45,726) (19,674) FINANCING ACTIVITIES Dividend payments (5,465) (4,474) (3,496) Long-term borrowings 33,364 94,418 18,000 Payments of long-term debt (15,591) (46,021) (2,000) Purchase of treasury stock (583) (1,354) (1,158) ------------------------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 11,725 42,569 11,346 Effect of exchange rate changes on cash (297) 19 47 ------------------------------------ INCREASE (DECREASE) IN CASH (1,280) 506 (2,418) Cash and cash equivalents at beginning of year 9,098 8,592 11,010 ------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,818 $ 9,098 $ 8,592 ==================================== See accompanying notes to consolidated financial statements.
20 PAGE 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Thousands of dollars, except share amounts) - -------------------------------------------------------------------------------- A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Consolidation OM Group, Inc. (the Company) and its operating subsidiaries manufacture and sell metal carboxylates, salts, and powders that are primarily derived from cobalt and nickel. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Inventories Inventories are stated at the lower of cost or market and are principally valued using the last-in, first-out (LIFO) method. Property, Plant and Equipment Property, plant and equipment is recorded at historical cost less accumulated depreciation. Depreciation of plant and equipment is provided by the straight-line method over the useful lives of the various classes of assets. Long-lived assets are assessed for impairment when operating profits for the related business indicate that the carrying value may not be recoverable. Research and Development Selling, general and administrative expenses include research and development costs of $3,756, $3,413 and $2,791 in 1996, 1995 and 1994, respectively. Income Taxes Deferred income taxes are provided to recognize the effect of temporary differences between financial and tax reporting arising principally from different depreciation methods and inventory reserves. Deferred income taxes are not provided for undistributed earnings of foreign consolidated subsidiaries, to the extent such earnings are reinvested for an indefinite period of time. Foreign Currency Translation The functional currency for the Company's Kokkola, Finland subsidiary is the U.S. dollar since a majority of its purchases and sales are denominated in U.S. dollars and it holds a significant intercompany note payable, denominated in U.S. dollars. Accordingly, foreign exchange gains and losses related to assets, liabilities and transactions which are denominated in other currencies (principally the Finnish Markka) are included in results of operations. The Company enters into forward contracts to partially hedge its balance sheet exposure to the Finnish Markka, and accordingly, gains or losses related to the forward contracts are included in results of operations. The functional currency for the Company's other subsidiaries outside of the United States is the applicable local currency. For those operations, financial statements are translated into U.S. dollars at year-end exchange rates as to assets and liabilities and weighted average exchange rates as to revenues and expenses. The resulting translation adjustments are recorded as a component of stockholders' equity. Goodwill and Other Intangibles Goodwill and other intangibles represent principally the excess of the acquisition purchase price of businesses acquired over the fair market value of the net tangible assets acquired. These intangible assets are being amortized on a straight-line basis over their respective useful lives (fifteen to forty years). Goodwill is assessed for impairment when operating profits for the related business indicate that the carrying value may not be recoverable. Cash Equivalents For purposes of the statements of cash flows, all highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Earnings Per Share Earnings per share are computed based on weighted average shares outstanding and the dilutive effect of stock options outstanding as discussed in Note F. Stock Options and Compensation Plans The Company grants stock options for a fixed number of shares to certain employees with an exercise price equal to the fair value of the shares at the date of grant and accounts for stock options using the intrinsic value method. Accordingly, compensation expense is not recognized for the stock option grants. Beginning in 1995, non-employee members of the Board of Directors were eligible to receive their annual retainer in the form of cash, stock options, or restricted stock. Directors may purchase stock options for a price equal to the difference between the exercise price (75% of fair market value on date of grant) and the fair market value per share. Restricted shares may be purchased at a price equal to fair market value per share. Also, directors electing to receive restricted stock receive additional restricted stock equal to 5% of their applied cash compensation. Accordingly, compensation expense is recognized for stock option and restricted share grants elected by eligible directors. 21 PAGE 21 Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in certain circumstances that affect the amounts reported in the accompanying consolidated financial statements and notes. Actual results could differ from these estimates. B. INVENTORIES Current inventories consist of the following:
December 31, 1996 1995 ------------------------------------------------------- Raw materials and supplies $ 116,389 $ 99,853 Finished goods 87,980 74,715 ------------------------ 204,369 174,568 LIFO reserve (9,319) (35,501) ------------------------ Total inventories $ 195,050 $ 139,067 ========================
Unprocessed inventory represents cobalt slag feedstock. A twelve-month supply of the cobalt slag feedstock is included in inventory; the remainder of the slag is classified as non-current unprocessed inventory. The cost of the cobalt obtained is based upon prevailing market prices. C. FINANCIAL INSTRUMENTS Long-term debt consists of the following:
December 31, 1996 1995 ------------------------------------------------------------ Notes payable to banks $ 79,000 $56,000 Notes payable to insurance companies 30,000 30,000 Business acquisition debt 3,447 8,510 Other 434 598 ------------------- 112,881 95,108 Less: Current portion 3,586 5,263 ------------------- Total long-term debt $109,295 $89,845 ===================
At December 31, 1996, the Company had a $120 million revolving credit facility with a group of banks, with variable interest rates based upon either the agent bank's rate or LIBOR plus a .35% to .75% margin, at the Company's option. Under the credit agreement, the Company must exceed a minimum predefined working capital ratio and meet certain funded debt ratios. There are also covenants which restrict the dividend paying and borrowing capability of the Company. In connection with with the acquisition of SCM (as described further in Note I), the Company's revolving credit facility, which expires in 2002, was further expanded to $240 million in January, 1997, with a $10 million sublimit for letters of credit. The Company has an interest rate swap agreement to convert the variable interest rates on an aggregate contract amount of $30 million to a fixed rate of 7.28% plus .35% to .75% for a three year period ending December 20, 1997. The combined effective rate of the Company's bank borrowings and the related swap agreement was approximately 7.1% at December 31, 1996. The net interest paid or received on the interest rate swap is included in interest expense. The counterparties to the interest rate swap are international commercial banks. At December 31, 1996, the fair value of the interest rate swap based upon current settlement prices approximated $471 payable. During 1995, the Company borrowed $30 million from a group of insurance companies through a private placement. The borrowings bear interest at 7.38% and are due August 30, 2005. Under the terms of the note purchase agreement, the Company must meet certain interest coverage and funded debt ratios. There are also covenants which restrict the dividend paying and borrowing capability of the Company. In connection with several business acquisitions during 1995, the Company issued notes payable with a combined effective rate of 8.9%. The balance on these notes is due in 1997. 22 PAGE 22 Aggregate annual maturities of long-term debt for the five years following December 31, 1996 are as follows: 1997 - $3,586; 1998 - $148; 1999 - $147; $0 in 2000 and $0 in 2001. Interest paid was $7,056, $4,454 and $3,056 for the years ended December 31, 1996, 1995 and 1994, respectively. At December 31, 1996, the carrying value of the Company's debt approximated its fair value. The Company enters into forward contracts to purchase Finnish Markka to partially hedge its balance sheet exposure to rate fluctuations between the Finnish Markka and the U.S. Dollar. At December 31, 1996, the fair value of the forward contracts, based on the current settlement price, approximated $220 payable, which was recorded in results of operations. D. INCOME TAXES Income before income taxes consists of the following:
Year Ended December 31, 1996 1995 1994 ------------------------------------------------------------- United States $ 1,384 $ 4,654 $ 9,022 Outside the United States 43,019 33,864 22,006 ------------------------------ $44,403 $38,518 $31,028 =============================== Income taxes are summarized as follows: Year Ended December 31, 1996 1995 1994 ------------------------------------------------------------- Current: United States: Federal $ 923 $ 2,158 $ 2,508 State and local 258 85 604 Outside the United States 5,334 8,790 4,212 ------------------------------ 6,515 11,033 7,324 Deferred: United States 644 949 914 Outside the United States 7,197 603 2,048 ------------------------------ 7,841 1,552 2,962 ------------------------------ $14,356 $12,585 $10,286 =============================== Significant components of the Company's deferred income taxes are as follows: December 31, 1996 1995 ------------------------------------------------------------- Current - Principally inventories $ 2,835 $(3,671) Long-term - Principally accelerated depreciation 17,773 18,597 ------------------ $20,608 $14,926 =================== A reconciliation of income taxes computed at the United States statutory rate to the effective income tax rate follows: Year Ended December 31, 1996 1995 1994 ------------------------------------------------------------- Income taxes at the United States statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit .4 .1 1.4 Effective tax rate differential of earnings outside of the United States (5.7) (7.2) (3.9) Change in statutory tax rate outside of the United States 1.8 Adjustment of worldwide tax liabilities 2.2 2.9 Other--net .4 .1 .7 ---------------------------- 32.3% 32.7% 33.2% ============================
23 PAGE 23 The Company has not provided additional United States income taxes on approximately $80 million of undistributed earnings of consolidated foreign subsidiaries included in stockholders' equity. Such earnings could become taxable upon the sale or liquidation of these foreign subsidiaries or upon dividend repatriation. The Company's intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax effective through the utilization of foreign tax credits. It is not practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on such earnings. Income tax payments were $14,129, $5,060, and $4,082 during the years ended December 31, 1996, 1995 and 1994, respectively. E. EMPLOYEE BENEFIT PLANS The Company sponsors a non-contributory, qualified profit sharing plan covering all United States employees. Company contributions are determined by the Board of Directors based upon participant compensation. The Company also sponsors a non-contributory, non-qualified supplemental executive retirement plan for certain employees, providing benefits beyond those covered in the qualified profit sharing plan. Aggregate plan expenses were $1,727, $1,388, and $1,160 in 1996, 1995 and 1994, respectively. The Company provides health care benefits upon retirement for certain United States employees with a specified number of years of service. The estimated cost of their benefits is actuarially determined and accrued over the employees' service periods as a level percentage of compensation for employees expected to qualify for benefits. Expenses for postretirement benefits other than pensions are as follows:
Year Ended December 31, 1996 1995 1994 ---------------------------------------------------------- Service cost $ 27 $16 $15 Interest cost 84 75 63 ------------------------------ $111 $91 $78 ==============================
The liability recognized in the consolidated balance sheet at December 31, 1996 for postretirement benefit obligations other than pensions is $827 ($761 at December 31, 1995). For measurement purposes, a 9.55% blended annual rate of increase in the per capita cost of covered health care benefits was assumed, grading ratably to 5.9% through 2006. An increase of 1% in assumed health care cost trend rates would increase the accumulated benefit obligation as of December 31, 1996 by $155 and the aggregate annual service and interest cost by $16. The discount rate used in determining the accumulated benefit obligation as of December 31, 1996 and 1995 was 7.75%. F. COMMON STOCK AND STOCK OPTIONS On November 5, 1996, the Board of Directors approved a three-for-two stock split of its common stock, in the form of a stock dividend, with one additional common share issued December 2, 1996 for every two common shares held by shareholders of record on November 15, 1996. All share and per share information included in the accompanying financial statements have been retroactively adjusted to give effect to the split. On November 5, 1996, the Board of Directors declared a dividend distribution of one Right for each outstanding share of common stock to stockholders of record on November 15, 1996. Each Right entitles the shareholder to purchase one one-hundredth share of Series A Participating Preferred Stock at a purchase price of $160 per share, subject to adjustment. The Rights are not currently exercisable, but would become exercisable if certain events occurred relating to a person or group (Acquiring Person) acquiring or attempting to acquire 15% or more of the outstanding shares of common stock. In the event that the Rights become exercisable, each Right (except for Rights beneficially owned by the Acquiring Person, which become null and void) would entitle the holder to purchase for the exercise price then in effect, shares of the Company's common stock having a value of twice the exercise price. The Rights may be redeemed by the Board of Directors in whole, but not in part, at a price of $0.01 per Right. The Rights have no voting or dividend privileges and are attached to, and do not trade separately from the common stock. The Rights expire on November 14, 2006. The Company's Long-Term Incentive Compensation Plan has authorized the grant of options to management personnel for up to 1,523,438 shares of the Company's common stock. All options granted have 10 year terms and vest and become fully exercisable at the end of the fiscal year following the year of grant. 24 PAGE 24 Pro forma information regarding net income and earnings per share is required by FASB Statement No. 123, "Accounting for Stock Based Compensation," and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value of these options was estimated at the date of grant using a Black-Scholes options pricing model with the following weighted-average assumptions for 1996 and 1995: risk-free interest rate of 6.5%; dividend yield of 1.2%; the volatility factor of the expected market price of the Company's common stock of .20; and a weighted-average expected life of the option of 5 years. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
1996 1995 -------------------------------------------------------------------- Pro forma net income $28,874 $25,782 Pro forma earnings per share: Primary $ 1.50 $ 1.35 Fully diluted $ 1.50 $ 1.34
A summary of the Company's stock option activity, and related information for the years ended December 31 follows:
1996 1995 1994 - ----------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Options Exercise Options Exercise Options Exercise Price Price Price --------------------------------------------------------------------------- Outstanding at January 1 1,061,656 $ 9.94 900,101 $ 7.65 736,851 $ 6.47 Granted 202,860 25.96 208,055 18.72 163,250 13.00 Exercised (17,355) 9.19 (46,500) 5.04 Forfeited (4,082) 12.25 --------------------------------------------------------------------------- Outstanding at December 31 1,243,079 $12.55 1,061,656 $ 9.94 900,101 $ 7.65 =========================================================================== Exercisable at end of year 1,055,579 $10.05 878,168 $ 7.89 736,851 $ 6.47 Weighted-average fair value of options granted during the year $ 7.37 $ 5.46
The weighted-average remaining contractual life of these options outstanding is 7.2 years. G. COMMITMENTS AND CONTINGENCIES The Company's Finnish operating subsidiary has agreed to take shipment of 43,000 wet metric tons of Zairian cobalt and nickel slag from La Generale des Carrieres et des Mines (Gecamines) in 1997. The cost of the cobalt obtained will be based upon the prevailing market price as material is processed. The Company is a party to various legal proceedings incidental to its business and is subject to a variety of environmental and pollution control laws and regulations in the jurisdictions in which it operates. As is the case with other companies in similar industries, the Company faces exposure from actual or potential claims and legal proceedings involving environmental matters. Although it is difficult to quantify the potential impact of compliance with or liability under environmental protection laws, management believes that the ultimate aggregate cost to the Company of environmental remediation, as well as other legal proceedings arising out of operations in the normal course of business, will not result in a material adverse effect upon its financial condition or results of operations. 25 PAGE 25 H. BUSINESS AND GEOGRAPHIC INFORMATION The Company operates in a single business segment serving numerous customers and industries; its operations are located principally in the United States and Finland. Financial information by geographic area is summarized as follows:
Year Ended December 31, 1996 1995 1994 ------------------------------------------------------ Net sales: United States $ 160,507 $ 149,114 $ 119,470 Finland 219,754 202,114 125,740 Other 7,738 9,731 6,065 ----------------------------------- $ 387,999 $ 360,959 $ 251,275 =================================== Operating profit: United States 13,781 12,108 12,706 Finland 44,063 37,227 26,200 Other 304 504 (177) Corporate administrative expense (6,727) (5,870) (3,568) ----------------------------------- 51,421 43,969 35,161 Other expense (7,018) (5,451) (4,133) ----------------------------------- Income before income taxes $ 44,403 $ 38,518 $ 31,028 =================================== December 31, 1996 1995 ----------------------------------------------------- Identifiable assets: United States $ 161,945 $ 141,422 Finland 270,013 209,576 Other 6,675 7,044 ---------------------- $ 438,633 $ 358,042 ======================
I. SUBSEQUENT EVENT On January 21, 1997, pursuant to a Stock Purchase Agreement dated December 20, 1996, the Company acquired SCM Metal Products, Inc., a subsidiary of U.S. Industries, Inc. SCM, with annual sales in fiscal 1996 of approximately $94 million, is one of the world's leading producers of specialty chemicals and powders, principally specialty powders primarily from copper, iron and stainless steel. The total consideration paid by the Company for SCM was $122 million, financed entirely through bank borrowings. The Company is considering other longer term financing options. The acquisition, which is not reflected in the accompanying financial statements, will be accounted for by the purchase method of accounting. 26 PAGE 26 J. QUARTERLY DATA (UNAUDITED)
Quarter Ended March 31 June 30 September 30 December 31 - ------------------------------------------------------------------------------------------------------------ 1996 Net sales $102,853 $101,485 $89,071 $ 94,590 Gross profit 20,211 21,030 20,905 21,828 Income from operations 12,258 13,084 13,036 13,043 Net income 7,151 7,583 7,670 7,643 Net income per share $ .37 $ .39 $ .40 $ .40 Market price: high-low 25 1/8 - 21 5/8 28 - 24 1/2 27 3/8 - 22 3/4 28 3/4 - 25 3/8 Dividends paid per share $ .07 $ .07 $ .07 $ .07 1995 Net sales $ 89,429 $ 84,974 $80,967 $105,589 Gross profit 17,547 19,131 18,477 19,408 Income from operations 10,218 11,553 11,099 11,099 Net income 6,090 6,722 6,606 6,515 Net income per share $ .32 $ .35 $ .35 $ .34 Market price: high-low 16 5/8 - 14 1/2 19 1/2 - 15 3/8 21 3/8 - 18 5/8 22 3/8 - 18 7/8 Dividends paid per share $ .06 $ .06 $ .06 $ .06
Report of Independent Auditors - ------------------------------------------------------------------------------- BOARD OF DIRECTORS OM GROUP, INC. We have audited the accompanying consolidated balance sheets of OM Group, Inc. as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of OM Group, Inc. at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Cleveland, Ohio January 30, 1997 27 PAGE 27 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K be signed on its behalf by the undersigned, thereunto duly authorized. OM GROUP, INC. By: /s/ James P. Mooney ------------------------------------- James P. Mooney Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ James P. Mooney Chairman and Chief Executive Officer March 21, 1997 - -------------------------- -------------- James P. Mooney /s/ Eugene Bak* Director March 21, 1997 - -------------------------- -------------- Eugene Bak /s/ Markku Toivanen* Director March 21, 1997 - -------------------------- -------------- Markku Toivanen /s/ Lee R. Brodeur* Director March 21, 1997 - -------------------------- -------------- Lee R. Brodeur /s/ Thomas R. Miklich* Director March 21, 1997 - -------------------------- -------------- Thomas R. Miklich /s/ John E. Mooney* Director March 21, 1997 - -------------------------- -------------- John E. Mooney /s/ Frank Butler* Director March 21, 1997 - -------------------------- -------------- Frank Butler /s/ James M. Materna Chief Financial Officer (Principal March 21, 1997 - -------------------------- Financial and Accounting Officer) -------------- James M. Materna /s/ James P. Mooney March 21, 1997 - -------------------------- -------------- James P. Mooney Attorney-in-Fact James P. Mooney, by signing his name hereto signs this document on behalf of each of the persons so indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission.
28 EXHIBIT INDEX
EXHIBIT NO. EXHIBIT - ----------- ------- 4.2 Second Amended and Restated Credit Agreement dated as of January 21, 1997 among National City Bank, as Agent, ABN Amro Bank N.V., Key Bank National Association, Mellon Bank, N.A. and OM Group, Inc. 10.42 Employment Agreement of Terry Guckes 10.44 Stock Purchase Agreement between SUSI Corporation and OM Group, Inc. dated December 20, 1996 11 Statement Regarding Computation of Earnings Per Share 21 List of Subsidiaries 23 Consent of Ernst & Young LLP 24 Power of Attorney 27 Financial Data Schedule
EX-4.2 2 EXHIBIT 4.2 1 Exhibit 4.2 EXECUTION COPY SECOND AMENDED AND RESTATED CREDIT AGREEMENT by and among OM GROUP, INC. and NATIONAL CITY BANK ABN AMRO BANK N.V. KEYBANK NATIONAL ASSOCIATION MELLON BANK, N.A. and NATIONAL CITY BANK, as Agent January 21, 1997 $240,000,000 Total Commitment Initial Revolving Commitment: $120,000,000 Letters of Credit Sublimit: $10,000,000 Term Commitment: $120,000,000 with provision for increasing the Revolving Commitment to an aggregate of $240,000,000 upon certain conditions to refinance the outstanding Term Loans Expiration Date: January 31, 2002 with provision for annual extension 2 Table of Contents ----------------- 1A. CROSS-REFERENCE ................................................ 1 1B. SUMMARY ........................................................ 1 2A. TERM LOAN ...................................................... 1 2A.01 TERM NOTE .............................................. 2 2A.02 AMORTIZATION/REFINANCING ............................... 2 ........................................................................ 2 2A.03 INTEREST: PR LOANS ..................................... 2 2A.04 INTEREST: LIBOR LOANS .................................. 2 2A.05 CLOSING FEE ............................................ 3 2A.06 DELAYED REPAYMENT FEE .................................. 3 2B. REVOLVING COMMITMENTS -- The basic terms of the Revolving Commitments and the compensation therefor are as follows: 2B.01 AMOUNT ................................................. 3 2B.02 EXPIRATION ............................................. 4 2B.03 OPTIONAL REDUCTIONS .................................... 4 2B.04 COMMITMENT FEE ......................................... 5 2B.05 EXTENSION OF REVOLVING COMMITMENT ...................... 6 2B.06 MANDATORY REDUCTIONS ................................... 6 2C. REVOLVING LOANS ................................................ 6 2C.02 CREDIT REQUESTS ........................................ 7 2C.03 CONDITION: NO DEFAULT .................................. 7 2C.04 INTEREST: PR LOANS ..................................... 8 2C.05 INTEREST: LIBOR LOANS .................................. 8 2D. GENERAL LOAN PROVISIONS ........................................ 9 2D.01 CONDITION: PURPOSE ..................................... 10 2D.02 LOAN MIX ............................................... 10 2D.03 AMOUNTS ................................................ 10 2D.04 LIBOR CONTRACT PERIODS ................................. 10 2D.05 MATURITIES ............................................. 11 2D.06 ROLLOVER OR REFINANCING OF REVOLVING LOANS ............. 12 2D.07 CONTINUATION/CONVERSION OF TERM LOANS .................. 12 2D.08 PREPAYMENTS ............................................ 13 3 2D.09 DISBURSEMENT .......................................... 14 2D.10 LIBOR LOANS: UNAVAILABILITY ........................... 14 2D.11 LIBOR LOANS: ILLEGALITY ............................... 15 2E.01 RATABLE PARTICIPATION ................................. 15 2E.02 MAXIMUM ............................................... 15 2E.03 TERM .................................................. 15 2E.04 FORM AND SUBSTANCE .................................... 15 2E.05 CREDIT REQUESTS AND REIMBURSEMENT AGREEMENTS .......... 16 2E.06 COMMISSION ............................................ 16 2E.07 PAYMENT OF DRAFTS ..................................... 16 2E.08 CHANGE OF LAW ......................................... 16 3A.01 FINANCIAL STATEMENTS .................................. 17 3A.02 NOTICE ................................................ 19 3B. GENERAL FINANCIAL STANDARDS ................................... 20 3B.01 FUNDED INDEBTEDNESS/CAPITAL ........................... 20 3B.02 CURRENT RATIO ......................................... 21 3B.03 FUNDED INDEBTEDNESS/EBITDA ............................ 21 3C. AFFIRMATIVE COVENANTS ......................................... 21 3C.01 TAXES ................................................. 21 3C.02 FINANCIAL RECORDS ..................................... 21 3C.03 VISITATION ............................................ 21 3C.04 INSURANCE ............................................. 22 3C.05 CORPORATE EXISTENCE ................................... 22 3C.06 COMPLIANCE WITH LAW ................................... 22 3C.07 PROPERTIES ............................................ 23 3C.08 QUALIFICATION TO DO BUSINESS .......................... 23 3C.09 APPLICATION OF NET OFFERING PROCEEDS .................. 23 3D. NEGATIVE COVENANTS ............................................ 23 3D.01 EQUITY AND ASSET TRANSACTIONS ......................... 23 3D.02 CREDIT EXTENSIONS ..................................... 25 3D.03 BORROWINGS ............................................ 26 3D.04 LIENS, LEASES ......................................... 26 3D.05 DIVIDENDS ............................................. 28 3D.06 CHANGE IN NATURE OF BUSINESS .......................... 28 3D.07 ACCOUNTING CHANGES .................................... 28 3D.08 AMENDMENT; DEFAULT OF MATERIAL CONTRACTS .............. 28 3D.09 USE OF PROCEEDS ....................................... 28 3D.10 ADVERSE OBLIGATIONS; LABOR DISPUTES ................... 28 4A. CLOSING ....................................................... 29 4A.01 NOTES ................................................. 29 4 4A.02 RESOLUTIONS/INCUMBENCY ................................ 29 4A.03 LEGAL OPINION ......................................... 29 4A.04 CONSUMMATION OF ACQUISITION ........................... 29 4A.05 ACQUISITION DOCUMENTS ................................. 29 4A.06 FINANCIAL STATEMENTS .................................. 30 4A.07 DOCUMENTATION FEE ..................................... 30 4A.08 CLOSING FEE ........................................... 30 4A.09 OTHER DOCUMENTS ....................................... 30 4B. REPRESENTATIONS/WARRANTIES .................................... 31 4B.01 EXISTENCE ............................................. 31 4B.02 GOVERNMENTAL RESTRICTIONS ............................. 31 4B.03 POWER, AUTHORIZATION AND CONSENT; ENFORCEABILITY .............................................. 31 4B.04 LITIGATION; PROCEEDINGS ............................... 32 4B.05 TAXES ................................................. 32 4B.06 TITLE ................................................. 32 4B.07 LAWFUL OPERATIONS ..................................... 32 4B.08 INSURANCE ............................................. 32 4B.09 FINANCIAL STATEMENTS .................................. 32 4B.10 INDEBTEDNESS .......................................... 33 4B.11 ERISA ................................................. 33 4B.12 ADVERSE OBLIGATIONS; LABOR DISPUTES ................... 33 4B.13 SOLVENCY .............................................. 33 4B.14 INVESTMENT COMPANY ACT STATUS ......................... 33 4B.15 REGULATION U/REGULATION X COMPLIANCE .................. 34 4B.16 ENVIRONMENTAL AND SAFETY MATTERS ...................... 34 4B.17 REAL PROPERTY ......................................... 34 4B.18 LEASES ................................................ 34 4B.19 INTELLECTUAL PROPERTY ................................. 35 4B.20 DEFAULTS .............................................. 35 4B.21 NOTEHOLDERS AND NOTE PURCHASE AGREEMENT ............... 35 4B.22 FULL DISCLOSURE ....................................... 35 4B.23 CONSUMMATION OF ACQUISITION ........................... 35 4C. CLOSING ....................................................... 35 5A. EVENTS OF DEFAULT ............................................ 35 5A.01 PAYMENTS .............................................. 35 5A.02 WARRANTIES ............................................ 36 5A.03 COVENANTS WITHOUT GRACE ............................... 36 5A.04 COVENANTS WITH GRACE .................................. 36 5A.05 CROSS-DEFAULT ......................................... 36 5A.06 CONTROL ............................................... 36 5A.07 BORROWER'S SOLVENCY ................................... 37 5A.08 SUBSIDIARIES' SOLVENCY ................................ 37 5A.09 JUDGMENTS ............................................. 37 5 5A.10 MATERIAL ADVERSE CHANGE ............................... 37 5B. EFFECTS OF DEFAULT ............................................ 37 5B.01 OPTIONAL DEFAULTS ..................................... 37 5B.02 AUTOMATIC DEFAULTS .................................... 38 5B.03 OFFSETS ............................................... 38 5B.04 EQUALIZATION .......................................... 38 6A. INDEMNITY: STAMP TAXES ........................................ 39 6B. INDEMNITY: GOVERNMENTAL COSTS/LIBOR-RATE LOANS ................ 39 6C. INDEMNITY: FUNDING COSTS ...................................... 39 6D. CREDIT REQUESTS ............................................... 39 6E. INDEMNITY: UNFRIENDLY TAKEOVERS ............................... 40 6F. INDEMNITY: CAPITAL REQUIREMENTS ............................... 40 6G. INDEMNITY: COLLECTION COSTS ................................... 40 6H. CERTIFICATE FOR INDEMNIFICATION ............................... 40 7A. BANK'S PURPOSE ................................................ 41 7B. NCB-AGENT ..................................................... 41 7B.01 NATURE OF APPOINTMENT ................................. 41 7B.02 NCB AS A BANK; OTHER TRANSACTIONS ..................... 41 7B.03 INSTRUCTION FROM BANKS ................................ 41 7B.04 BANKS' DILIGENCE ...................................... 42 7B.05 NO IMPLIED REPRESENTATIONS ............................ 42 7B.06 SUB-AGENTS ............................................ 42 7B.07 NCB-AGENT'S DILIGENCE ................................. 42 7B.08 NOTICE OF DEFAULT ..................................... 42 7B.09 NCB-AGENT'S LIABILITY ................................. 42 7B.10 COMPENSATION .......................................... 43 7B.11 DISBURSEMENTS ......................................... 43 7B.12 NCB-AGENT'S INDEMNITY ................................. 43 7B.13 RESIGNATION ........................................... 43 7C. TRANSFER OF SUBJECT LOANS ..................................... 44 7C.01 PRIOR CONSENT ......................................... 44 7C.02 AGREEMENT ............................................. 44 7C.03 NOTE .................................................. 44 7C.04 PARTIES ............................................... 44 7C.05 PROCESSING FEE ........................................ 44 6 7D. PARTICIPATION OF SUBJECT LOANS ................................ 44 8. INTERPRETATION ................................................ 45 8.01 WAIVERS ............................................... 45 8.02 CUMULATIVE PROVISIONS ................................. 45 8.03 BINDING EFFECT ........................................ 45 8.04 SURVIVAL OF PROVISIONS ................................ 46 8.05 IMMEDIATE U.S. FUNDS .................................. 46 8.06 CAPTIONS .............................................. 46 8.07 SUBSECTIONS ........................................... 46 8.08 ILLEGALITY ............................................ 46 8.09 OHIO LAW .............................................. 46 8.10 INTEREST/FEE COMPUTATIONS ............................. 46 8.11 NOTICE ................................................ 46 8.12 ACCOUNTING TERMS ...................................... 47 8.13 ENTIRE AGREEMENT ...................................... 47 8.14 WAIVER OF JURY TRIAL .................................. 47 8.15 LATE CHARGE; APPLICATION OF PAYMENTS .................. 47 8.16 EXPENSES .............................................. 47 8.17 JURISDICTION AND VENUE ................................ 48 8.18 AMBIGUITIES ........................................... 48 8.19 OTHER WAIVERS AND ACKNOWLEDGMENT ...................... 48 8.20 CONFIDENTIALITY ....................................... 49 9. DEFINITIONS ................................................... 49 Acceptable Marketable Securities .............................. 49 -------------------------------- Account Officer ............................................... 49 --------------- Accumulated Funding Deficiency ................................ 50 ------------------------------ Acquisition ................................................... 50 ----------- Acquisition Agreement ......................................... 50 --------------------- Acquisition Documents ......................................... 50 --------------------- Acquisition Projections ....................................... 50 ----------------------- Adjusted Funded Indebtedness/EBITDA Ratio ..................... 50 ----------------------------------------- Advantage ..................................................... 50 --------- Affiliate ..................................................... 50 --------- Agreement ..................................................... 50 --------- Bank .......................................................... 50 ---- Banking Day ................................................... 50 ----------- Borrower ...................................................... 51 -------- CERCLA ........................................................ 51 ------ Company ....................................................... 51 ------- and Companies ................................................. 51 --------- Compensation .................................................. 51 ------------ Conversion/Continuation Request ............................... 51 ------------------------------- Credit Request ................................................ 51 -------------- Current Assets ................................................ 51 -------------- Current Guarantors ............................................ 51 ------------------ 7 Current Liabilities ........................................... 51 ------------------- Debt .......................................................... 51 ---- Default Under ERISA ........................................... 51 ------------------- Default Under This Agreement .................................. 52 ---------------------------- Distribution .................................................. 52 ------------ EBITDA ........................................................ 52 ------ Environmental Law ............................................. 52 ----------------- ERISA ......................................................... 52 ----- ERISA Affiliate ............................................... 52 --------------- ERISA Regulator ............................................... 52 --------------- Eurocurrency Liabilities ...................................... 52 ------------------------ Eurocurrency Reserve Percentage ............................... 53 ------------------------------- Event Of Default .............................................. 53 ---------------- Expiration Date ............................................... 53 --------------- Federal Funds Rate ............................................ 53 ------------------ Funded Indebtedness ........................................... 53 ------------------- Funded Indebtedness/EBITDA Ratio .............................. 54 -------------------------------- GAAP .......................................................... 54 ---- Guarantor ..................................................... 54 --------- Insider ....................................................... 54 ------- Insolvency Action ............................................. 54 ----------------- LIBOR Contract Period ......................................... 54 --------------------- LIBOR Loan .................................................... 54 ---------- LIBOR Pre-Margin Rate ......................................... 55 --------------------- Material Contract ............................................. 55 ----------------- Maturity ...................................................... 55 -------- Maximum Outstanding Amount .................................... 56 -------------------------- Most Recent 4A.04 Financial Statements ........................ 56 -------------------------------------- NCB ........................................................... 56 --- Net Income .................................................... 56 ---------- Net Offering Proceeds ......................................... 56 --------------------- Note Purchase Agreement ....................................... 56 ----------------------- Noteholders ................................................... 56 ----------- Pension Plan .................................................. 56 ------------ Person ........................................................ 56 ------ Post-Refinancing Amount ....................................... 56 ----------------------- PR Loan ....................................................... 56 ------- Prime Rate .................................................... 56 ---------- Prior Credit Agreement ........................................ 57 ---------------------- Proforma Covenant Compliance .................................. 57 ---------------------------- Projections ................................................... 57 ----------- Ratable and Ratably ........................................... 57 ------- ------- Refinancing ................................................... 57 ----------- Refinancing Date .............................................. 57 ----------------- Refinanced Amount ............................................. 57 ----------------- Reimbursement Agreement ....................................... 57 ----------------------- Related Writing ............................................... 57 --------------- 8 Reportable Event .............................................. 58 ---------------- Required Banks ................................................ 58 -------------- Revolving Commitment .......................................... 58 -------------------- Revolving Loan ................................................ 58 -------------- Revolving Series .............................................. 58 ---------------- Seller ........................................................ 58 ------ Series ........................................................ 58 ------ Stockholders' Equity .......................................... 58 -------------------- Subject Indebtedness .......................................... 58 -------------------- Subject LC .................................................... 59 ---------- Subject Loan .................................................. 59 ------------ Subject Note .................................................. 59 ------------ Subordinated .................................................. 59 ------------ Subsidiary .................................................... 59 ---------- Supplemental Schedule ......................................... 59 --------------------- Target ........................................................ 59 ------ Term Note ..................................................... 59 --------- Term Series ................................................... 59 ----------- Type .......................................................... 59 ---- Total Liabilities ............................................. 59 ----------------- plurals ....................................................... 59 10. EXECUTION ..................................................... 60 EXHIBIT A: Supplemental Schedule (4B) EXHIBIT B: Form of Term Note (2A.01; 4A.01) EXHIBIT C: Form of Revolving Note (2C.01; 4A.01) EXHIBIT D: Form of Extension Agreement (2B.05) EXHIBIT E: Form of Credit Request (2C.02) EXHIBIT F: Form of Conversion/Continuation Request (2D.07) EXHIBIT G: List of Subsidiaries (4B.01) 9 SECOND AMENDED AND RESTATED CREDIT AGREEMENT -------------------------------------------- This Second Amended and Restated Credit Agreement (this "Agreement") is made as of January 21, 1997 by and among OM GROUP, INC. ("Borrower") and the Banks named in section 2A below (the "Banks") and NATIONAL CITY BANK as agent (in that capacity, "NCB-Agent") of the Banks for the purposes of this Agreement and the Related Writings: 1A. CROSS-REFERENCE -- Certain capitalized terms and phrases used but not otherwise defined in the body hereof are defined in section 9 below. 1B. SUMMARY -- This Agreement (a) provides that concurrently with the execution and delivery of this Agreement the Banks shall disburse the Term Loan described in section 2A, (b) sets forth the terms and conditions upon which Borrower may, so long as the Revolving Commitments remain in effect, obtain the Revolving Loans described in sections 2B and 2C until the Expiration Date, (c) provides means whereby Borrower may, if the Banks in each case consent, from time to time until January 21, 2001, have issued for Borrower's account standby letters of credit, and (d) sets forth the covenants and warranties made by the parties to induce the other parties hereto to enter into this Agreement. This Agreement replaces the Prior Credit Agreement. 2A. TERM LOANS -- Subject to the terms and conditions of this Agreement, concurrently with the execution and delivery of this Agreement, the Banks agree to make (subject to the maximum Term Loan amounts set forth below, (a) one time term loans in an aggregate principal amount of One Hundred Twenty Million Dollars ($120,000,000) (the "Term Loans"), the proceeds of which will be disbursed to the credit of Borrower's general checking account with NCB-Agent in the absence of written instructions from Borrower to the contrary. The Term Loans shall be comprised of one or more Term Series, as the Borrower may elect from time to time by delivery to the Bank of a Conversion/Continuation Request pursuant to subsection 2D.07 (provided, however that the Term Loans made on the date of this Agreement must consist entirely of Prime Rate Loans, although Borrower may subsequently convert such Prime Rate Loans to LIBOR Loans pursuant to subsection 2D.07). The Term Loans may be prepaid permanently from time to time pursuant to subsection 2D.08 The amount of each Bank's maximum Term Loan (subject to such optional prepayment) and the proportion (expressed as a percentage) that it bears to all of the Term Loans is set forth opposite the Bank's name below to-wit: 10 Max Term Loan Percentage Bank ------------- ---------- ---- $42,500,000 35.42% National City Bank $40,000,000 33.33% ABN AMRO Bank N.V. $18,750,000 15.625% KeyBank National Association $18 750 000 15.625% Mellon Bank, N.A. ----------- ------- ----------------- $120,000,000 100% ============ ==== 2A.01 TERM NOTE -- Each Bank's Term Loan shall be evidenced at all times by a Term Note executed and delivered by Borrower payable to the order of that Bank in a principal amount equal to the dollar amount of that Bank's maximum Term Loan and being in the form and substance of EXHIBIT B with the blanks appropriately filled. 2A.02 AMORTIZATION/REFINANCING --The aggregate principal balance of the Term Loans shall become due and payable on the Refinancing Date. Subject to the satisfaction of the condition set forth in section 4C, on the Refinancing Date, the aggregate outstanding principal balance of the Term Loans shall be paid in full, together with any accrued interest thereon, with (a) Net Offering Proceeds, if any, and (b) proceeds resulting from the increase in the outstanding aggregate principal balance of the Revolving Loans in an amount equal to the Refinanced Amount. 2A.03 INTEREST: PR LOANS -- The principal of and overdue interest on each Term Series comprised of PR Loans shall bear interest payable in arrears on the first (1st) day of each month, commencing March 1, 1997, and at Maturity and computed (in accordance with subsection 8.10) at a fluctuating rate equal to the Prime Rate from time to time in effect, with each change in the Prime Rate automatically and immediately changing the rate thereafter applicable to any Term Series comprised of PR Loans; PROVIDED, that in no event shall the rate applicable to any Term Series comprised of PR Loans at any time after the Maturity thereof be less than the rate applicable thereto immediately after Maturity regardless of future reductions in the Prime Rate. 2A.04 INTEREST: LIBOR LOANS -- The principal of and overdue interest on each Term Series comprised of LIBOR Loans shall bear interest computed (in accordance with subsection 8.10) and payable as follows: (a) Each Term Series comprised of LIBOR Loans shall bear interest at a rate equal to the LIBOR Pre-Margin Rate in effect at the start of the applicable LIBOR Contract Period selected by Borrower in the applicable Conversion/Continuation Request PLUS the applicable "Margin". The applicable "Margin" shall be dependent on the Companies' consolidated Adjusted Funded Indebtedness/EBITDA Ratio as of the end of any given fiscal quarter and shall be determined as follows: 2 11 Adjusted Funded Indebtedness/EBITDA Ratio Margin ----------------------------------------- ------ >3.00 & <3.25 1.25% - <3.00 1.00% - The interest rate applicable to a Term Series comprised of LIBOR Loans prior to Maturity shall initially be equal to the LIBOR Pre-Margin Rate plus one percent (1.00%); provided that the applicable Margin shall be adjusted quarterly upon the Banks' receipt of (i) the financial statements contemplated in subsections 3A.01(a) and 3A.0l(b) below and (ii) a corresponding certificate complying with subsection 3A.01 (c) based on the Companies' consolidated Adjusted Funded Indebtedness/ EBITDA Ratio as of the end of the respective fiscal quarter and effective at the beginning of the first fiscal quarter subsequent to such receipt. (b) Interest on each Term Series comprised of LIBOR Loans shall be payable in arrears on the last day of the LIBOR Contract Period applicable thereto and at Maturity. 2A.05 CLOSING FEE -- In consideration of Banks' efforts in arranging the financing and consummating the transactions contemplated by this Agreement, at the execution and delivery of this Agreement, Borrower agrees to pay a fee in the amount of $210,000 to be shared by the Banks Ratably. 2A.06 DELAYED REPAYMENT FEE -- Borrower hereby agrees that, in the event that Borrower fails to complete a public equity offering on or prior to April 22, 1997, for which the Net Offering Proceeds are equal to or greater than Sixty Million Dollars ($60,000,000), then Borrower shall, on such date, pay a fee in the amount of $180,000 to be shared by the Banks Ratably. 2B. REVOLVING COMMITMENTS -- The basic terms of the Revolving Commitments and the compensation therefor are as follows: 2B.01 AMOUNT -- The aggregate amount of the Revolving Commitments shall be: (a) for the period commencing with the date of the execution of this Agreement and concluding on the day immediately preceding the Refinancing Date, an amount equal to One Hundred Twenty Million Dollars ($120,000,000); and (b) for the period commencing with the Refinancing Date and concluding on the Expiration Date (as defined in subsection 2B.02), an amount equal to the lesser of (i) Two Hundred Forty Million Dollars ($240,000,000) or (ii) the Post-Refinancing Amount. Notwithstanding the foregoing: the Revolving Commitments shall be permanently reduced pursuant to subsection 2B.06; the Revolving Commitments may be reduced permanently from time to time pursuant to subsection 2B.03; and the Revolving Commitments may be terminated pursuant to section 5B. The amount of each Bank's maximum Revolving Commitment (subject to such reduction or termination) and the proportion (expressed as a percentage) that it bears to all of the Revolving Commitments is set forth opposite the Bank's name below to-wit: 3 12 Max Rev Commitment Percentage Bank ------------------ ---------- ---- $85,000,000 35.42% National City Bank $80,000,000 33.33% ABN AMRO Bank N.V. $37,500,000 15.625% KeyBank National Association $37,500 000 15.625% Mellon Bank. N.A. ------------ ------- ----------------- $240,000,000 100% ============ ==== Each Bank agrees, subject to the terms and conditions of this Agreement, to participate Ratably in such Subject LCs as may be issued from time to time at Borrower's request in accordance with section 2E. Pursuant to subsection 2A.02 hereof, as of the Refinancing Date, the remaining aggregate outstanding principal balance of the Term Loans after application of the Net Offering Proceeds shall be paid in full by an increase in the outstanding aggregate principal balance of the Revolving Loans. 2B.02 EXPIRATION -- Each Revolving Commitment shall become effective as of the date of this Agreement and shall remain in effect on a revolving basis until January 31, 2002 (the "Expiration Date") EXCEPT that a later Expiration Date may be established from time to time pursuant to subsection 2B.05 and EXCEPT FURTHER that the Revolving Commitments, shall end in any event upon any earlier reduction thereof to zero pursuant to subsection 2B.03 or any earlier termination pursuant to section 5B. 2B.03 OPTIONAL REDUCTIONS -- Borrower shall have the right, at all times and without the payment of a premium, to reduce the amount of the Revolving Commitments permanently in whole or in part by giving NCB-Agent notice (to be given not later than 12:00 noon of the Banking Day next preceding the effective date of the reduction and either to be given in writing or to be promptly confirmed in writing) of the aggregate amount by which the Revolving Commitments are to be reduced and the effective date of any such reduction, subject, however to the following: (a) No such reduction shall reduce any Bank's Revolving Commitment to a lesser amount than the sum of (1) the aggregate unpaid principal balance of that Bank's Revolving Loans comprised of LIBOR Loans outstanding at that time PLUS (2) the aggregate unpaid principal balance of any of that Bank's Revolving Loans comprised of LIBOR Loans to be obtained pursuant to any unfulfilled Credit Request under subsection 2C.02 PLUS (3) the aggregate undrawn balance of the Subject LCs then outstanding. (b) Each such reduction of the Revolving Commitments shall aggregate One Million Dollars ($1,000,000) or any multiple thereof. 4 13 (c) Concurrently with each reduction Borrower shall make a principal payment on each Bank's Revolving Loans then outstanding in a principal amount equal to the excess of (1) the sum of the aggregate outstanding principal balance of the Revolving Loans PLUS the aggregate undrawn balance of the Subject LCs then outstanding, over (2) the aggregate amount of the Revolving Commitments as so reduced. Subsection 2D.08 and section 6C shall apply to each such prepayment. 2B.04 COMMITMENT FEE -- Each Bank shall, so long as its Revolving Commitment remains in effect, earn commitment fees for the Revolving Commitment attributable to such Bank, the commitment fee shall be (a) based on the average daily difference between (i) that Bank's Revolving Commitment from time to time in effect and (ii) the sum of (A) that Bank's Ratable share of the aggregate undrawn amount of the Subject LCs then outstanding PLUS (B) the aggregate unpaid principal balance of that Bank's Revolving Loans then outstanding, (b) computed at the rate per annum determined by reference to the Companies' consolidated Adjusted Funded Indebtedness/EBITDA Ratio as of the end of the most recent fiscal quarter at the time such fee is due as follows: (i) for the period commencing with the date of the execution of this Agreement and concluding on the day immediately preceding the Refinancing Date Adjusted Funded Indebtedness/EBITDA Ratio Commitment Fee ----------------------------------------- -------------- > 3.00 & < 3.25 .375% - > 2.50 & < 3.00 .350% - > 2.00 & < 2.50 .300% - > 1.50 & < 2.00 .250% - > 1.00 & < 1.50 .200% - < 1.0 .150% - (ii) for the period commencing with the Refinancing Date and concluding on the Expiration Date and in the event that Borrower completes a public equity offering for which the Net Offering Proceeds are equal to or greater than Sixty Million Dollars ($60,000,000) Adjusted Funded Indebtedness/EBITDA Ratio Commitment Fee ----------------------------------------- -------------- > 2.00 & < 2.50 .300% - > 1.50 & < 2.00 .250% - > 1.00 & < 1.50 .200% - < 1.0 .150% - (iii) for the period commencing with the Refinancing Date and concluding on the Expiration Date and in the event that Borrower fails to complete a public equity offering for which the Net Offering Proceeds are equal to or greater than Sixty Million Dollars ($60,000,000) 5 14 Adjusted Funded Indebtedness/EBITDA Ratio Commitment Fee ----------------------------------------- -------------- > 3.00 & < 3.25 .375% - > 2.50 & < 3.00 .350% - > 2.00 & < 2.50 .300% - > 1.50 & < 2.00 .250% - > 1.00 & < 1.50 .200% - < 1.0 .150% and (c) payable in arrears by Borrower to NCB-Agent for the account of the Banks on April 1, 1997 and quarter-annually thereafter on the first day of each quarter and at the end of the Revolving Commitments. 2B.05 EXTENSION OF REVOLVING COMMITMENT -- In the event that Borrower completes a public equity offering for which the Net Offering Proceeds are equal to or greater than Sixty Million Dollars ($60,000,000), Borrower may request extensions of the Revolving Commitments as follows: whenever Borrower furnishes its audited financial statements to Banks pursuant to clause (b) of subsection 3A.0l, commencing with the year ending December 31, 1997, Borrower may request that the Revolving Commitments be extended one year following the Expiration Date then in effect. Each such request shall be executed and delivered to each Bank in triplicate and shall be in the form of EXHIBIT D with all blanks appropriately filled. Banks agree to give consideration to each such request; but in no event shall any Bank be committed to extend its Revolving Commitment, nor shall any Bank's Revolving Commitment be so extended, unless and until every Bank has executed and delivered the form of assent in EXHIBIT D. 2B.06 MANDATORY REDUCTIONS -- The Revolving Commitments shall reduce automatically on an annual basis, commencing on January 31, 1998, and continuing on each January 31 thereafter through January 31, 2002, in an annual amount equal to twenty percent (20%) of the difference between (a) the Post-Refinancing Amount LESS (b) One Hundred Eighty Million Dollars ($180,000,000). No such reductions shall be required if the Net Offering Proceeds are at least Sixty Million Dollars ($60,000,000). Subsection 2D.08 and section 6C shall apply to any prepayments of Revolving Loans made by Borrower in connection with such mandatory reductions. 2C. REVOLVING LOANS -- Each Bank (for itself only and not for the others) agrees that, so long as its Revolving Commitment remains in effect, it will, subject to the conditions of this Agreement, grant Borrower such Revolving Loans as Borrower may from time to time request. 2C.01 REVOLVING NOTE -- Each Bank's Revolving Loans shall be evidenced at all times by, (i) prior to the Refinancing Date, a Revolving Note executed and delivered by Borrower, payable to the order of that Bank in a principal amount equal to one-half of the dollar amount of that Bank's maximum Revolving Commitment (as set forth in the table in subsection 2B.01) (the "Initial Revolving Note") and being in the form and substance of EXHIBIT C with the blanks appropriately filled, and (ii) on and after the Refinancing Date, a Revolving Note executed and delivered by Borrower, payable to the 6 15 order of that Bank in a principal amount equal to the dollar amount of that Bank's maximum Revolving Commitment as in effect as of the Refinancing (taking into account the Refinancing) (the "Refinancing Revolving Note") and being in the form and substance of EXHIBIT C with the blanks appropriately filled. (a) Whenever Borrower shall obtain a Revolving Series, each Bank shall endorse an appropriate entry on the Revolving Note or make an appropriate entry in a loan account in that Bank's books and records, or both. Each entry shall be prima facie evidence of the data entered; but such entries shall not be a condition to Borrower's obligation to pay. (b) No holder of any Revolving Note shall transfer a Revolving Note or seek a judgment or file a proof of claim based on a Revolving Note, without in each case first endorsing the Revolving Note to reflect the true amount owing thereon. 2C.02 CREDIT REQUESTS -- Whenever Borrower desires to obtain a Revolving Series, Borrower shall give NCB-Agent an appropriate notice (a "Credit Request") which shall be irrevocable and shall be in the form of EXHIBIT E (or in other form and detail reasonably satisfactory to NCB-Agent) with the blanks appropriately filled. NCB-Agent shall give each Bank immediate notice of each Credit Request. Borrower may make its request by telephone PROVIDED it promptly confirms the request by a written request as aforesaid, Borrower hereby agreeing to assume the risk of a misunderstanding in the case of any telephone request. Except in the case of Revolving Series obtained at the execution and delivery of this Agreement the Credit Request is to be given not later than 12:00 noon of the Banking Day on which the loan proceeds are to be disbursed EXCEPT in the case of any Revolving Series comprised of LIBOR Loans in which latter case the Credit Request shall be given not later than 12:00 noon of the third (3rd) Banking Day prior to the day the proceeds are to be disbursed. 2C.03 CONDITION: NO DEFAULT -- Borrower shall not be entitled to obtain any Revolving Series if (a) any Default Under This Agreement shall then exist or would thereupon begin to exist or (b) any representation or warranty made in subsections 4B.01 through 4B.08 (both inclusive) or 4B.10 through 4B.21 (both inclusive) shall have ceased to be true and complete in any material respect except for such changes if any as shall have been fully disclosed in the applicable Credit Request and as may be waived by the Required Banks in the reasonable exercise of their discretion, or (c) there shall have occurred any material adverse change in Borrowers financial condition, properties or business since the date of Borrower's Most Recent 4A.04 Financial Statements. 7 16 Each Credit Request, both when made and when honored, shall of itself constitute a continuing representation and warranty by Borrower to NCB-Agent for the benefit of the Banks that Borrower is entitled to obtain a Revolving Series. 2C.04 INTEREST: PR LOANS -- The principal of and overdue interest on any Revolving Series comprised of PR Loans shall bear interest payable in arrears on the first (1st) day of each month, commencing March 1, 1997, and at Maturity and computed (in accordance with subsection 8.10) (a) prior to Maturity, at a fluctuating rate equal to the Prime Rate from time to time in effect, and (b) after Maturity (whether occurring by lapse of time or by acceleration), at a fluctuating rate equal to the Prime Rate from time to time in effect plus three percent (3%) per annum, with each change in the Prime Rate automatically and immediately changing the rate thereafter applicable to any Revolving Series comprised of PR Loans; PROVIDED, that in no event shall the rate applicable to any Revolving Series of comprised of PR Loans at any time after the Maturity thereof be less than the rate applicable thereto immediately after Maturity regardless of future reductions in the Prime Rate. 2C.05 INTEREST: LIBOR LOANS -- The principal of and overdue interest on each Revolving Series comprised of LIBOR Loans shall bear interest computed (in accordance with subsection 8.10) and payable as follows: (a) Prior to Maturity, each Revolving Series comprised of LIBOR Loans shall bear interest at a rate equal to the LIBOR Pre-Margin Rate in effect at the start of the applicable LIBOR Contract Period selected by Borrower in the applicable Credit Request PLUS the applicable "Margin". The applicable "Margin" shall be dependent on the Companies' consolidated Adjusted Funded Indebtedness/EBITDA Ratio as of the end of any given fiscal quarter and shall be determined as follows: (i) for the period commencing with the date of the execution of this Agreement and concluding on the day immediately preceding the Refinancing Date Adjusted Funded Indebtedness/EBITDA Ratio Margin ----------------------------------------- ------ > 3.00 & < 3.25 1.25% - > 2.50 & < 3.00 1.00% - > 2.00 & < 2.50 0.75% - > 1.50 & < 2.00 0.60% - > 1.00 & < 1.50 0.50% - < 1.0 0.35% - 8 17 (ii) for the period commencing with the Refinancing Date and concluding on the Expiration Date and in the event that Borrower completes a public equity offering for which the Net Offering Proceeds are equal to or greater than Sixty Million Dollars ($60,000,000) Adjusted Funded Indebtedness/EBITDA Ratio Margin ----------------------------------------- ------ > 2.00 & <2.50 0.75% - > 1.50 & <2.00 0.60% - > 1.00 & < 1.50 0.50% - < 1.0 0.35% - (iii) for the period commencing with the Refinancing Date and concluding on the Expiration Date and in the event that Borrower fails to complete a public equity offering for which the Net Offering Proceeds are equal to or greater than Sixty Million Dollars ($60,000,000) Adjusted Funded Indebtedness/EBITDA Ratio Margin ----------------------------------------- ------ > 3.00 & < 3.25 1.50% - > 2.50 & < 3.00 1.25% - > 2.00 & < 2.50 1.00% - > 1.50 & < 2.00 0.75% - > 1.00 & < 1.50 0.625% - < 1.0 0.50% - The interest rate applicable to a Revolving Series comprised of LIBOR Loans prior to Maturity shall initially be equal to the LIBOR Pre-Margin Rate plus one percent (1.00%); provided that the applicable Margin shall be adjusted quarterly upon the Banks' receipt of (i) the financial statements contemplated in subsections 3A.01(a) and 3A.01(b) below and (ii) a corresponding certificate complying with subsection 3A.01(c), based on the Companies' consolidated Adjusted Funded Indebtedness/EBITDA Ratio as of the end of the respective fiscal quarter and effective at the beginning of the first fiscal quarter subsequent to such receipt. (b) After Maturity (whether occurring by lapse of time or by acceleration) each Revolving Series comprised of LIBOR Loans shall bear interest computed and payable in the same manner as in the case of any Revolving Series comprised of PR Loans (after Maturity). (c) Interest on each Revolving Series comprised of LIBOR Loans shall be payable in arrears on the last day of the LIBOR Contract Period applicable thereto and at Maturity and, in the case of any Contract Period having a longer term than three (3) months, shall also be payable every three (3) months after the first (1st) day of the LIBOR Contract Period. 2D. GENERAL LOAN PROVISIONS. 9 18 2D.01 CONDITION: PURPOSE -- Borrower shall not use the proceeds of any Subject Loan in any manner that would violate or be inconsistent with Regulation U or X of the Board of Governors of the Federal Reserve System; nor will it use any such proceeds for the purpose of financing the acquisition of any corporation or other business entity (other than the acquisition of all of the outstanding capital stock of Target from Seller (the "Acquisition") if the acquisition is publicly opposed by the latter's management or if Bank deems that its participation in the financing would involve it in a conflict of interest. 2D.02 LOAN MIX -- The Subject Loans at any one time outstanding may consist of PR Loans or LIBOR Loans or any combination thereof as Borrower may from time to time duly elect; provided, that any given Series of Term Loans or Revolving Loans, as the case may be, shall at all times consist only of PR Loans or only of LIBOR Loans and, in the case of LIBOR Loans, shall have identical LIBOR Contract Periods. In no event may Borrower have more than two (2) Term Series comprised of LIBOR Loans outstanding at any time. 2D.03 AMOUNTS -- Each Revolving Series or Term Series, as the case may be, shall be divided Ratably among the Banks and shall be in such aggregate principal amount as Borrower may request subject, however, to the following: (a) The aggregate principal amount, in the case of any Revolving Series or Term Series, as the case may be, comprised of PR Loans, such PR Loans shall be One Hundred Thousand Dollars ($100,000) or any multiple thereof, and in the case of any Revolving Series or Term Series, as the case may be, comprised of LIBOR Loans, such LIBOR Loans shall be One Million Dollars ($1,000,000) or any greater amount that is a multiple of One Hundred Thousand Dollars ($100,000), (b) In no event shall the unpaid principal amount of the Revolving Loans owing to any Bank at any time exceed the difference of (i) the amount of that Bank's Revolving Commitment as then in effect less (ii) that Bank's Ratable share of the aggregate undrawn balance of the Subject LCs then outstanding. 2D.04 LIBOR CONTRACT PERIODS -- Each Revolving Series or Term Series, as the case may be, comprised of LIBOR Loans shall have applicable thereto a LIB OR Contract Period to be duly elected by Borrower in the Credit Request or Conversion/Continuation Request therefor. Each LIBOR Contract Period shall begin on the date of borrowing of each such Series and shall end on such date as Borrower may select subject, however, to the following: (a) The LIBOR Contract Period for each Revolving Series or Term Series. as the case may be, comprised of LIBOR Loans shall end, (i) in the case of such a 10 19 Revolving Series, one (I) two (2) three (3) or six (6) months after the date of borrowing, and (ii) in the case of such a Term Series, one (1) month after the date of borrowing or conversion/continuation, as the case may be; PROVIDED, that (1) if any such LIBOR Contract Period otherwise would end on a day that is not a Banking Day, it shall end instead on the next following Banking Day unless that day falls in another calendar month in which latter case the LIBOR Contract Period shall end instead on the last Banking Day of the next preceding calendar month, (2) if any such LIBOR Contract Period commences on a day which is the last day of the calendar month, it shall end on the last day of the next following calendar month, subject to subsection 2D.04(a)(1), and (3) if the LIBOR Contract Period commences on a day for which there is no numerical equivalent in the calendar month in which the LIBOR Contract Period is to end, it shall end on the last Banking Day of that calendar month. (b) Borrower shall never elect a LIBOR Contract Period for a Revolving Series the term of which extends beyond the Expiration Date. In addition, Borrower shall never elect a LIBOR Contract Period for a Revolving Series the term of which extends beyond any January 31, commencing with January 31, 1998, unless, after giving effect to such selection, the aggregate outstanding principal balance of all Revolving Series comprised of PR Loans, together with the aggregate outstanding principal balance of all Revolving Series comprised of LIBOR Loans which have LIBOR Contract Periods ending on or prior to such January 31, shall be at least equal to that portion of the aggregate principal amount of such Revolving Series due and payable on and prior to such January 31. (c) Borrower shall never elect a LIBOR Contract Period for a Term Series the term of which extends beyond June 30, 1997. 2D.05 MATURITIES -- The stated Maturity of any Revolving Series comprised of PR Loans shall be (subject to any mandatory reductions of the Revolving Commitments pursuant to subsection 2B.06) the Expiration Date. The stated Maturity of any Term Series comprised of PR Loans shall be the Refinancing Date. The stated Maturity of each Term Series or Revolving Series, as the case may be, comprised of LIBOR Loans shall be the last day of the LIBOR Contract Period applicable thereto. In no event, however, shall (a) the stated Maturity of any Revolving Loan be later than the Expiration Date, and (b) the stated Maturity of any Term Loan be later than June 30, 1997. 11 20 2D.06 ROLLOVER OR REFINANCING OF REVOLVING LOANS -- Upon delivery of a timely Credit Request in accordance with subsection 2C.02 and subject to any other conditions or limitations of this Agreement, Borrower may refinance all or any part of any Revolving Series with another Revolving Series of the same or a different Type. Any Revolving Series or part thereof so refinanced shall be deemed to be repaid or prepaid, as applicable, with the proceeds of a new Revolving Series. If (a) prior to the Expiration Date any Revolving Series comprised of LIBOR Loans shall not be paid in full at the stated Maturity thereof, and (b) Borrower shall have failed to duly give NCB-Agent a timely Credit Request in respect thereof, Borrower shall be deemed to have duly given NCB-Agent a timely Credit Request to obtain (and at that Maturity the Banks shall make) a Revolving Series comprised of PR Loans in an aggregate principal amount equal to the aggregate unpaid principal of the Revolving Series comprised of LIBOR Loans then due the proceeds of which Revolving Series comprised of PR Loans shall be applied to the payment in full of the Revolving Series comprised of LIBOR Loans then due; PROVIDED that no such Revolving Series comprised of PR Loans shall of itself constitute a waiver of any then-existing Default Under This Agreement. 2D.07 CONTINUATION/CONVERSION OF TERM LOANS -- Borrower shall have the right to convert or continue any Term Series comprised of LIBOR Loans or PR Loans, as the case may be, upon notice and request delivered by Borrower to NCB-Agent not later than 12:00 noon (a) on the Banking Day that Borrower desires to convert any Term Series comprised of LIBOR Loans to a Term Series comprised of PR Loans, (b) three (3) Banking Days prior to the Banking Day on which Borrower desires to convert any portion of a Term Series comprised of PR Loans to a Term Series comprised of LIBOR Loans for a given LIBOR Contract Period, and (c) three (3) Banking Days prior to the Banking Day on which Borrower desires to continue any Term Series comprised of LIBOR Loans as another Term Series comprised of LIBOR Loans; PROVIDED, that each such conversion or continuation shall be subject to the following: (i) if less than all the outstanding principal amount of a Term Series comprised of PR Loans or LIBOR Loans, as the case may be, is converted or continued, the aggregate principal amount of such Term Series being converted or continued shall be: (A) in the case of a Term Series comprised of LIBOR Loans, not less than One Million Dollars ($1,000,000) or a multiple thereof, or (B) in the case of a Term Series comprised of PR Loans, One Hundred Thousand Dollars ($100,000), (ii) each such conversion or continuation shall be effected as if the Banks were applying the proceeds of the Loans resulting from such conversion or continuation to that portion of the Term Loans being converted or continued, as the case may be, and the accrued interest on such portion of the Term Loans being converted 12 21 or continued shall be paid to NCB-Agent by Borrower at the time of such conversion or continuation, (iii) no LIBOR Loans shall be converted or continued at any time unless Borrower shall promptly pay any amounts due to the Banks pursuant to subsection 2D.08 or section 6C, (iv) Loans that cannot be converted into or continued as LIBOR Loans by reason of clauses (iii) or (v) of this subsection 2D.07 shall be automatically converted at the end of the LIBOR Contract Period in effect for such Term Series comprised of LIBOR Loans into a Term Series comprised of PR Loans, and (v) no LIBOR Contract Period can be selected in connection with any conversion or continuation with respect to any Term Series comprised of LIBOR Loans which ends after June 30, 1997. Each such request for a conversion or continuation (a "Conversion/Continuation Request") shall be irrevocable and shall be in the form of EXHIBIT F (or in other form and detail reasonably satisfactory to NCB-Agent) with the blanks appropriately filled. NCB-Agent shall give each Bank immediate notice of each Conversion/Continuation Request. Borrower may make its request by telephone PROVIDED it promptly confirms the request by a written request as aforesaid, Borrower hereby agreeing to assume the risk of a misunderstanding in the case of any telephone request. 2D.08 PREPAYMENTS -- Borrower may from time to time prepay the principal of any Series comprised of PR Loans or LIBOR Loans, as the case may be, in whole or in part, subject to the following: (a) Borrower shall give NCB-Agent an appropriate notice not later than 12:00 noon on the Banking Day next preceding any such prepayment, which notice, if not originally given in writing, shall be promptly confirmed in writing. NCB-Agent shall promptly report the notice to each Bank. (b) Each prepayment of a Series comprised of PR Loans shall aggregate the principal amount of One Hundred Thousand Dollars ($100,000) or any multiple thereof or an amount equal to the then aggregate principal outstanding and shall be allocated thereto Ratably. Each prepayment of a Series comprised of LIBOR Loans shall aggregate One Million Dollars ($1,000,000) or any greater amount that is a multiple of One Hundred Thousand Dollars ($100,000) or an amount equal to the aggregate unpaid principal balance of that Series comprised of LIBOR Loans and shall be applied Ratably thereto. (c) Each prepayment of a Series comprised of PR Loans may be made without penalty or premium. Any prepayment of a Series comprised of LIBOR Loans (regardless of the reason for the prepayment) shall be subject to the payment of 13 22 any indemnity required by section 6C; provided, however, Borrower shall not be required to repay any Series of Term Loans comprised of LIBOR Loans which constitute all or a portion of the Refinanced Amount. (d) Prior to the Expiration Date no prepayment shall of itself reduce any Revolving Commitment. (e) Concurrently with each prepayment, Borrower shall prepay the interest accrued on the prepaid principal. (f) Prior to the Refinancing Date Borrower shall not prepay any portion of the Term Loans unless the then aggregate outstanding principal amount of the Revolving Loans does not exceed One Hundred Million Dollars ($100,000,000). 2D.09 DISBURSEMENT -- Each Bank may disburse the proceeds of each Subject Loan made by it from any office selected by that Bank and in each case shall disburse the same in immediately available funds to Borrower's general checking account with NCB in the absence of written instructions from Borrower to the contrary, which funds shall be so disbursed on the Banking Day specified in the Credit Request for a Revolving Loan and on the date of this Agreement for a Term Loan; PROVIDED, that this subsection shall not apply to Revolving Loans made pursuant to subsection 2B.05. 2D.10 LIBOR LOANS: UNAVAILABILITY -- If at any time (a) NCB-Agent shall determine that dollar deposits of the relevant amount for the relevant LIBOR Contract Period are not available in the London interbank market (in the case of LIBOR rates) for the purpose of funding the LIBOR rates in question, or (b) NCB-Agent shall reasonably determine that circumstances affecting that market make it impracticable for NCB-Agent to ascertain LIBOR rates, or (c) any Bank shall give NCB-Agent written notice that the costs of that Bank in funding of any Subject Loans at a LIBOR rate are equal to or greater than the interest payable by Borrower in respect thereof, then and in each such case NCB-Agent shall, by written notice to Borrower and to all the Banks, suspend Borrower's right thereafter to obtain rates of the kind in question, which suspension shall remain in effect until such time, if any, as NCB-Agent may give written notice to Borrower that the condition giving rise to the suspension no longer prevails, which notice NCB-Agent agrees to provide within thirty (30) days of the end of the condition giving rise to the suspension. 14 23 2D.11 LIBOR LOANS: ILLEGALITY -- If any Bank shall give NCB-Agent written notice that it is or any governmental authority has asserted that it is unlawful for that Bank to fund make or maintain the LIBOR rates in question, (a) NCB-Agent shall give Borrower and each of the other Banks prompt written notice thereof, and (b) Borrower shall promptly pay in full the principal of and interest on the LIBOR Loan in question and make the reimbursement, if any, required by section 6C. 2E. LETTERS OF CREDIT -- NCB-Agent and the Banks agree that so long as all of the Revolving Commitments remain in effect NCB-Agent will, in NCB's name but only as agent for the Banks, issue such standby letters of credit (each, a "Subject LC") for Borrower's account as Borrower may from time to time request subject, however, to the conditions of this Agreement. 2E.01 RATABLE PARTICIPATION -- Each issuance of a Subject LC shall, of itself, confer upon each Bank the benefits and liabilities of a participation constituting an undivided interest in the Subject LC to the extent of that Bank's Ratable share. Promptly after the issuance of each Subject LC, NCB-Agent shall notify each Bank of such issuance. Upon the request of any Bank, NCB-Agent shall notify each Bank of such issuance. Upon the request of any Bank, NCB-Agent shall deliver a copy of each Subject LC issued hereunder to such requesting Bank. 2E.02 MAXIMUM -- in addition to the conditions set forth in subsection 2C.03 hereof, NCB-Agent shall not issue any Subject LC if, after giving effect thereto, (a) the aggregate undrawn balance of all then outstanding Subject LCs would exceed Ten Million Dollars ($10,000,000) or (b) the aggregate undrawn balance of all Subject LCs and any unreimbursed drawings in respect thereof (to the extent that a Revolving Series comprises of PR Loans have not been advanced by Banks in respect thereof) plus any Subject LCs to be issued pursuant to any unfilled Credit Request under subsection 2C.02 plus the aggregate amount of Revolving Loans outstanding or to be obtained pursuant to any unfilled Credit Requests would at any time exceed the aggregate of the Revolving Commitments as then in effect. 2E.03 TERM -- No Subject LC shall permit any draft to be drawn thereunder on a date (the "last draw date") that is later than the third (3rd) Banking Day next preceding the Expiration Date in effect at the date of issuance of such Subject LC. 2E.04 FORM AND SUBSTANCE -- Each Subject LC shall have terms, conditions and other provisions that are satisfactory to NCB, shall expire not more than one year after Borrower's application therefor, shall be a commercial letter of credit used for any valid 15 24 business purpose in Borrower's business, shall be denominated in United States dollars and shall be in NCB's standard form or in other form satisfactory to NCB. 2E.05 CREDIT REQUESTS AND REIMBURSEMENT AGREEMENTS -- Borrower shall execute and deliver to NCB-Agent in respect of each Subject LC in addition to the Credit Request referred to in subsection 2C.02, two counterparts each of an appropriate application and reimbursement agreement being in such form and substance as NCB-Agent may require. Each Credit Request with respect to a Subject LC shall be delivered not later than 12:00 noon of the third (3rd) Banking Day prior to the day it is to be issued. To the extent the terms or provisions of any Reimbursement Agreement are inconsistent with those of this Agreement, the terms and provisions of this Agreement shall govern. 2E.06 COMMISSION -- Borrower agrees to pay NCB all of its standard fees and charges, at prevailing rates from time to time established by NCB's International Department, in regard to any Subject LC, including but not limited to an issuance fee, an annual maintenance fee, an amendment fee and a negotiation fee. In addition, Borrower shall pay NCB-Agent, for the Ratable benefit of the Banks, a non-refundable commission (billed quarterly in advance) equal to the then applicable Margin under subsection 2C.05 multiplied by the face amount of each Subject LC. NCB shall be entitled to keep each of the aforesaid standard fees, if any, payable by Borrower in respect of the Subject LC as well as keeping its Ratable share of the commissions. 2E.07 PAYMENT OF DRAFTS -- Whenever a draft drawn under an Subject LC is presented to NCB for payment, NCB shall give prompt notice thereof to Borrower and the Banks. In each such case the Banks shall, on the date the draft is to be paid, grant Borrower a Revolving Series comprised of PR Loans to fully fund the payment of the draft. Each such Revolving Series comprised 6f PR Loans shall be made (a) in accordance with the other provisions of section 2E (except that the PR Loans shall be made on NCB's demand even if the Revolving Commitments may no longer be in effect and even if any one or more Defaults Under This Agreement may then exist or thereupon occur), and (b) in such aggregate principal amount as will fully reimburse NCB for its payment of the draft. The proceeds shall be disbursed directly to NCB to reimburse NCB as aforesaid. 2E.08 CHANGE OF LAW -- If any change in any law or regulation or in the interpretation thereof shall impose, modify, or deem applicable any reserve, special deposit, or similar requirement which would impose on NCB-Agent or any bank any additional cost relating to the issuance or maintenance of letters of credit generally or to the issuance or maintenance of any specific Subject LC, than NCB-Agent or any Bank may give to Borrower notice of the amount thereof and a certificate setting forth a 16 25 computation and explanation thereto and Borrower shall immediately after receipt thereof pay the amount thereon to NCB-Agent of the Bank, as the case may be. 2E.09 UNCONDITIONAL OBLIGATIONS -- The obligation of the Banks to make, and of Borrower to pay, each series of PR Loans made pursuant to subsection 2E.07 shall be absolute and unconditional and shall be performed under all circumstances, including, without limitation: (a) any lack of validity or enforceability of any Subject LC, (b) the existence of any claim, offset, defense,or other right that Borrower may have against the beneficiary of any Subject LC or anyone else, (c) the existence of any fraud or misrepresentation in the presentment of any draft drawn and paid under any Subject LC, or (d) any payment of any such draft by NCB which does not strictly comply with the terms of any Subject LC provided such payment shall not have constituted gross negligence or willful misconduct. 2E.10 BORROWER'S INDEMNITY -- Borrower agrees to defend and indemnify NCB against, and to hold NCB harmless from, any loss, liability, damage, claim, cost, or expense relating to NCB's issuance or maintenance of any Subject LC or to NCB's payment of any draft drawn thereunder, excluding any such loss, liability, damage, claim, cost, or expense resulting from NCB's gross negligence or willful misconduct. 3A. INFORMATION -- Borrower agrees that so long as the Revolving Commitments remain in effect and thereafter until the Subject Indebtedness shall have been paid in full, Borrower will perform and observe each of the following: 3A.01 FINANCIAL STATEMENTS -- Borrower will furnish to each Bank (a) within forty-five (45) days after the end of each of the first three quarter- annual periods of each of Borrower's fiscal years, balance sheets of the Companies as at the end of the period and their statements of cash flow, income and surplus, shareholder equity for the current fiscal year to the end of that period, all prepared (but unaudited) on a consolidated basis, on a comparative basis with the prior year, in accordance with GAAP (EXCEPT as disclosed therein) and in form and detail satisfactory to the Required Banks (b) as soon as available (and in any event within ninety (90) days after the end of each of Borrower's fiscal years), a complete copy of an annual audit report (including, without limitation, all financial statements of the Companies therein and notes thereto) of the Companies for that year which shall be 17 26 (1) prepared on a consolidated and consolidating basis, on a comparative basis with the prior year with respect to the consolidated (but not consolidating) statements, in accordance with GAAP (EXCEPT as disclosed therein) and in form and detail satisfactory to the Required Banks (2) certified (without qualification as to GAAP) by independent public accountants selected by Borrower and satisfactory to the Required Banks. and (3) accompanied by a copy of any management report, letter or similar writing furnished to Borrower by the accountants in respect of Borrower's systems, operations, financial condition or properties, (c) concurrently with the delivery of any financial statement to Banks pursuant to clause (a) or (b), a certificate by Borrower's chief financial officer (1) certifying that to the best of the officer's knowledge and belief, (A) those financial statements fairly present in all material respects the financial condition and the results of operations of the Companies in accordance with GAAP subject, in the case of interim financial statements, to routine year-end audit adjustments and (B) no Default Under This Agreement then exists or if any does, a brief description of the default and Borrowers intentions in respect thereof, and (2) setting forth calculations indicating whether or not the Companies are in compliance with the general financial standards of section 3B as well as the calculation of the Companies consolidated Adjusted Funded Indebtedness/EBITDA Ratio, (d) promptly when filed (in final form) or sent, a copy of (1) each registration statement, Form 10-K annual report, Form 10-Q quarterly report, Form 8-K current report or similar document filed by Borrower with the Securities and Exchange Commission (or any similar federal agency having regulatory jurisdiction over Borrower securities). (2) each proxy statement, annual report, certificate, notice or other document sent by Borrower to the holders of any of its securities in their capacities as shareholders (or any trustee under any indenture which secure, any of its securities or pursuant to which such securities are issued), and (e) as soon as available (and, in any event, no later than sixty (60) days after the end of each calendar year), forecasts prepared by management of Borrower, in form and substance satisfactory to the Required Banks, of consolidated and consolidating balance sheets, consolidated and consolidating income statements and 18 27 consolidated and consolidating cash flow statements for the Companies on a quarterly basis for the next succeeding fiscal year. (f) not less than ten (10) days nor more than forty-five (45) days prior to (1) an acquisition by Borrower of substantially all the assets or equity interests of another corporation or business enterprise, (2) a merger or consolidation by any Company with any other Person (other than a merger or consolidation referred to in clause (i) of subsection 3D.01), (3) a joint venture with another corporation or business enterprise, or (4) an investment in or advance or loan to any person or entity made after the date of this Agreement pursuant to subsection 3D.02(iii) or (iv) below, oral notification to each Bank regarding such event of the type referred to in clauses (1) through (4) above and, if any Bank shall request in respect thereto, twelve (12) month financial projections (the "Projections"), including a projected balance sheet and cash flow and income statements, prepared by Borrower's chief financial officer, controller or another officer reasonably satisfactory to the Required Banks. Notwithstanding the foregoing, Banks agree that they shall not request Projections in the event the aggregate dollar amount of such events for a given fiscal year do not exceed ten percent (10%) of the consolidated Stockholders Equity of the Companies as of the end of the prior fiscal year. The Projections shall be prepared on the basis of the historical operations of the Companies (and any entity to be acquired or merged or consolidated with) after giving effect to the event in question and all reasonable related assumptions. The officer preparing such Projections shall certify to Banks and NCB-Agent that to the best of his knowledge and belief such financial information is not misleading and is accurate in all material respects. Borrower shall promptly notify Banks of any change in the assumptions upon which the Projections are based between the date of preparation and the date of the event in question, (g) forthwith upon Bank's written request, such other information in writing about the financial condition, properties and operations of the Companies and about their Pension Plans, if any, as the Required Banks may from time to time reasonably request. 3A.02 NOTICE -- Borrower will cause its chief financial officer, or in his absence another officer designated by Borrower, to give each Bank prompt written notice whenever any officer of any Company (a) reasonably believes (or receives notice from any governmental agency alleging) that any Reportable Event has occurred in respect of any Pension Plan or that a Company has become in material non-compliance with any law or governmental order referred to in subsection 3C.06 if non-compliance therewith would materially and adversely affect the financial condition or operations of the Companies taken as a whole, 19 28 (b) receives from the Internal Revenue Service or any other federal, state, local, domestic or foreign taxing authority any allegation of any default by a Company in the payment of any tax that is material in amount to the Companies taken as a whole or notice of any assessment in respect thereof, (c) learns there has been brought against a Company before any court, administrative agency or arbitrator any litigation or proceeding which, if successful, might have a material adverse effect on the Companies taken as a whole, (d) reasonably believes that any representation or warranty made in subsections 4B.01 through 4B.08 (both inclusive) or 4B.10 through 4B.21 (both inclusive) shall have ceased in any material respect to be true and complete or that any Default Under This Agreement shall have occurred or (e) reasonably believes that there has occurred or begun to exist any other event, condition or thing that likely may have a material adverse effect on the financial condition operations or properties of the Companies taken as a whole, (f) reasonably believes (or receives any notice from any third party) that a Company has defaulted or otherwise breached any Material Contract to which such Company is a party. 3B. GENERAL FINANCIAL STANDARDS -- Borrower agrees that so long as the Revolving Commitments remain in effect and thereafter until the Subject Indebtedness shall have been paid in full, Borrower will perform and observe each of the following: 3B.01 FUNDED INDEBTEDNESS/CAPITAL -- Borrower will not suffer or permit, as at the end of any fiscal quarter, the ratio of (a) the sum of (i) the consolidated amount of Funded Indebtedness of the Companies PLUS (ii) the consolidated amount of all other indebtedness for borrowed money of the Companies to (b) the sum of (i) the consolidated amount of Funded Indebtedness of the Companies PLUS (ii) the consolidated amount of all other indebtedness for borrowed money of the Companies PLUS (iii) consolidated Stockholders' Equity of the Companies to be greater than (A) for the period commencing on the date of the execution of this Agreement and concluding on the day immediately preceding the Refinancing Date, .60 to 1.0., (B) in the event that Borrower completes a public equity offering for which the Net Offering Proceeds are equal to or greater than Sixty Million Dollars ($60,000,000) and for the period commencing on the Refinancing Date and thereafter, .45 to 1.0, and (C) in the event that Borrower fails to complete a public equity offering for which the Net Offering Proceeds are equal to or greater than Sixty Million Dollars ($60,000,000) and (1) for the period commencing on the Refinancing Date and concluding on December 31, 1998, .60 to 1.0, and (2) for the period commencing on January 1, 1999 and continuing thereafter, .50 to 1.0. 20 29 3B.02 CURRENT RATIO -- Borrower will not suffer or permit, as at the end of any fiscal quarter, the consolidated Current Assets of the Companies to fall below an amount equal to one hundred fifty percent (150%) of their consolidated Current Liabilities. 3B.03 FUNDED INDEBTEDNESS/EBITDA -- Borrower will not suffer or permit, as at the end of any fiscal quarter, the consolidated Funded Indebtedness/EBITDA Ratio of the Companies to be greater than (A) for the period commencing on the date of the execution of this Agreement and concluding on the day immediately preceding the Refinancing Date, 3.25 to 1.0., (B) in the event that Borrower completes a public equity offering for which the Net Offering Proceeds are equal to or greater than Sixty Million Dollars ($60,000,000) and for the period commencing on the Refinancing Date and thereafter, 2.5 to 1.0, and (C) in the event that Borrower fails to complete a public equity offering for which the Net Offering Proceeds are equal to or greater than Sixty Million Dollars ($60,000,000) and (1) for the period commencing on the Refinancing Date and concluding on December 31, 1997, 3.25 to 1.0, (2) for the period commencing on January 1, 1998 and concluding on December 31, 1998, 3.0 to 1.0, and (3) for the period commencing on January 1, 1999 and continuing thereafter, 2.5 to 1.0. 3C. AFFIRMATIVE COVENANTS -- Borrower agrees that so long as the Revolving Commitments remain in effect and thereafter until the Subject Indebtedness shall have been paid in full, the Companies will perform and observe each of the following: 3C.01 TAXES -- Each Company will pay in full (a) prior in each case to the date when penalties for the nonpayment thereof would attach, all taxes, assessments and governmental charges and levies for which it may be or become subject and (b) prior in each case to the date the claim would become delinquent for nonpayment, all other lawful claims (whatever their kind or nature) which, if unpaid, might have a material adverse effect upon the Companies on a consolidated basis; PROVIDED, that no item (other than wage or social security withholding tax obligations) need be paid so long as and to the extent that it is contested in good faith and by timely and appropriate proceedings which are effective to stay enforcement thereof and Borrower either posts a bond or otherwise establishes adequate reserves therefor. 3C.02 FINANCIAL RECORDS -- Each Company will at all times keep true and complete financial records in accordance with GAAP and, without limiting the generality of the foregoing, make appropriate accruals to reserves for estimated and contingent losses and liabilities. 3C.03 VISITATION -- Each Company will permit each Bank at all reasonable times upon reasonable advance notice except in the case of an emergency 21 30 (a) to visit and inspect that Company's properties and examine its records at that Bank's expense and to make copies of and extracts from such records, and (b) to consult with that Company's directors, officers, employees, accountants, actuaries, trustees and plan administrators in respect of its financial condition, properties and operations and the financial condition of its Pension Plans, each of which parties is hereby authorized to make such information available to each Bank to the same extent that it would to that Company; provided, however, that so long as no Default Under This Agreement shall have occurred and be continuing, each of the Banks agrees to use its reasonable efforts to coordinate any such visits or consultations with the other Banks, to the extent reasonably practicable; provided, further, that all information obtained shall be subject to the provisions Section 8.20. 3C.04 INSURANCE -- Each Company will (a) keep itself and all of its insurable properties insured (or self-insured in accordance with prudent insurance practice) at all times to such extent, with such deductibles, by such insurers and against such hazards and liabilities as is generally and prudently done by like businesses, and (b) forthwith upon any Bank's written request furnish to that Bank such information about Borrower's insurance as that Bank may from time to time reasonably request, which information shall be prepared in form and detail reasonably satisfactory to that Bank and certified by an officer of Borrower. 3C.05 CORPORATE EXISTENCE -- Each Company will at all times maintain its corporate existence, rights and franchises, the failure to maintain any of which would have a material adverse effect on such Company; provided that this subsection shall not prevent any dissolution and liquidation of any Subsidiary or any merger or consolidation permitted by subsection 3D.0l. 3C.06 COMPLIANCE WITH LAW -- Each Company will comply with all laws (whether federal, state or local and whether statutory, administrative or judicial or other) and with every lawful governmental order (whether administrative or judicial) and will, without limiting the generality of the foregoing, (a) use and operate all of its facilities and properties in material compliance with all Environmental Laws and handle all hazardous materials in material compliance therewith; keep in full effect each permit, approval, certification, license or other authorization required by any Environmental Law for the conduct of any material portion of its business; and comply in all other material respects with all Environmental Laws (including the undertaking of any cleanup, remedial or other action necessary in order to comply with any directive of a governmental authority or Environmental Law); 22 31 (b) make a full and timely payment of premiums required by ERISA and perform and observe all such further and other requirements of ERISA such that no Default Under ERISA shall occur or begin to exist; and (c) comply with all material requirements of all occupational health and safety laws and federal and state securities laws; PROVIDED, that this subsection shall not apply to any of the foregoing (i) if and to the extent that the same shall be contested in good faith by timely and appropriate proceedings which are effective to stay enforcement thereof and against which a bond has been posted or appropriate reserves shall have been established or (ii) in any other case if non-compliance therewith would not materially and adversely affect the Companies' consolidated financial condition, properties or business. 3C.07 PROPERTIES -- Each Company will maintain all fixed assets necessary to its continuing operations in good working order and condition, ordinary wear and tear excepted, refrain from wasting or destroying any such necessary fixed assets and refrain from being negligent in the care or use thereof. 3C.08 QUALIFICATION TO DO BUSINESS -- Each Company shall remain qualified to do business in each jurisdiction in which such qualification is required by law and in which the consequences of a failure to qualify would have a materially adverse effect on the business or financial condition of the Companies on a consolidated basis. 3C.09 APPLICATION OF NET OFFERING PROCEEDS -- Borrower shall apply, immediately upon its receipt thereof, the Net Offering Proceeds of up to Sixty Million Dollars ($60,000,000) to pay down the aggregate outstanding principal amount of the Term Loans. In the event that Borrower raises more than Sixty Million Dollars ($60,000,000) in Net Offering Proceeds, Borrower may apply, after the Refinancing Date, all or a portion of such proceeds in excess of Sixty Million Dollars ($60,000,000) to pay down the aggregate outstanding principal amount of the Revolving Loans. 3D. NEGATIVE COVENANTS -- Borrower agrees that so long as the Revolving Commitments remain in effect and thereafter until the Subject Indebtedness shall have been paid in full, the Companies will perform and observe each of the following: 3D.01 EQUITY AND ASSET TRANSACTIONS -- No Company will (a) be a party to any merger or consolidation, 23 32 (b) create, acquire or hold any Subsidiary, or purchase or otherwise acquire all or substantially all of the assets and business of any corporation or other business enterprise, or be or become a party to any joint venture or partnership, (c) make or keep any investment in any stocks or other equity securities of any kind, except that this clause (c) shall not apply to any existing (as of the date hereof) investments in stocks and other equity securities of Subsidiaries or any other investment fully disclosed in the Companies' December 31, 1995 consolidated audited financial statements or in the Supplemental Schedule, (d) lease as lessor, sell, sell-leaseback or otherwise transfer (whether in one transaction or a series of transactions) all or any substantial part of its fixed assets, including, without limitation, all or substantially all of the assets of a division, branch or other unit operation, EXCEPT chattels that shall have become obsolete or no longer useful in its present business, or (e) sell or otherwise transfer or issue (in the case of a Subsidiary) any shares of stock (other than shares issued or transferred solely for the purpose of qualifying directors under any applicable law) or other equity securities of any Subsidiary to anyone other than Borrower; provided, that if no Default Under this Agreement shall then exist and if none would thereupon begin to exist, this subsection shall not apply to (i) any merger or consolidation involving only Subsidiaries of the Borrower, or any merger involving only the Borrower and one or more of its Subsidiaries in which the Borrower is the surviving corporation, or (ii) any acquisition by a Company of substantially all of the assets or equity interest of another corporation or business enterprise, any merger or consolidation by any Company with any other Person (other than a merger or consolidation referred to in clause (i) above), or any joint venture with another corporation or business enterprise; provided that (A) the target or resulting entity is in the same, substantially similar or a complementary line of business, and (B) Proforma Covenant Compliance pertains and, to the extent Projections are requested, the Required Banks do not reasonably object to the assumptions or other information upon which the relevant Projections were based (each of the Banks hereto, by their signatures hereof, do hereby consent to the assumptions upon which the Projections delivered in connection with the Acquisition were based), or (iii) any sale, lease or transfer of assets by any Company (other than any sale or transfer of any of the capital stock by the Borrower of any of its Subsidiaries) otherwise prohibited by this Subsection 3D.01 so long as (A) such sale, lease or transfer is for not less than the fair market value of such assets, (B) the consideration received therefor is cash or cash equivalents and (C) the aggregate 24 33 of such proceeds of all such sales shall not exceed Five Million Dollars ($5,000,000) during the term of this Agreement. 3D.02 CREDIT EXTENSIONS -- No Company will (a) make or keep any investment in any notes, bonds or other obligations of any kind for the payment of money or make or have outstanding at any time any advance or loan to anyone or (b) be or become a Guarantor of any kind; PROVIDED, that this subsection shall not apply to (i) any existing or future advance, commission or relocation payment, or other loan or advance made to an employee or to a director or officer of the Company in the ordinary course of business and consistent with past practice, (ii) any existing or future investment in any such notes, bonds or other obligations consisting of (A) Acceptable Marketable Securities or (B) in the case of Kokkola Chemicals Oy, the Borrower's wholly-owned Finnish subsidiary, (x) any money-market investment carrying the highest quality rating issued by Standard and Poors or any Scandinavian affiliate thereof and (y) certificates of deposit or commercial paper (with a remaining term of 360 days or less) issued by any bank having a combined capital and surplus aggregating at least Three Hundred Fifty Million Dollars ($350,000,000); PROVIDED, HOWEVER, that the aggregate amount of the investments in clause (A) and (B) hereof outstanding at any time shall not exceed Fifteen Million Dollars ($15,000,000), (iii) any existing investment, advance, loan or Guaranty fully disclosed in the Companies' December 31, 1995 consolidated audited financial statements or in the Supplemental Schedule or any other investment, advance or loan provided that (A) the entity invested in or to which an advance or loan is made is in the same, substantially similar or a complementary line of business and (B) Proforma Covenant Compliance pertains and, to the extent Projections are requested, the Required Banks to not reasonably object to the assumptions or other information upon which the relevant Projections were based, (iv) any intercompany loan or Guaranty by the Borrower (not otherwise permitted by clause (iii) above) to, and any Guaranty by the Borrower of any indebtedness of, any Subsidiary of the Borrower in which the Borrower owns one hundred percent (100%) of the outstanding common stock (except for shares owned by directors as required by law); PROVIDED, HOWEVER, that, at the time of and after giving effect to any such loan or Guaranty (A) no Default Under This Agreement shall have occurred and be continuing and (B) Proforma Covenant Compliance pertains and, to the extent Projections are requested, the Required 25 34 Banks do not reasonably object to the assumptions or other information upon which the relevant Projections were based, (v) any endorsement of a check or other medium of payment for deposit or collection, or any similar transaction in the normal course of business, or (vi) trade accounts arising and outstanding in the ordinary course of business unless represented by a promissory note or other instrument. 3D.03 BORROWINGS -- No Company will create, assume or have outstanding at any time any indebtedness for borrowed money or any Funded Indebtedness of any kind to the extent the same would cause a violation of the general financial standards contained in Section 3B or otherwise violate any other term or provision of this Agreement or any Related Writing and no indebtedness for borrowed money or Funded Indebtedness of any Company will have covenants or defaults materially more restrictive on the Companies than those set forth in this Agreement. 3D.04 LIENS, LEASES -- No Company will (a) lease any property as lessee or acquire or hold any property subject to any land contract, inventory consignment or other title retention contract, (b) sell or otherwise transfer any receivables with recourse or (c) suffer or permit any property now owned or hereafter acquired by it to be or become encumbered by any mortgage, security interest, lien or financing statement: PROVIDED, that this subsection shall not apply to (i) any tax lien for taxes not yet due and payable, or any lien securing workers' compensation or unemployment insurance obligations, or any mechanic's, carrier's or landlord's lien, or any lien arising under ERISA, or any security interest arising under article four (bank deposits and collections) or five (letters of credit) of the Uniform Commercial Code, or any similar security interest or other lien. EXCEPT that this clause (i) shall apply only to security interests and other liens arising by operation of law (whether statutory or common law) and in the ordinary course of business and shall not apply to any security interest or other lien that secures any indebtedness for borrowed money or any Guaranty thereof or any obligation that is in material default in any manner (other than any default contested in good faith by timely and appropriate proceedings effective to stay enforcement of the security interest or other lien in question and against which a bond has been posted or appropriate reserves shall have been established), 26 35 (ii) zoning or deed restrictions, public utility easements, minor title irregularities and similar matters in each case having no material adverse effect as a practical matter on the ownership or use of any of the property in question, (iii) any lien securing or given in lieu of surety, stay, appeal or performance bonds, or securing performance of contracts or bids (other than contracts for the payment of money borrowed), or deposits required by law or governmental regulations or by any court order, decree, judgment or rule or as a condition to the transaction of business or the exercise of any right, privilege or license, EXCEPT that this clause (iii) shall not apply to any lien or deposit securing an obligation that is in material default in any manner (other than any default contested in good faith by timely and appropriate proceedings effective to stay enforcement of the security interest or other lien in question and against which a bond has been posted or appropriate reserves shall have been established), (iv) any mortgage, security interest or other lien securing only the Subject Indebtedness which may hereafter be granted by a Company by agreement of the parties hereto, (v) any mortgage, security interest or other lien (each, a "purchase money security interest") which is created or assumed in purchasing, leasing (pursuant to a capitalized lease), constructing or improving any real property or equipment or to which any such property is subject when purchased, PROVIDED, that (A) the purchase money security interest shall be confined to the aforesaid property, (B) the indebtedness secured thereby does not exceed the total cost of the purchase construction or improvement, (C) any such indebtedness, if repaid in whole or in part, cannot be reborrowed and (D) the aggregate amount of all such purchase money security interest does not exceed Five Million Dollars ($5,000,000) in any fiscal year, (vi) any lease other than any capitalized lease (it being agreed that a capitalized lease is a lien rather than a lease for the purposes of this Agreement), (vii) any mortgage, security interest or other lien which (together with the indebtedness secured thereby) is fully disclosed in the Companies' December 31, 1995 consolidated audited financial statements or in the Supplemental Schedule, (viii) any mortgage, security interest or other lien permitted by this Section 3D.04 securing any indebtedness permitted by this Agreement that is a renewal, extension or refinancing of such indebtedness; PROVIDED, HOWEVER, that (i) such extended, renewed or replacement mortgage, security interest or other lien shall be limited to all or a part of the same property that secured the lien extended, renewed or replaced and (ii) the indebtedness secured thereby shall not be increased; or 27 36 (ix) any financing statement perfecting a security interest that would be permissible under this subsection. 3D.05 DIVIDENDS -- No Company shall make or commit itself to make any Distribution to its shareholders at any time; PROVIDED, HOWEVER, that, so long as no Default Under This Agreement shall then exist or would thereupon occur, the Borrower may, during any fiscal year, make Distributions consisting of dividends payable solely in cash in an aggregate amount not to exceed the greater of (a) Ten Million Dollars ($10,000,000) or (b) twenty-five percent (25%) of the consolidated Net Income of the Companies for such fiscal year. 3D.06 CHANGE IN NATURE OF BUSINESS -- No Company shall make any material change in the nature of its business as carried on at the date hereof. 3D.07 ACCOUNTING CHANGES -- No Company shall make or permit any change in accounting policies or reporting practices, except as required by law or as required or permitted by GAAP applicable to such Company from time to time. 3D.08 AMENDMENT; DEFAULT OF MATERIAL CONTRACTS -- Other than in the exercise of reasonable business judgment, no Company shall cancel or terminate any Material Contract or consent to or accept any cancellation or termination thereof. No Company shall (i) amend or otherwise modify in any material respect any Material Contract or give any consent, waiver or approval thereunder; (ii) permit any material default by such Company to exist beyond any applicable cure period; (iii) waive any material default under or breach of any Material Contract; or (iv) agree in any manner to any other material amendment, modification or change of any term or condition of any Material Contract or take any other action in connection with any Material Contract that might reasonably be expected to have a material adverse effect on the business or financial condition of the Companies on a consolidated basis or that would materially impair the interest or rights of NCB-Agent or any Bank. 3D.09 USE OF PROCEEDS -- The Borrower shall not use the proceeds of any Subject Loan for any purpose other than the refinancing of the existing indebtedness to certain of the Banks, providing funds for acquisitions, joint ventures, capital expenditures and general corporate purposes consistent with and subject to the terms and provisions hereof. 3D.10 ADVERSE OBLIGATIONS; LABOR DISPUTES -- No Company shall be subject to any contract, agreement, corporate restriction, judgment, decree or order materially and adversely affecting the business, property, assets, operations or condition, financial or otherwise, of the Companies on a consolidated basis. No Company shall be a party to any labor dispute other than grievance disputes which do not materially and adversely affect the business, property, assets, operations or condition, financial or otherwise, of the Companies on a consolidated basis. No Company shall be subject to any material strikes, slow downs, walkouts or other concerted interruptions of operations by employees whether or not relating to any labor contracts other than strikes, slow downs, walkouts or other 28 37 concerted interruptions which do not materially and adversely affect the business, property, assets, operations or condition, financial or otherwise, of the Companies on a consolidated basis. 4A. CLOSING -- Prior to or at the execution and delivery of this Agreement Borrower shall have complied or caused compliance with each of the following: 4A.01 NOTES -- Borrower shall execute and deliver to each Bank a Term Note and an Initial Revolving Note in accordance with subsection 2A.01 and 2C.01. Upon Borrower's execution and delivery of the Initial Revolving Notes and the Term Notes to the Banks, each of the Banks agree to return to Borrower the revolving notes issued by Borrower in connection with the Prior Credit Agreement and the same shall be either marked "cancelled" or "substituted". 4A.02 RESOLUTIONS/INCUMBENCY -- Borrower's secretary or assistant secretary shall have certified to Banks (a) a copy of resolutions duly adopted by its board of directors in respect of this Agreement and the transactions contemplated hereby and the Acquisition Agreement and the transactions contemplated thereby, and (b) the names and true signatures of officers authorized to execute and deliver this Agreement, the Acquisition Agreement, the Acquisition Documents and Related Writings on behalf of Borrower and the secretary or assistant secretary of each of the current Guarantors shall have delivered a similar certification to Banks in regard to authorization of its respective guaranty. 4A.03 LEGAL OPINION -- Borrower's, Seller's and each of the Current Guarantors' counsel shall have rendered to Banks their written opinion in respect of the matters referred to in subsections 4B.01, 4B.02, 4B.03, 4B.04 and 4B.23 as they relate to Borrower, Seller and each of the Current Guarantors, and also as to the obtaining of all necessary consents so that this Agreement will not breach the Acquisition Agreement, any of the Acquisition Documents, or the Note Purchase Agreement, which opinion shall be in such form and substance (and may be subject only to such qualifications and exceptions, if any) as shall be satisfactory to the Required Banks and substantially similar to the acceptable form of legal opinion previously provided by NCB-Agent to Borrower and its counsel. 4A.04 CONSUMMATION OF ACQUISITION -- Borrower shall have furnished to Banks evidence, in form and substance satisfactory to Banks, that all transactions contemplated by the Acquisition Agreement to occur on or before the closing date set forth therein, including, without limitation, the Acquisition, have been consummated. 4A.05 ACQUISITION DOCUMENTS -- Borrower shall have furnished to Banks true and correct copies, certified to Banks by an officer of Borrower, of the executed Acquisition Agreement and each of the Acquisition Documents, each of which shall be in form and substance satisfactory to Banks. 29 38 4A.06 FINANCIAL STATEMENTS -- Borrower shall have furnished to Banks at least one (1) true and complete copy of each of the following: the annual audit report (including, without limitation, all financial statements therein and notes thereto and the accompanying accountants' opinion and management report) of the Companies prepared as at December 31, 1995 and annual audit reports for each of the two (2) next preceding fiscal years (each having been certified by Ernst & Young) and unaudited interim financial statements prepared as at September 30, 1996. 4A.07 DOCUMENTATION FEE -- Borrower shall have paid NCB-Agent, for its own account, a documentation fee in an amount agreed upon by and between Borrower and NCB-Agent. 4A.08 CLOSING FEE -- Borrower shall have paid NCB-Agent, for the account of the Banks, the closing fee payable pursuant to Section 2A.05 hereof. 4A.09 OTHER DOCUMENTS -- Borrower shall execute or deliver to NCB-Agent such other agreements, instruments and documents, including, without limitation, those listed below, which NCB-Agent may require to be executed and/or delivered in connection herewith (all of which shall be in form and substance acceptable to NCB-Agent and its counsel): (a) Evidence that the Companies possess insurance satisfying the requirements of Section 3C.04 hereof. Insurance certificates respecting the same shall be delivered to NCB-Agent on behalf of the Banks and shall name NCB-Agent as lender loss payee. In addition, the certificates shall contain a statement that NCB- Agent will be provided with thirty (30) days written notice prior to any cancellation, termination or expiration of such insurance coverage and such statement may not provide that the issuing company will merely "endeavor to" provide such notice nor may such statement contain limitation of liability language for the issuing company or its representatives in the event of their failure to provide such notice; (b) Certificates of good standing for each of Borrower, Seller and each of the Current Guarantors; (c) Certificate of incorporation of each of Borrower, Seller and each of the Current Guarantors, certified by the respective secretary of state or similar government official of the state or other similar governmental body in which each such Person is incorporated; (d) A disbursement authorization, in form and substance acceptable to NCB-Agent, directing the disbursement of the proceeds of the Subject Loans; and (e) Guaranties by the respective Current Guarantors, of Borrower's Debt to Banks and NCB Agent. 30 39 4B. REPRESENTATIONS/WARRANTIES -- Subject only to such additions and exceptions, if any, as may be set forth in the Supplemental Schedule or in Borrower's Most Recent 4A.04 Financial Statements, Borrower represents and warrants as follows: 4B.01 EXISTENCE -- The Borrower and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the state of its incorporation. EXHIBIT G sets forth the name and address of each of the Borrower's Subsidiaries existing as of the closing date, the chief executive office of each Subsidiary and the jurisdiction in which each such Subsidiary is incorporated. All of the outstanding stock of each such Subsidiary is owned by the Borrower and is fully paid and non-assessable and owned by Borrower free from any security interest, option, equity or other right of any kind. The Borrower and each of its Subsidiaries is duly qualified to transact business in each state or other jurisdiction in which it owns or leases any real property or in which the nature of the business conducted makes such qualification necessary or, if not so qualified, such failure to qualify will have no material adverse effect upon the condition (financial or otherwise) of the Companies on a consolidated basis and their ability to transact business. 4B.02 GOVERNMENTAL RESTRICTIONS -- No registration with or approval of any governmental agency of any kind is required on the part of any Company or Seller which has not been made and/or obtained, as the case may be, for the due execution and delivery or for the enforceability of this Agreement, the Acquisition Agreement, any Acquisition Document or any Related Writing. 4B.03 POWER, AUTHORIZATION AND CONSENT; ENFORCEABILITY -- The execution, delivery and performance by the Borrower of this Agreement, the Acquisition Agreement, the Acquisition Documents and the Related Writings to which it is party (a) are within the Borrower's legal power and authority, (b) have been duly authorized by all necessary or proper action of such the Borrower, (c) will not violate (i) any provision of law applicable to the Borrower, (ii) any provision of the Borrower's or any other Company's, as the case may be, certificate or articles of incorporation or by-laws or regulations, or (iii) any material agreement or material indenture by which any Company or the property of any Company is bound, except where such violation specified in this clause (iii) would not have a materially adverse effect on the Companies taken as a whole, or (d) will not result in the creation or imposition of any lien or encumbrance on any property or assets of the Companies. This Agreement constitutes, the Acquisition Agreement constitutes, the Acquisition Documents and the Related Writings when duly executed will constitute, the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with its respective terms subject to any applicable insolvency or bankruptcy law of general applicability and general principles of equity. The guaranties of the respective Current Guarantors each constitutes the legal, valid and binding obligation of such Current Guarantor, enforceable against it in accordance with its terms subject to any applicable insolvency or bankruptcy law of general applicability and general principles of equity. The Acquisition Agreement constitutes the legal, valid and binding obligation of the Seller, enforceable against it in accordance with its terms 31 40 subject to any applicable insolvency or bankruptcy law of general applicability and general principles of equity. 4B.04 LITIGATION; PROCEEDINGS -- No action, suit, investigation or proceeding is now pending or, to the knowledge of Borrower, threatened against the Borrower or any of its Subsidiaries at law, in equity or otherwise, or with respect to this Agreement, the Acquisition Agreement, any Acquisition Document or any Related Writing, before any court, board, commission, agency or instrumentality of any federal, state, local or foreign government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators which might reasonably be expected to have a material adverse effect on the condition (financial or otherwise) of the Companies on a consolidated basis. 4B.05 TAXES -- Each Company has filed all federal, state, local, foreign and domestic tax returns which are required to be filed by it and paid all taxes due as shown thereon, including interest and penalties (except to the extent, if any, permitted by Section 3C.01). 4B.06 TITLE -- Each Company has good and marketable title to all of its assets reflected in the Companies' Most Recent 4A.04 Financial Statements except for changes resulting from transactions in the ordinary course of business. All such assets are free of all mortgages, security interests or other liens other than those otherwise permitted by Section 3D.04. 4B.07 LAWFUL OPERATIONS -- Except as set forth in the Supplemental Schedule, the operations of each Company are in full compliance with all material requirements imposed by law or regulation, whether federal, state or local including (without limitation) all environmental protection laws, occupational safety and health laws and zoning ordinances. 4B.08 INSURANCE -- The insurance coverage of the Companies complies with the standards set forth in subsection 3C.04. 4B.09 FINANCIAL STATEMENTS -- The Borrower's annual report (including, without limitation, all financial statements therein and the notes thereto and the accompanying accountants' certificate and management report), prepared as at December 31, 1995 and certified by Ernst & Young, and the Borrower's unaudited interim financial statements prepared as at September 30, 1996, each of which has been heretofore furnished by the Borrower to each Bank (i) have been prepared in accordance with GAAP applied on a consistent basis with those used by it during its fiscal year ended December 31, 1995 except to the extent, if any, specifically noted therein and (ii) fairly present in all material respects (subject to routine year-end audit adjustments in the case of the unaudited financial statements) the consolidating and consolidated financial condition of the Borrower and its Subsidiaries as of the respective dates thereof (including a full disclosure of material liabilities, if any) and the consolidating and consolidated results of their operations, if any, for the respective fiscal periods then ending. As of the closing date, there has been no material adverse change in the financial condition, properties or business of the Borrower or any of its Subsidiaries since the December 31, 1995 financial 32 41 statements nor any changes in the Borrower's accounting procedures since the end of the Borrower's 1995 latest full fiscal year. The Acquisition Projections are based upon reasonable assumptions, are not misleading, and, to the best of Borrower's knowledge, are accurate in all material respects. 4B.10 INDEBTEDNESS -- Except for the line of Credit of Target with NationsBank in the amount of One Million Seven Hundred Thousand Dollars ($1,700,000), no Company has outstanding any material indebtedness for borrowed money or any Funded Indebtedness of any kind except any which is not prohibited by subsection 3D.03. 4B.11 ERISA -- No material Accumulated Funding Deficiency exists in respect of any Pension Plan of any Companies or any of their ERISA Affiliates. No Reportable Event has occurred in respect of any Pension Plan which is continuing and which (i) constitutes grounds either for termination of the plan or for court appointment of a trustee for the administration thereof or (ii) is reasonably likely to have a material adverse effect on the Companies on a consolidated basis. No "prohibited transaction" (as defined in section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended), has occurred that has resulted in or is reasonably likely to result in any liability which has a material adverse effect on the Companies on a consolidated basis. None of the Companies or any of their ERISA Affiliates has (i) had an obligation to contribute to any Multiemployer Plan, as defined in Section 4001(a)(3) of ERISA, since 1987 or (ii) incurred or reasonably expects to incur any liability for the withdrawal from such a Multiemployer Plan which liability would have a material adverse effect on the Companies on a consolidated basis. 4B.12 ADVERSE OBLIGATIONS; LABOR DISPUTES -- No Company is subject to any contract, agreement, corporate restriction, judgment, decree or order materially and adversely affecting its business, property, assets, operations or condition, financial or otherwise, is a party to any labor dispute (other than grievance disputes which do not in the aggregate materially and adversely affect any of their respective operations, financial condition, or business), and, there are no material strikes, slow downs, walkouts or other concerted interruptions of operations by employees whether or not relating to any labor contracts. 4B.13 SOLVENCY -- After giving effect to the transactions contemplated by this Agreement, the Acquisition Agreement, the Acquisition Documents and the Related Writings, the following shall be true as to each Company: (i) the fair saleable value of such party's assets is greater than the amount required to pay its total liabilities, (ii) such party is able to pay its debts as they mature and is not otherwise insolvent in any respect and (iii) such party's capital is sufficient and not unreasonably small for the business and transactions in which such party is engaged or about to engage. 4B.14 INVESTMENT COMPANY ACT STATUS -- No Company is an "investment company" or an "affiliate person" of, or "promoter" or "principal underwriter" for, an 33 42 "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C. Section 80(a)(1), ET SEQ.). 4B.15 REGULATION U/REGULATION X COMPLIANCE -- The Borrower does not own any "margin stock", as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System, and the proceeds of the borrowings made pursuant to this Agreement will be used only for the purposes contemplated hereunder. 4B.16 ENVIRONMENTAL AND SAFETY MATTERS -- Except for copper emissions from the Target's plant in Durham, North Carolina (which emissions do not violate applicable Environmental Laws), hazardous materials have not been released or disposed of on any property owned or leased by a Company or, to the best knowledge of the Borrower, any property adjoining any such properties. All environmental permits have been obtained and are in effect for the operations conducted at all property owned or leased by a Company. The Companies are in material compliance with all applicable Environmental Laws and all environmental permits. The Companies have disposed of all wastes generated, including wastes containing hazardous materials, in material compliance with all applicable Environmental Laws and environmental permits. There are no past, pending or, to the actual knowledge of the Borrower, threatened environmental claims against the Companies that individually or in the aggregate could have a material adverse effect on the Companies on a consolidated basis. No property owned or leased by a Company or, to the best knowledge of the Borrower, any property adjoining any such property, is listed or proposed for listing on the National Priorities List under CERCLA or on any other list maintained by any governmental authority of sites requiring environmental investigation or cleanup. No Company has transported or arranged for the transportation of any hazardous materials to any location that is listed or proposed for listing on the National Priorities List under CERCLA or on any other analogous list or, to the best knowledge of the Borrower, to any location that is the subject of any environmental claim. To the best knowledge of the Borrower, there are no circumstances with respect to any property owned or leased by a Company or the operations of any Company that could reasonably be anticipated (i) to form the basis of an environmental claim against such Company or any property owned or leased by a Company that individually or in the aggregate might materially and adversely effect the Companies on a consolidated basis or (ii) to cause any property owned or leased by a Company to be subject to any restrictions on ownership, occupancy, use or transferability under any applicable Environmental Law. 4B.17 REAL PROPERTY -- Each Company has good, marketable and insurable fee simple title to the real property owned by it, free and clear of all mortgages, liens or encumbrances, other than liens permitted hereunder. 4B.18 LEASES -- Each lease of real property under which any Company is the lessee is the legal, valid and binding obligation of the lessor thereof, enforceable in accordance with its terms (subject to limitations imposed by general principles of equity (regardless whether such enforceability is considered in a proceeding at law or in equity) and the 34 43 effect of applicable bankruptcy, reorganization, insolvency, moratorium and similar laws of general application relating to or affecting creditors' rights). 4B.19 INTELLECTUAL PROPERTY -- Each Company owns or possess all the patents, trademarks, service marks, copyrights, licenses and rights with respect to the foregoing necessary for the conduct of its business without any known conflict with the rights of others. 4B.20 DEFAULTS -- No Default Under This Agreement exists, nor will any exist immediately after the execution and delivery of this Agreement. 4B.21 NOTEHOLDERS AND NOTE PURCHASE AGREEMENT -- The Noteholders are the only holders of notes pursuant to the Note Purchase Agreement. The execution of this Agreement and the consummation of the transactions contemplated hereby do not conflict with the terms of the Note Purchase Agreement or cause any default thereunder and all necessary consents have been obtained. 4B.22 FULL DISCLOSURE -- Neither this Agreement or any Related Writing, nor any written statement made by Borrower in connection herewith or therewith, contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein not misleading. There is no fact which Borrower has not disclosed to Banks which has or is likely to have a material adverse effect on Borrower's, property, business, operations, prospects, profitability or condition (financial or otherwise) or on Borrower's ability to repay the Subject Indebtedness as contemplated hereby and in the Related Writings. 4B.23 CONSUMMATION OF ACQUISITION -- All of the transactions contemplated by the Acquisition Agreement to occur on or before the closing date set forth therein, including, without limitation, the Acquisition, have been duly consummated. 4C. CLOSING OF REFINANCING -- Prior to the effectiveness of the Refinancing pursuant to subsection 2A.02 hereof, Borrower shall execute and deliver to each Bank a Refinancing Revolving Note in accordance with subsection 2C.01. Upon Borrower's execution and delivery of the Refinancing Revolving Notes, each of the Banks agree to return to Borrower the Initial Revolving Notes and the Term Notes and the same shall be either marked "cancelled" or "substituted". 5A. EVENTS OF DEFAULT -- Each of the following shall constitute an Event Of Default hereunder: 5A.01 PAYMENTS -- If any principal included in the Subject Indebtedness shall not be paid in full promptly when the same becomes payable; or if any Subject Indebtedness (EXCEPT principal) or any other Debt of the Companies or any thereof to Banks and NCB-Agent or any thereof (EXCEPT any payable on demand) shall not be paid in full promptly when the same becomes payable and shall remain unpaid for five (5) 35 44 consecutive days thereafter; or if such of the Debt of the Companies or any thereof to Banks and NCB-Agent or any thereof as may be payable on demand shall not be paid in full within five (5) days after any actual demand for payment. 5A.02 WARRANTIES -- If any representation, warranty or statement (other than any made by any Bank or NCB-Agent) made in this Agreement or in any Related Writing shall be false or erroneous in any respect when made or deemed made, as the case may be. 5A.03 COVENANTS WITHOUT GRACE -- If any Company shall fail or omit to perform or observe any provisions in subsections 3A.02, 3B.01 through 3B.03 (inclusive) or 3D.01 through 3D.10 (inclusive). 5A.04 COVENANTS WITH GRACE -- If anyone (other than the Banks and NCB-Agent and their respective agents) shall fail or omit to perform and observe any agreement (other than those referred to in subsection 5A.01 or 5A.03 and not including the representations, warranties and statements referred to in subsection 5A.02) contained in this Agreement or any Related Writing that is on its part to be complied with, and that failure or omission shall not have been fully corrected within ten (10) days after the giving of written notice to Borrower by any Bank or NCB-Agent that it is to be remedied. 5A.05 CROSS-DEFAULT -- If any indebtedness of any Company for borrowed money (regardless of maturity) or any of its Funded Indebtedness shall be or become "in default" (as defined below) EXCEPT any if and so long as the aggregate unpaid principal balance of all such indebtedness in default does not exceed Five Million Dollars ($5,000,000) at any one time outstanding or if any Event of Default occurs pursuant to the Note Purchase Agreement or upon the prepayment of the senior notes issued pursuant thereto upon a Change in Control as provided in Section 8.4 of the Note Purchase Agreement. In this subsection, "in default" means that (a) there shall have occurred (or shall exist) in respect of the indebtedness in question (either as in effect at the date of this Agreement or as in effect at the time in question) any event, condition or other thing which constitutes, or which with the giving of notice or the lapse of any applicable grace period or both would constitute, a default which accelerates (or permits any creditor or creditors or representative or creditors to accelerate) the maturity of any such indebtedness; or (b) any such indebtedness (other than any payable on demand) shall not have been paid in full at its stated maturity; or (c) any such indebtedness payable on demand shall not have been paid in full within ten (10) Banking Days after any actual demand for payment. 5A.06 CONTROL -- If (x) any "person" or "group" shall become the "beneficial owner" (as those terms are respectively used in the Securities and Exchange Act of 1934, as amended, and the rules and regulations thereunder) of more than fifty percent (50%) of the outstanding voting stock of the Borrower or shall otherwise acquire the power (whether by contract, by proxy or otherwise) to elect a majority of the Borrower's board of directors or (y) during any twelve (12) month period, individuals who were directors of the Borrower at the beginning of such period or were elected to the Board of Directors 36 45 of the Borrower with the approval of a majority of such directors shall cease to constitute a majority of the Board of Directors. 5A.07 BORROWER'S SOLVENCY -- If (a) Borrower shall discontinue operations, or (b) Borrower shall commence any Insolvency Action of any kind or admit (by answer, default or otherwise) the material allegations of, or consent to any relief requested in, any Insolvency Action of any kind commenced against Borrower by its creditors or any thereof, or (c) any creditor or creditors shall commence against Borrower any Insolvency Action of any kind which shall remain in effect (neither dismissed nor stayed) for ninety (90) consecutive days. 5A.08 SUBSIDIARIES' SOLVENCY -- If (a) any Subsidiary of Borrower shall commence any Insolvency Action of any kind or admit (by answer, default or otherwise) the material allegations of, or consent to any relief requested in, any Insolvency Action of any kind commenced against that Subsidiary by its creditors or any thereof, or (b) any creditor or creditors of any Subsidiary of Borrower shall commence against that Subsidiary any Insolvency Action of any kind which shall remain in effect (neither dismissed nor stayed) for ninety (90) consecutive days. 5A.09 JUDGMENTS -- If one or more judgments for the payment of money in an aggregate amount in excess of Five Million Dollars ($5,000,000) (or the equivalent thereof if not denominated in Dollars) (unless such judgment (i) shall have been reserved by the Borrower or the applicable Subsidiary on the date hereof or (ii) shall be insured and the insurance carrier shall have acknowledged in writing liability in respect of the full amount thereof or shall have been ordered by a court of competent jurisdiction to pay such judgment) shall be rendered and remain undischarged against the Borrower or any of its Subsidiaries or any combination thereof and as to which either (x) execution shall not be effectively stayed within a period of thirty (30) consecutive days or (y) any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Borrower or any of its Subsidiaries to enforce any such judgment. 5A.10 MATERIAL ADVERSE CHANGE -- If there shall occur any event, condition or other thing that has, or in the Required Banks' reasonable judgment is likely to have, a material adverse effect on the financial condition, properties or business operations of the Companies taken as a whole or on Banks' or NCB-Agent's ability to enforce any material right arising under or in connection with this Agreement or any other Related Writing. 5B. EFFECTS OF DEFAULT -- Notwithstanding any contrary provision or inference in this Agreement or in any Related Writing: 5B.01 OPTIONAL DEFAULTS -- If any Event Of Default referred to in subsections 5A.01 through 5A.06, both inclusive, or 5A.09 or 5A.10 shall occur and be continuing, the Required Banks shall have the right in their discretion, by giving written notice to Borrower, 37 46 (a) to terminate the Revolving Commitments (if not already expired or reduced to zero pursuant to section 2B or terminated pursuant to this section) and no Bank shall have any obligation thereafter to grant any Revolving Loan to Borrower, and (b) to accelerate the Maturity of all of the Subject Indebtedness and all other Debt, if any, then owing to the Banks and NCB-Agent or any thereof (other than Debt, if any, already due and payable) and all such Debt shall thereupon become and thereafter be immediately due and payable in full without any presentment or demand and without any further or other notice of any kind, all of which are hereby waived by Borrower. 5B.02 AUTOMATIC DEFAULTS --If any Event Of Default referred to in subsection 5A.07 or 5A.08 shall occur, (a) the Revolving Commitments shall automatically and immediately terminate (if not already expired or reduced to zero pursuant to section 2B or terminated pursuant to this section) and no Bank shall have any obligation thereafter to grant any Revolving Loan to Borrower, and (b) all of the Subject Indebtedness and all other Debt, if any, then owing to the Banks and NCB-Agent or any thereof (other than Debt, if any, already due and payable) shall thereupon become and thereafter be immediately due and payable in full, all without any presentment, demand or notice of any kind, which are hereby waived by Borrower. 5B.03 OFFSETS -- If there shall occur or exist any Default Under This Agreement then, so long as that Default Under This Agreement exists, each Bank shall have the right at any time to set off against and to appropriate and apply toward the payment of the Subject Indebtedness then owing to it (and any participation purchased or to be purchased pursuant to subsection 5B.05), whether or not the same shall then have matured, any and all deposit balances then owing by that Bank to or for the credit or account of the Companies or any thereof, all without notice to or demand upon Borrower or any Subsidiary or any other person, all such notices and demands being hereby expressly waived. 5B.04 EQUALIZATION -- Each Bank agrees with the other Banks that if at any time it shall obtain any Advantage over the other Banks or any thereof in respect of the Subject Indebtedness it will purchase from such other Bank or Banks, for cash and at par, such additional participation in the Subject Indebtedness owing to the other or others as shall be necessary to nullify the Advantage. If any such Advantage resulting in the purchase of an additional participation as aforesaid shall be recovered in whole or in part from the Bank receiving the Advantage, each such purchase shall be rescinded, and the purchase price restored (with interest and other charges if and to the extent actually incurred by the Bank receiving the Advantage) Ratably to the extent of the recovery. During the existence of any Event of Default, any payment (whether made voluntarily or 38 47 involuntarily, by offset of any deposit or other indebtedness or otherwise) of any indebtedness for borrowed money owing by Borrower to any Bank shall be applied to the Subject Indebtedness owing to that Bank until the same shall have been paid in full before any thereof shall be applied to other indebtedness for borrowed money owing to that Bank. 6A. INDEMNITY: STAMP TAXES -- Borrower will pay all stamp taxes and similar taxes, if any, including interest and penalties, if any, payable in respect of the issuance of the Subject Indebtedness. 6B. INDEMNITY: GOVERNMENTAL COSTS/LIBOR-RATE LOANS -- If (a) there shall be introduced or changed any treaty, statute, regulation or other law, or there shall be made any change in the interpretation or administration thereof, or there shall be made any request from any central bank or other lawful governmental authority, the effect of any of which events shall be to (1) impose, modify or deem applicable any reserve or special deposit requirements against assets held by or deposits in or Loans by any national banking association or other commercial banking institution (whether or not applicable to any Bank) or any Bank or (2) subject any Bank to any tax, duty, fee, deduction or withholding or (3) change the basis of taxation of payments due to any Bank from Borrower (otherwise than by a change in taxation of that Bank's overall Net Income), or (4) impose on any Bank any penalty in respect of any loans bearing interest at a LIBOR rate and (b) in that Bank's sole opinion any such event (1) increases (or, if the event were applicable to that Bank, would increase) the cost of making, funding or maintaining any loans at such rate or (2) reduces the amount of any payment to be made to that Bank in respect of the principal or interest on any loans bearing interest at such rate or other payment under this Agreement, then, within fifteen (15) business days of such Bank's demand, Borrower shall from time to time pay Bank an amount equal to each such cost increase or reduced payment, as the case may be. 6C. INDEMNITY: FUNDING COSTS -- Borrower agrees to indemnify each Bank against any loss relating in any way to its funding of any loan bearing interest at a LIBOR rate paid before its stated Maturity (whether a prepayment or a payment following any acceleration of Maturity) and to pay that Bank, as liquidated damages for any such loss, an amount (discounted to the present value in accordance with standard financial practice at a rate equal to the Treasury Yield) equal to interest computed on the principal payment from the payment date to the respective stated maturities thereof at a rate equal to the difference of the contract rate less the Treasury Yield, all as determined by the Bank in its reasonable discretion. "Treasury Yield" means the annual yield on direct obligations of the United States having a principal amount and Maturity similar to that of the principal being paid. 6D. CREDIT REQUESTS -- Whenever Borrower shall revoke any Credit Request for a LIBOR loan, or shall for any other reason fail to borrow pursuant thereto or otherwise comply 39 48 therewith, or shall fail to honor any prepayment notice, then, in each case on any Bank's demand, Borrower shall pay each Bank such amount as will compensate it for any loss, cost or expense incurred by it by reason of its liquidation or reemployment of deposits or other funds. 6E. INDEMNITY: UNFRIENDLY TAKEOVERS -- Borrower agrees to indemnify each Bank and NCB-Agent (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind (including, without limitation, the reasonable fees and disbursements of counsel in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitee shall be designated a party thereto) which may be incurred by each Indemnitee relating to or arising out of any actual or proposed use of proceeds of the Revolving Loans in connection with the financing of an acquisition of any corporation or other business entity, PROVIDED that no Indemnitee shall have the right to be indemnified hereunder for its own gross negligence or willful misconduct as determined by a court of competent jurisdiction. 6F. INDEMNITY: CAPITAL REQUIREMENTS -- If (a) at any time any governmental authority shall require any Bank (or any corporate shareholder of that Bank), whether or not the requirement has the force of law, to maintain, as support for that Bank's Revolving Commitment, capital in a specified minimum amount that either is not required or is greater than that required at the date of this Agreement, whether the requirement is implemented pursuant to the "risk-based capital guidelines" (published at 12 CFR 3 in respect of "national banking associations", 12 CFR 208 in respect of "state member banks" and 12 CFR 225 in respect of "bank holding companies") or otherwise, and (b) as a result thereof the rate of return on capital of that Bank or its shareholder or both (taking into account their then policies as to capital adequacy and assuming full utilization of their capital) shall be directly or indirectly reduced by reason of any new or added capital thereby allocable to that Bank's Revolving Commitment, then and in each such case Borrower shall, on that Bank's demand, pay that Bank as an additional fee such amounts as will in that Bank's reasonable opinion reimburse that Bank or its shareholder for any such reduced rate of return. 6G. INDEMNITY: COLLECTION COSTS -- If any Event Of Default shall occur and shall be continuing, Borrower will pay the Banks and NCB-Agent such further amounts, to the extent permitted by law, as shall cover their respective costs and expenses (including, without limitation, the reasonable fees interdepartmental charges and disbursements of its counsel) incurred in collecting the Subject Indebtedness or in otherwise enforcing its rights and remedies in respect thereof. 6H. CERTIFICATE FOR INDEMNIFICATION -- Each demand by NCB-Agent or a Bank for payment pursuant to section 6A, 6B, 6C, 6D, 6E, 6F or 6G shall be accompanied by a certificate setting forth the reason for the payment, the amount to be paid, and the computations 40 49 and assumptions in determining the amount, which certificate shall be presumed to be correct in the absence of manifest error. In determining the amount of any such payment, each Bank may use reasonable averaging and attribution methods. 7A. BANK'S PURPOSE -- Each Bank represents and warrants to the other Banks and to Borrower that such Bank is familiar with the Securities Act of 1933 as amended and the rules and regulations thereunder and is not entering into this Agreement with any intention of violating that Act or any rule or regulation thereunder, it being understood, however, that each Bank shall at all times retain full control of the disposition of its assets. 7B. NCB-AGENT -- Each Bank irrevocably appoints NCB to be its agent with full authority to take such actions, and to exercise such powers, on behalf of the Banks in respect of this Agreement and the Related Writings as are therein respectively delegated to NCB-Agent or as are reasonably incidental to those delegated powers. 7B.01 NATURE OF APPOINTMENT -- NCB-Agent shall have no fiduciary relationship with any Bank by reason of this Agreement and the Related Writings, nor shall NCB-Agent have any duty or responsibility whatever to any Bank EXCEPT those expressly set forth in this Agreement and the Related Writings. Without limiting the generality of the foregoing, each Bank acknowledges that NCB-Agent is acting as such solely as a convenience to the Banks and not as a manager of the Subject Loans or Subject Indebtedness. This section 7B does not confer any rights upon Borrower or anyone else (EXCEPT NCB-Agent and the Banks), whether as a third party beneficiary or otherwise. 7B.02 NCB AS A BANK; OTHER TRANSACTIONS -- NCB's rights under this Agreement and the Related Writings shall not be affected by its serving as NCB-Agent. NCB and its affiliates may generally transact any banking, financial, trust, advisory or other business with Borrower (including, without limitation, the acceptance of deposits, the extension of credit, forward exchange rate contracts, interest rate caps, swaps, collars and other like contracts and the acceptance of fiduciary appointments) without notice to the Banks, without accounting to the Banks, and without prejudice to NCB's rights as a Bank under this Agreement and the Related Writings. 7B.03 INSTRUCTION FROM BANKS -- NCB-Agent shall not be required to exercise any discretion or take any action as to matters not expressly provided for by this Agreement and the Related Writings (including, without limitation, collection and enforcement actions in respect of the Subject Indebtedness and any collateral therefor) EXCEPT that NCB-Agent shall take such action (or omit to take such action) as may be reasonably requested of it in writing by the Required Banks, which instructions and which actions and omissions shall be binding upon all the Banks; PROVIDED, that NCB-Agent shall not be required to act (nor omit any act) if, in its reasonable judgment, any such action or omission might expose NCB-Agent to personal liability or might be contrary to this Agreement, any Related Writing or any applicable law. 41 50 7B.04 BANKS' DILIGENCE -- Each Bank (a) represents and warrants that it has made its decision to enter into this Agreement and the Related Writings and (b) agrees that it will make its own decision as to taking or not taking future actions in respect of this Agreement and the Related Writings in each case without reliance on NCB-Agent or any other Bank and on the basis of its independent credit analysis and its independent examination of and inquiry into such documents and other matters as it deems relevant and material. 7B.05 NO IMPLIED REPRESENTATIONS -- NCB-Agent shall not be liable for any representation, warranty, agreement or obligation of any kind of any other party to this Agreement or anyone else, whether made or implied by Borrower in this Agreement or any Related Writing or by a Bank in any notice or other communication or by anyone else or otherwise. 7B.06 SUB-AGENTS -- NCB-Agent may employ agents and shall not be liable (EXCEPT as to money or property received by it or its agents) for any negligence or misconduct of any such agent selected by it with reasonable care. NCB-Agent may consult with legal counsel, certified public accountants and other experts of its choosing (including, without limitation, NCB's salaried employees, any employed by Borrower or any otherwise not independent) and shall not be liable for any action or inaction taken or suffered in good faith by it in accordance with the advice of any such counsel, accountants or other experts. 7B.07 NCB-AGENT'S DILIGENCE -- NCB-Agent shall not be required (a) to keep itself informed as to anyone's compliance with any provision of this Agreement or any Related Writing, (b) to make any inquiry into the properties, financial condition or operations of Borrower or any other matter relating to this Agreement or any Related Writing, (c) to report to any Bank any information (other than which this Agreement or any Related Writing expressly requires to be so reported) that NCB-Agent or any of its affiliates may have or acquire in respect of Borrower's properties, business or financial condition or any other matter relating to this Agreement or any Related Writing or (d) to inquire into the validity, effectiveness or genuineness of this Agreement or any Related Writing. 7B.08 NOTICE OF DEFAULT -- NCB-Agent shall not be deemed to have knowledge of any Event of Default unless and until it shall have received a written notice describing it and citing the relevant provision of this Agreement or any Related Writing. 7B.09 NCB-AGENT'S LIABILITY -- Neither NCB-Agent nor any of its directors, officers, employees, attorneys and other agents shall be liable for any action or omission on their respective parts EXCEPT for gross negligence or willful misconduct. 42 51 7B.10 COMPENSATION -- At the execution and delivery of this Agreement and annually thereafter so long as any Subject Loans are outstanding, Borrower shall pay NCB-Agent a fee to be determined by mutual agreement of Borrower and NCB-Agent. Except as otherwise provided herein, NCB-Agent shall receive no other compensation for its services as agent of the Banks in respect of this Agreement and the Related Writings, but Borrower shall reimburse NCB-Agent periodically on its demand for out-of-pocket expenses. if any, reasonably incurred by it as such. 7B.11 DISBURSEMENTS -- Whenever NCB-Agent shall receive any funds in respect of the Subject Indebtedness or otherwise in respect of this Agreement or any Related Writing, whether from Borrower for the account of the Banks or from the Banks for the account of Borrower, NCB-Agent shall disburse the funds on the day the funds shall be deemed to have been received. NCB-Agent shall be entitled (but not obligated) to make a timely disbursement of loan proceeds to Borrower before actually receiving funds from the Banks (EXCEPT if and to the extent NCB-Agent shall have received written instructions to the contrary from any Bank or Banks) and to make a timely disbursement of payments to the Banks before actually receiving funds from Borrower. If the funds to be disbursed are not received by NCB-Agent on a timely basis, NCB-Agent at its option may (a) rescind the disbursement and require the disbursee to return the funds in question with interest or (b) require the party who failed to furnish the funds for disbursement on a timely basis to pay NCB-Agent interest thereon -- the interest in each case to be computed at the Federal Funds Rate and to be paid on demand. 7B.12 NCB-AGENT'S INDEMNITY -- The Banks shall indemnify NCB-Agent (to the extent NCB-Agent is not reimbursed by Borrower) from and against any loss or liability (other than any caused by NCB-Agent's gross negligence or willful misconduct) incurred by NCB-Agent as such in respect of this Agreement or any Related Writing and from and against any out-of-pocket expenses incurred in defending itself or otherwise related to this Agreement or any Related Writing including, without limitation, reasonable fees and disbursements of legal counsel of its own selection (including, without limitation, the reasonable interdepartmental charges of its salaried attorneys) in the defense of any claim against it or in the prosecution of its rights and remedies as NCB-Agent; PROVIDED, that each Bank shall be liable for only its Ratable share of the whole loss or liability. 7B.13 RESIGNATION -- NCB-Agent (or any successor) may resign as such at any time upon ten (10) days' prior written notice to Borrower and to each Bank, in which event the Required Banks may appoint a successor agent by giving written notice thereof to Borrower and the resigning agent. In the absence of a timely appointment, NCB-Agent shall have the right (but not the duty) to make a temporary appointment of any Bank (but only with that Bank's consent) to act as its successor pending an appointment pursuant to the next preceding sentence. In either case, the successor agent shall deliver its written acceptance of appointment to Borrower, to each Bank and to the former agent. Thereupon the successor agent shall automatically acquire and assume all the rights and duties as those prescribed for NCB-Agent by this section 7B. Any resigning agent shall 43 52 execute and deliver such assignments and other writings as the successor agent may reasonably require to facilitate its becoming the successor agent. 7C. TRANSFER OF SUBJECT LOANS -- Each Bank shall have the right at any time or times to transfer its Subject Loans (or commitment to make the same) in whole or in part and without recourse to another financial institution (provided that such transfers shall be in a minimum amount of $10,000,000), PROVIDED, in each such case. that the transferor and the transferee shall have complied with the following requirements: 7C.01 PRIOR CONSENT -- No Subject Loans (or commitment to make the same) may be transferred, either in whole or in part, without the prior written consent of Borrower and NCB-Agent, neither of which consents shall be unreasonably withheld. 7C.02 AGREEMENT -- The transferee shall execute and deliver to Borrower, NCB-Agent and each Bank (other than any transferor which thereafter will have no interest in any Subject Loans or any commitment to make the same) a counterpart of this Agreement and such additional amendments, assurances and other writings as NCB-Agent may reasonably require. 7C.03 NOTE -- Borrower shall execute and deliver to the transferee an appropriate Revolving Note or Revolving Notes, or Term Note or Term Notes, as the case may be, and an appropriate release to the transferor. 7C.04 PARTIES -- Upon satisfaction of the requirements of this section 7C, (a) the transferee shall become and thereafter be deemed to be a Bank for the purposes of this Agreement and (b) The transferor (i) shall continue to be a Bank for the purposes of this Agreement only if and to the extent that the transfer shall not have been a transfer of its entire interest in the Subject Loans (or commitment to make the same) and (ii) shall cease to be and thereafter shall no longer be deemed to be a Bank in the case of any transfer of its entire interest in the Subject Loans (or commitment to make the same). 7C.05 PROCESSING FEE -- The transferor Bank and/or the transferee Bank shall pay to NCB-Agent, for its own account, a processing fee of Three Thousand Dollars ($3,000) for each such transfer on or prior to the effective date thereof. 7D. PARTICIPATION OF SUBJECT LOANS -- Each Bank shall have the right at any time or times to sell or otherwise transfer participating interests its Subject Loans in whole or in part (provided that such participating interests shall be in a minimum amount of $5,000,000) and without recourse, PROVIDED, that Borrower and NCB-Agent retain the right, for the purposes of this Agreement, to continue to treat the seller as the sole record holder of the Subject Loan or Subject Loans in question EXCEPT if and to the extent the seller's Revolving Commitment 44 53 shall have been transferred in accordance with section 7C. In the event of a participation, the selling Bank will remain the holder of all applicable notes. 8. INTERPRETATION -- This Agreement and the Related Writings (other than the Acquisition Agreement and the Acquisition Documents) shall be governed by the following provisions: 8.01 WAIVERS -- The Banks and NCB-Agent may from time to time grant waivers and consents in respect of this Agreement or any Related Writing or assent to amendments thereof, but no such waiver, consent or assent shall be binding upon the Banks and NCB-Agent or any thereof unless (a) it shall have been reduced to writing, each such writing to be narrowly construed and (b) the waiver, consent or amendment shall have been approved by the Required Banks; provided, however, that (i) no amendment, waiver or consent shall, unless in writing and signed by all Banks directly affected thereby, do any of the following at any time: (A) change the percentage of the Revolving Commitments or the aggregate unpaid principal amount of the Revolving Notes, (B) change the number or percentage of Banks that shall be required for the Banks or any of them to take any action hereunder or change the percentage contained in the definition of Required Banks, (C) amend this subsection 8.01, (D) decrease the principal amount of, or extend the maturity of or any scheduled principal or interest payment date for, any Revolving Loan, (E) waive or excuse any payment or any part thereof, (F) decrease the rate of interest on any Revolving Loan, or (G) change or delay the fees payable to the affected Bank and (ii) no amendment, waiver or consent shall affect the rights or duties of NCB-Agent without the prior written consent of NCB-Agent. Without limiting the generality of the foregoing, Borrower agrees that no course of dealing in respect of, nor any omission or delay in the exercise of any right, power or privilege by Banks and NCB-Agent or any thereof shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any further or other exercise thereof or of any other right, power or privilege, and each such right, power or privilege may be exercised either independently or concurrently with others and as often and in such order as the party or parties exercising the same may deem expedient. 8.02 CUMULATIVE PROVISIONS -- Each right, power or privilege specified or referred to in this Agreement or any Related Writing is in addition to and not in limitation of any other rights, powers and privileges that Banks and NCB-Agent may respectively otherwise have or acquire by operation of law, by other contract or otherwise. All rights, powers and privileges shall be deemed cumulative. 8.03 BINDING EFFECT -- The provisions of this Agreement and the Related Writings shall bind and benefit Borrower, NCB-Agent and each Bank and their respective successors and assigns, including each subsequent holder, if any, of the Revolving Notes or any thereof; PROVIDED, that no person or entity other than Borrower may obtain Revolving Loans and Borrower may not assign its rights or obligations hereunder without the Required Banks' consent; and PROVIDED, FURTHER, that neither any holder of any 45 54 Revolving Note or assignee of any Revolving Loan, whether in whole or in part, shall thereby become obligated thereafter to grant to Borrower any Revolving Loan. 8.04 SURVIVAL OF PROVISIONS -- All representations and warranties made in or pursuant to this Agreement or any Related Writing shall survive the execution and delivery of this Agreement, the Term Notes and the Revolving Notes. The provisions of section 6 (inclusive) and subsection 7B.12 shall survive the payment of the Subject Indebtedness. 8.05 IMMEDIATE U.S. FUNDS -- Any reference to money is a reference to lawful money of the United States of America which, if in the form of credits, shall be in immediately available funds. 8.06 CAPTIONS -- The several captions to different sections and subsections of this Agreement are inserted for convenience only and shall be ignored in interpreting the provisions thereof. 8.07 SUBSECTIONS -- Each reference to a section includes a reference to all subsections thereof (i.e., those having the same character or characters to the left of the decimal point) EXCEPT where the context clearly does not so permit. 8.08 ILLEGALITY -- If any provision in this Agreement or any Related Writing shall for any reason be or become illegal, void or unenforceable, that illegality, voidness or unenforceability shall not affect any other provision. 8.09 OHIO LAW -- This Agreement and the Related Writings and the respective rights and obligations of the parties hereto shall be construed in accordance with and governed by internal Ohio law. 8.10 INTEREST/FEE COMPUTATIONS -- All interest and all fees for any given period shall accrue on the first (1st) day thereof but not on the last day thereof and in each case shall be computed on the basis of a 360-day year and the actual number of days elapsed. In no event shall interest accrue at a higher rate than the maximum rate, if any, permitted by law. 8.11 NOTICE -- A notice to or request of Borrower shall be deemed to have been given or made under this Agreement or any Related Writing either upon the delivery of a writing to that effect (either in person or by transmission of a telecopy) to an officer of Borrower or five (5) days after a writing to that effect shall have been deposited in the United States mail and sent, with postage prepaid, by registered or certified mail, properly addressed to Borrower (Attention: chief financial officer). No other method of actually giving written notice to or making a written request of Borrower is hereby precluded Every notice required to be given to NCB-Agent or any Bank pursuant to this Agreement or any Related Writing shall be delivered (either in person or by transmission of a telecopy) to an Account Officer of that party. The Banks and NCB-Agent each agree to 46 55 give prompt notice to the others whenever it gives any notice pursuant to section 5A or 5B or grants any waiver or consent as provided in subsection 8.01. A notice or request by mail is properly addressed to a party when addressed to it at the address set forth opposite its signature below or at such other address as that party may furnish to each of the others in writing for that purpose. A telecopy is transmitted to a party when transmitted to the telecopy number set forth opposite that party's signature below (or at such other telecopy number as that party may furnish to the other in writing for that purpose). 8.12 ACCOUNTING TERMS -- Any accounting term used in this Agreement shall have the meaning customarily ascribed thereto by GAAP subject, however, to such modification, if any, as may be provided by section 9 or elsewhere in this Agreement. 8.13 ENTIRE AGREEMENT -- This Agreement and the Related Writings referred to in or otherwise contemplated by this Agreement set forth the entire agreement of the parties as to the transactions contemplated by this Agreement. This Agreement amends and restates a certain Credit Agreement dated July 6, 1995 entered into between and among Borrower, NCB-Agent, National City Bank and ABN Amro Bank N.V. This Agreement is not intended as a novation of the obligations of Borrower under the original Credit Agreement but rather is merely a restatement of the obligations thereunder after giving effect to certain amendments agreed upon between the parties. 8.14 WAIVER OF JURY TRIAL -- THE PARTIES ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT AND THE RELATED WRITINGS WOULD INVOLVE DIFFICULT AND COMPLEX ISSUES AND THEREFORE AGREE THAT ANY LAW SUIT GROWING OUT OF OR INCIDENTAL, TO ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. 8.15 LATE CHARGE; APPLICATION OF PAYMENTS --If Borrower fails to pay any amount due hereunder, or any fee in connection herewith, in full within ten (10) days after its due date, Borrower will, in each case, incur and shall pay a late charge equal to the greater of twenty dollars ($20.00) or five percent (5%) of the unpaid amount. The payment of a late charge will not cure or constitute a waiver of any Event Of Default under this Agreement. Except as otherwise agreed in writing, payments will be applied first to accrued but unpaid interest and fees, in that order, on an invoice by invoice basis in the order of their respective due dates, until paid in full, then to late charges and then to principal. 8.16 EXPENSES -- Borrower agrees to reimburse each Bank, on that Bank's demand from time to time, for any and all fees, costs and expenses (including, without limitation, the fees, interdepartmental charges and disbursements of legal counsel) incurred by that Bank in connection with (a) preparing any amendments or modifications to this Agreement or any Related Writing, (b) administering this Agreement and the Subject Indebtedness evidenced and contemplated hereby and by the other Related Writings, (c) 47 56 any filing or recording fees, lien search fees, documentary stamp taxes or other like fees, taxes or charges, (d) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Banks, Borrower or any other Person) in any way relating to the Subject Indebtedness, this Agreement or any of the other Related Writings or Borrower's affairs, but excluding any litigation between Borrower and Bank as adverse parties unless otherwise permitted by law in connection with any judgment awarded in favor of the prevailing party or (e) any inspection, verification or protection of any of Banks' collateral for the Subject Indebtedness. Borrower's reimbursement obligations hereunder shall constitute a part of Borrower's Debt. 8.17 JURISDICTION AND VENUE -- As part of the consideration for new value received, Borrower hereby consents to the jurisdiction of any state or federal court located within the state of Ohio and consents that all such service of process be made by registered or certified mail directed to such Borrower at the address set forth opposite its name and officer's signature on the execution page hereof and service so made shall be deemed to be completed upon actual receipt thereof. Borrower waives any objection to jurisdiction and venue of any action instituted hereunder or in connection with any Related Writing and agrees not to assert any defense based on lack of jurisdiction or venue. Nothing contained herein shall affect the right of Banks or NCB-Agent to serve legal process in any other manner permitted by law or affect the right of Banks or NCB-Agent to bring any action or proceeding against Borrower or its property in the courts of any other jurisdiction. Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. 8.18 AMBIGUITIES -- Borrower and Banks acknowledge that this Agreement and the Related Writings have been entered into in the context of free and understanding negotiations and are the product of individual bargaining, in a competitive market, between parties enjoying equal bargaining strength. In the event that a court is called upon to interpret any ambiguous provision in this Agreement or the Related Writings, Borrower and Banks agree that the ambiguity shall not be construed against Borrower or Banks simply because Borrower or Banks, or their respective agents or counsel, may have drafted such provision. 8.19 OTHER WAIVERS AND ACKNOWLEDGMENT -- Except as otherwise provided for in this Agreement or as required by applicable law, Borrower waives (i) presentment, demand and protest and notice of presentment, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Banks or NCB-Agent on which Borrower may in any way be liable and (ii) notice prior to taking possession or control of any collateral which might be required by any court prior to allowing Banks to exercise any of Banks' or NCB-Agent's remedies. Borrower acknowledges that it has been advised by counsel of its choice with respect to this Agreement and the transactions contemplated hereby, and Borrower acknowledges and 48 57 agrees that (a) each of the waivers set forth herein, were knowingly and voluntarily made; (b) the rights of Banks and NCB-Agent hereunder shall be strictly construed in favor of Banks and NCB-Agent, as the case may be; and (c) no representative of Banks or NCB-Agent has waived or modified any of the provisions of this Agreement or any Related Writing as of the date hereof and no such waiver or modification following the date hereof shall be effective unless made in accordance with section 8.01 hereof. 8.20 CONFIDENTIALITY -- Each Bank hereby (a) acknowledges that the Companies have many trade secrets and much financial, environmental and other data and information the confidentiality of which is important to their business and (b) agrees to keep confidential any such trade secret, data or other information designated by a Company as confidential, except that this section shall not preclude any Bank from furnishing any such secret, data or information (i) as may be required by order of any court of competent jurisdiction or requested by any governmental agency having any regulatory authority over such Bank or its securities or in response to legal process, (ii) to any other party to this Agreement, (iii) or to any actual or perspective transferee, participant or sub-participant (so long as such perspective transferee, participant or subparticipant is a financial institution) of all or part of that Bank's rights arising out of or in connection with the Related Writings and this Agreement or any thereof so long as such perspective transferee, participant or sub-participant to whom disclosure is made agrees to be bound by the provisions of this Section 8.20, (iv) to anyone if it shall have been already publicly disclosed (other than by that Bank in contravention of this Section 8.20), (v) to the extent reasonably required in connection with the exercise of any right or remedy under this Agreement or any Related Writing and (vi) to that Bank's legal counsel, auditors and accountants. 9. DEFINITIONS -- As used in this Agreement and in the Related Writings, EXCEPT where the context clearly requires otherwise, ACCEPTABLE MARKETABLE SECURITIES means securities that are direct obligations of the United States of America or any agency thereof, or certificates of deposit issued by any Bank or by any other financial institution organized under the laws of the United States or any state thereof which is approved in writing by NCB-Agent, in NCB-Agent's reasonable discretion, or any other money-market investment if it carries the highest quality of rating of any nationally recognized rating agency or any repurchase agreements issued by banks continuously secured by obligations issued or guaranteed and backed by the full faith and credit of the United States of America; provided, however, that no such security shall mature more than ninety (90) days after the date when made; ACCOUNT OFFICER means that officer who at the time in question is designated by the Bank in question as the officer having primary responsibility for giving consideration to Borrower's requests for credit or, in that officer's absence, that officer's immediate superior or any other officer who reports directly to that superior officer; 49 58 ACCUMULATED FUNDING DEFICIENCY shall have the meaning ascribed thereto in section 302(a)(2) of ERISA; ACQUISITION is identified in subsection 2D.01; ACQUISITION AGREEMENT means that certain Stock Purchase Agreement between Seller and Borrower, dated December 20, 1996; ACQUISITION DOCUMENTS means any instrument, agreement, financial statement, notice, officer's certificate or other document or writing of any kind which is delivered to Borrower or Seller and which is relevant in any manner to the Acquisition Document; ACQUISITION PROJECTIONS means those certain projections titled "Project Raleigh--Merger and Acquisition Analysis, prepared by Borrower and Donaldson, Lufkin & Jenrette and delivered to Banks. ADJUSTED FUNDED INDEBTEDNESS/EBITDA Ratio means a ratio, calculated in accordance with GAAP on a rolling four (4) quarter basis, of the sum of (a) the Maximum Outstanding Amount for such period plus (b) the consolidated amount of Funded Indebtedness of the Companies plus (c) the consolidated amount of all other indebtedness for borrowed money of the Companies (excluding in the case of clauses (b) and (c) the principal amount of the Revolving Loans outstanding at such time) to the consolidated EBITDA of the Companies for the same period; ADVANTAGE means any payment (whether made voluntarily or involuntarily, by offset of any deposit or other indebtedness or otherwise) received by a Bank in respect of the Subject Indebtedness if the payment results in that Bank's having less than its Ratable share of the Subject Indebtedness in question; AFFILIATE, when used with reference to any corporation (or other business entity) (the "subject") means, a corporation (or other business entity) or person that is in control of or under the control of or under common control (by another) with the subject; the term control meaning the direct or indirect power to direct the management or policies of the subject or the Affiliate or both (as the case may be), whether through the direct or indirect ownership of voting securities, by contract or otherwise; AGREEMENT means this Agreement and includes each amendment, supplement or restatement, if any, to this Agreement; BANK means one of the banking institutions that is a party to this Agreement; BANKING DAY means (a) in the case of a LIBOR Loan, a day on which banks in the London interbank market deal in United States dollar deposits and on which banking institutions are generally open for domestic and international business in Cleveland and in New York City and (b) in any other case, any day other than a Saturday or a Sunday 50 59 or a public holiday or other day on which banking institutions in Cleveland, Ohio are generally closed and do not conduct banking business; BORROWER means OM GROUP, INC., a Delaware corporation; CERCLA means the Comprehensive Environmental Response, Compensation and Liability Act (42 USC 9601 et seq.) as amended; COMPANY refers to Borrower or to a Subsidiary of Borrower, as the case may be and COMPANIES refers to Borrower and its Subsidiaries; COMPENSATION includes all considerations or remuneration (including without limitation, deferred compensation and disbursements to trusts), whatever the form or kind, for services rendered; CONVERSION/CONTINUATION REQUEST means a request made pursuant to subsection 2D.07; CREDIT REQUEST means a request made pursuant to subsection 2C.02; CURRENT ASSETS means the net book value of all such assets (after deducting applicable reserves, if any, and without consideration to any reappraisal or write-up of assets) as determined in accordance with GAAP; CURRENT GUARANTORS means, collectively, each of OMG Americas, Inc., OMG Apex, Inc. and Target; CURRENT LIABILITIES means all such liabilities as determined in accordance with GAAP and includes (without limitation) all accrued taxes and all principal of any Funded Indebtedness maturing within twelve months of the date of determination; DEBT means, collectively, all liabilities (including principal, interest, fees, charges, expenses and any other amounts) of the party or parties in question to the Banks and NCB-Agent or any thereof, whether owing by one such party alone or with one or more others in a joint, several, or joint and several capacity, whether now owing or hereafter arising, whether owing absolutely or contingently, whether created by loan, overdraft, guaranty of payment or other contract or by quasi-contract or tort, statute or other operation of law or otherwise, whether incurred directly to the Banks and NCB-Agent of any thereof or acquired by purchase, pledge or otherwise, and whether participated to or from the Banks and NCB-Agent or any thereof in whole or in part; and in the case of Borrower includes, without limitation, the Subject Indebtedness; DEFAULT UNDER ERISA means (a) the occurrence or existence of a material Accumulated Funding Deficiency in respect of any of the Companies' Pension Plans, (b) any material failure by a Company to make a full and timely payment of premiums required by ERISA for insurance against any employer's liability in respect of any such plan, (c) any material 51 60 breach of a fiduciary duty by a Company or any trustee in respect of any such plan or (d) the existence of any action for the forcible termination of any such plan; DEFAULT UNDER THIS AGREEMENT means an event, condition or thing which constitutes (or which with the lapse of any applicable grace period or the giving of notice or both would constitute) an Event Of Default referred to in section 5A and which has not been appropriately waived in writing in accordance with this Agreement or corrected to the Required Banks' full satisfaction; DISTRIBUTION means a payment made, liability incurred or other consideration (other than any stock dividend or stock split payable solely in capital stock of Borrower) given by a Company for the purchase, acquisition, redemption or retirement of any capital stock of the Company or as a dividend, return of capital or other Distribution in respect of the Company's capital stock and DISTRIBUTE means to make a Distribution; EBITDA means, at the time and for the period of reference thereto, the Companies' consolidated Net Income for that period plus the Companies' consolidated interest expense for that period plus the Companies' consolidated federal, state and local income taxes for that period plus the Companies' consolidated depreciation and amortization expense for that period; ENVIRONMENTAL LAW means CERCLA, the Hazardous Material Transportation Act (49 USC 1801 et seq.), the Resource Conservation and Recovery Act (42 USC 6901 et seq.), the Federal Water Pollution Control Act (33 USC 1251 et seq.), the Toxic Substances Control Act (15 USC 2601 et seq.) and the Occupational Safety and Health Act (29 USC 651 et seq.), as such laws have been or hereafter may be amended, and any and all analogous present or future federal, state or local statutes and the regulations promulgated pursuant thereto; ERISA means the Employee Retirement Income Security Act of 1974 (P.L. 93-406) as amended from time to time and in the event of any amendment affecting any section thereof referred to in this Agreement, that reference shall be a reference to that section as amended, supplemented, replaced or otherwise modified; ERISA AFFILIATE of any Person means any other Person that for purposes of Title IV of ERISA is a member of such persons controlled group, or under common control with such Person, within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended from time to time; ERISA REGULATOR means any governmental agency (such as the Department of Labor, The Internal Revenue Service and the Pension Benefit Guaranty Corporation) having any regulatory authority over any Pension Plan; EUROCURRENCY LIABILITIES has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time; 52 61 EUROCURRENCY RESERVE PERCENTAGE means, for any LIBOR Contract Period in respect of any Series of Subject Loans comprised by LIBOR Loans, as of any date of determination, the aggregate of the then stated maximum reserve percentages (including any marginal, special, emergency or supplemental reserves), expressed as a decimal, applicable to such LIBOR Contract Period (if more than one such percentage is applicable, the daily average of such percentages for those days in such LIBOR Contract Period during which any such percentage shall be so applicable) by the Board of Governors of the Federal Reserve System, any successor thereto, or any other banking authority, domestic or foreign, to which NCB-Agent may be subject in respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Federal Reserve Board) or in respect of any other category of liabilities including deposits by reference to which the interest rate on LIBOR Loans is determined or any category of extension of credit or other assets that include the Series of LIBOR Loans. For purposes hereof, such reserve requirements shall include, without limitation, those imposed under Regulation D of the Federal Reserve Board and the LIBOR Loans shall be deemed to constitute Eurocurrency Liabilities subject to such reserve requirements without benefit of credits for proration, exceptions or offsets which may be available from time to time to NCB-Agent under said Regulation D; EVENT OF DEFAULT is defined in section 5A; EXPIRATION DATE means the date referred to as such in subsection 2B.02, EXCEPT that in the event of any extension pursuant to subsection 2B.05, "Expiration Date" shall mean the latest date to which the Revolving Commitments shall have been so extended; FEDERAL FUNDS RATE means a fluctuating interest rate per annum, as in effect at the time in question, that is the rate determined by Bank to be the opening Federal Funds Rate per annum paid or payable by it on the day in question in its regional federal funds market for overnight borrowings from other banking institutions; FUNDED INDEBTEDNESS means indebtedness of the person or entity in question which matures or which (including each renewal or extension, if any, in whole or in part) remains unpaid for more than twelve (12) months after the date originally incurred and includes, without limitation (a) any indebtedness (regardless of its maturity) if it is renewable or refundable in whole or in part solely at the option of that person or entity (in the absence of default) to a date more than one (1) year after the date of determination, (b) any capitalized lease, (c) any Guaranty of Funded Indebtedness owing by another person or entity and (d) any long-term indebtedness secured by a security interest, mortgage or other lien encumbering any property owned or being acquired by the person or entity in question even if the full faith and credit of that person or entity is not pledged to the payment thereof; PROVIDED, that in the case of any indebtedness payable in installments or evidenced by serial notes or calling for sinking fund payments, those payments maturing within twelve (12) months after the date of determination shall be considered current indebtedness rather than Funded Indebtedness for the purposes of section 3B but shall be considered Funded Indebtedness for all other purposes; 53 62 FUNDED INDEBTEDNESS/EBITDA Ratio means a ratio, calculated in accordance with GAAP on a rolling four (4) quarter basis, of the sum of (a) the consolidated amount of Funded Indebtedness of the Companies plus (b) the consolidated amount of all other indebtedness for borrowed money of the Companies to the consolidated EBITDA of the Companies for the same period; GAAP means generally accepted accounting principles applied in a manner consistent with those used in Borrower's Most Recent 4A.04 Financial Statements; GUARANTOR means one who pledges his credit or property in any manner for the payment or other performance of the indebtedness, contract or other obligation of another and includes (without limitation) any guarantor (whether of collection or payment), any obligor in respect of a standby letter of credit or surety bond issued for the obligor's account, any surety, any co-maker, any endorser, and anyone who agrees conditionally or otherwise to make any loan, purchase or investment in order thereby to enable another to prevent or correct a default of any kind; and GUARANTY means the obligation of a Guarantor; INITIAL REVOLVING NOTE means a note executed and delivered by Borrower in accordance with subsection 2C.01 hereof and being in the form and substance of EXHIBIT C with the blanks appropriately filled; INSIDER, as applied to Subordinated indebtedness, refers to Subordinated indebtedness which at the time in question is owing to any person who is a director or officer of a Company or who is the record and beneficial owner of ten percent (10%) or more of a Company's capital stock or who is a member of the immediate family of any such director, officers or stockholder; INSOLVENCY ACTION means either (a) a pleading of any kind filed by the person, corporation or entity (an "insolvent") in question to seek relief from the insolvent's creditors, or filed by the insolvent's creditors or any thereof to seek relief of any kind against that insolvent, in any court or other tribunal pursuant to any law (whether federal, state or other) relating generally to the rights of creditors or the relief of debtors or both, or (b) any other action of any kind commenced by an insolvent or the insolvent's creditors or any thereof for the purpose of marshaling the insolvent's assets and liabilities for the benefit of the insolvent's creditors; and "Insolvency Action" includes (without limitation) a petition commencing a case pursuant to any chapter of the federal bankruptcy code, any application for the appointment of a receiver, trustee, liquidator or custodian for the insolvent or any substantial part of the insolvent's assets, and any assignment by an insolvent for the general benefit of the insolvent's creditors; LIBOR CONTRACT PERIOD is defined in subsection 2D.04; LIBOR LOAN means a Subject Loan having a LIBOR Contract Period described in subsection 2D.04 and bearing interest in accordance with subsection 2A.04 and 2C.05; 54 63 LIBOR PRE-MARGIN RATE means, for any LIBOR Contract Period with respect to a Series of Subject Loans comprised of LIBOR Loans, the quotient (rounded upwards, if necessary, to the nearest one sixteenth of one percent (1/16th of 1%) of: (x) the per annum rate of interest, determined by NCB-Agent in accordance with its usual procedures (which determination shall be conclusive absent manifest error) as of approximately 11:00 a.m. (London time) two Banking Days prior to the beginning of such LIBOR Contract Period pertaining to such Series of LIBOR Loans, appearing on Page 3750 of the Telerate Service (or any successor or substitute page of such Service, or any successor to or substitute for such Service providing rate quotations comparable to those currently provided on such page of such Service, as determined by NCB-Agent from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) as the rate in the London interbank market for Dollar deposits in immediately available funds with a maturity comparable to such LIBOR Contract Period DIVIDED BY (y) a number equal to 1.00 MINUS the Eurocurrency Reserve Percentage. In the event that such rate quotation is not available for any reason, then the rate (for purposes of clause (x) hereof) shall be the rate, determined by NCB-Agent as of approximately 11:00 a.m. (London time) two Banking Days prior to the beginning of such LIBOR Contract Period pertaining to such Series of LIBOR Loans, to be the average (rounded upwards, if necessary, to the nearest one sixteenth of one percent (1/16th of 1%) of the per annum rates at which Dollar deposits in immediately available funds in an amount comparable to NCB's Ratable portion of such Series of LIBOR Loans and with a maturity comparable to such LIBOR Contract Period are offered to the prime banks by leading banks in the London interbank market. The LIBOR Pre-Margin Rate shall be adjusted automatically on and as of the effective date of any change in the Eurocurrency Reserve Percentage; MATERIAL CONTRACT means those contracts, instruments or other documents (other than this Agreement and the Related Writings) pertaining to a Company pursuant to which: (1) a Company has any direct or indirect obligation for borrowed money (including, without limitation, any contingent liability under any guaranty) or for the deferred portion of the purchase price of any asset or for other financing or the right to incur any such obligation; (2) a mortgage, security interest or other lien has been granted in or otherwise encumbers any property of a Company (or an agreement exists relating to any future grant or encumbrance of a mortgage, security interest or other lien on property of a Company); or (3) a Company or any of a Company's property is bound and which, if terminated, canceled or breached, would, in each case, have a material adverse effect on the financial condition, properties or business operations of the Companies taken as a whole, and the same shall specifically include, but not be limited to, each contract for the purchase of cobalt or nickel metals, cobalt or nickel concentrates or any derivative thereof by any Company and involving aggregate consideration payable by any Company of Three Million Dollars ($3,000,000) or more in any year and the Note Purchase Agreement; MATURITY means, when used with reference to a Subject Loan, the date (whether occurring by lapse of time, acceleration or otherwise) upon which that Subject Loan is due: 55 64 MAXIMUM OUTSTANDING AMOUNT means, at the end of any fiscal quarter or other time period of reference, the dollar amount equal to the highest outstanding principal amount of Revolving Loans of Borrower at any time during such fiscal quarter or other time period of reference; MOST RECENT 4A.04 FINANCIAL STATEMENTS means Borrower's most recent financial statements that are referred to in subsection 4A.04: NCB means National City Bank; NET INCOME means net income as determined in accordance with GAAP, after taxes and after extraordinary items, but without giving effect to any gain resulting from any reappraisal or write-up of any asset; NET OFFERING PROCEEDS means the proceeds of a public equity offering of the Capital Stock of Borrower, net any transaction costs incurred in connection therewith; NOTE PURCHASE AGREEMENT means that certain Note Purchase Agreement dated as of August 30, 1995, as amended by that certain Amendment to Note Purchase Agreement, dated as of January 21, 1997, entered into between and among the Borrower and the Noteholders; NOTEHOLDERS means the Great-West Life and Annuity Insurance Company, The Mutual Life Insurance Company of New York, and Nationwide Life Insurance Company; PENSION PLAN means a defined benefit plan (as defined in section 3(35) of ERISA) of a Company and includes, without limitation, any such plan that is a multi-employer plan (as defined in section 3(37) of ERISA) applicable to any of the Companies' employees; PERSON means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or partnership or other entity, or a government or any political subdivision or agency thereof; POST-REFINANCING AMOUNT means an amount equal to the sum of (a) the Revolving Commitments as of the Refinancing Date (not taking into account the Refinanced Amount) PLUS (b) the Refinanced Amount; PR LOAN means a Subject Loan bearing interest in accordance with subsection 2A.03 and 2C.04; PRIME RATE means the fluctuating rate of interest which is publicly announced from time to time by NCB at its principal place of business as being its "Prime Rate" or "base rate" thereafter in effect, with each change in the Prime Rate automatically, immediately and without notice changing the fluctuating interest rate thereafter applicable hereunder, it 56 65 being agreed that the Prime Rate is not necessarily the lowest rate of interest then available from NCB on fluctuating rate loans; PRIOR CREDIT AGREEMENT means the Amended and Restated Credit Agreement among the Borrower, the Banks and NCB-Agent dated October 18, 1996, pursuant to which the Banks agreed to make revolving loans to Borrower, under certain terms and conditions, in an amount not to exceed One Hundred Twenty Million Dollars ($120,000,000); PROFORMA COVENANT COMPLIANCE means compliance by Borrower and its Subsidiaries with the general financial standards contained in Section 3B of this Agreement as of the time of the event in question and for the following twelve (12) month period based upon the Projections delivered by Borrower in contemplation of such event pursuant to subsection 3A.0l(f) if the same are requested by a Bank and otherwise on Borrower's internally generated and used projections; PROJECTIONS shall have the meaning ascribed to that term in subsection 3A.01(f); RATABLE and RATABLY mean in the proportion that the Subject Loan is divided among the Banks as set forth in section 2; REFINANCING means the payment in full of the aggregate outstanding principal balance of the Term Loans on the Refinancing Date pursuant to subsection 2A.02 with (a) Net Offering Proceeds, if any, and (b) proceeds resulting from the increase in the outstanding aggregate principal balance of the Revolving Loans in an amount equal to the Refinanced Amount; REFINANCING DATE means the earlier to occur of (a) the date upon which the Net Offering Proceeds are received by Borrower and simultaneously Ratably applied to pay down the aggregate outstanding principal balance of the Term Loans, (b) June 30, 1997, or (c) the occurrence of any Default Under This Agreement; REFINANCED AMOUNT means an amount equal to the sum of (a) One Hundred Twenty Million Dollars ($120,000,000) less (b) the Net Offering Proceeds in an amount of up to Sixty Million Dollars ($60,000,000) less (c) the aggregate amount of any optional prepayments of the Term Loans made prior to the Refinancing Date; REFINANCING REVOLVING NOTE means a note executed and delivered by Borrower in accordance with subsection 2C.0l hereof and being in the form and substance of Exhibit C with the blanks appropriately filled; REIMBURSEMENT AGREEMENT means a reimbursement agreement executed and delivered by Borrower in respect of an Subject LC; RELATED WRITING means any note, mortgage, security agreement, other lien instrument, financial statement, audit report, notice, legal opinion, Credit Request, officer's certificate 57 66 or other writing of any kind which is delivered to Banks and NCB-Agent or any thereof and which is relevant in any manner to this Agreement or any other Related Writing and includes, without limitation, the Revolving Notes, the Term Notes and the other writings referred to in sections 3A and 4A; REPORTABLE EVENT has the meaning ascribed thereto by ERISA other than any event as to which the requirement of notification has been waived by regulation; REQUIRED BANKS means, at the time of reference, Banks owed or holding in the aggregate at least 80% of the sum of (a) the then aggregate unpaid principal amount of the Revolving Loans then outstanding, (b) the then aggregate Revolving Commitments to the extent in excess of the aggregate Revolving Loans then outstanding; REVOLVING COMMITMENT means the commitment of a Bank to extend credit to Borrower pursuant to sections 2B and 2C of this Agreement and upon the terms, subject to the conditions and in accordance with the other provisions of this Agreement; REVOLVING LOAN means a loan obtained by Borrower pursuant to sections 2B and 2C of this Agreement and evidenced by a Revolving Note: REVOLVING NOTE means an Initial Revolving Note or a Refinancing Revolving Note, as the case may be; REVOLVING SERIES means a Series of Revolving Loans; SELLER means SUSI Corporation, a Delaware corporation; SERIES means a group of Subject Loans of a single Type made by the Banks on a single date and as to which a single LIBOR Contract Period or other interest period is in effect (i.e., any group of Subject Loans made by the Banks of a different Type, or having a different LIBOR Contract Period or other interest period (regardless of whether such LIBOR Contract Period or other interest period commences on the same date as another LIBOR Contract Period or other interest period), or made on a different date shall be considered to comprise a different Series); STOCKHOLDERS' EQUITY means, at any date, the excess of the net book value (after deducting all applicable valuation reserves and without consideration to any reappraisal or write-up of assets after December 31, 1995) of all of the assets of the Companies as at such date (i.e., including intangibles such as patents, costs of businesses over net assets acquired, goodwill and treasury shares) over the consolidated Total Liabilities of the Companies as at such date, as determined on a consolidated basis in accordance with GAAP; SUBJECT INDEBTEDNESS means, collectively, the principal of and interest on the Revolving Loans and all fees and other liabilities, if any, incurred by Borrower to Banks and NCB-Agent or any thereof pursuant to this Agreement or any Related Writing; 58 67 SUBJECT LC means a letter of credit issued by NCB pursuant to section 2E; SUBJECT LOAN means a loan obtained by Borrower pursuant to this Agreement, including, without limitation, a Term Loan or a Revolving Loan; SUBJECT NOTE means a Revolving Note or a Term Note; SUBORDINATED, as applied to any liability of Borrower, means a liability which at the time in question is subordinated (by written instrument in form and substance satisfactory to the Required Banks) first in favor of the prior payment in full of the Subject Indebtedness and then, subject to the prior payment in full of the Subject Indebtedness, in favor of the prior payment in full of all of Borrower's other Debt, if any, to the Banks and NCB-Agent or any thereof; SUBSIDIARY means a corporation or other business entity if shares constituting a majority of its outstanding capital stock (or other form of ownership) or constituting a majority of the voting power in any election of directors (or shares constituting both majorities) are (or upon the exercise of any outstanding warrants, options or other rights would be) owned directly or indirectly at the time in question by the corporation in question or another "Subsidiary" of that corporation or any combination of the foregoing; SUPPLEMENTAL SCHEDULE means the schedule incorporated into this Agreement as EXHIBIT A; TARGET means SCM Metal Products Inc., a Delaware corporation; TERM LOAN means a loan obtained by Borrower pursuant to subsection 2A of this Agreement and evidenced by a Term Note; TERM NOTE means a note executed and delivered by Borrower and being in the form and substance of EXHIBIT B with the blanks appropriately filled; TERM SERIES means a Series of Term Loans; TYPE means, when used in respect of any Subject Loan, the LIBOR Rate or the Prime Rate in effect in respect of such Subject Loan. TOTAL LIABILITIES means the aggregate (without duplication) of all liabilities of the Companies in question and includes, but is not limited to, (a) any indebtedness which is secured by any mortgage, security interest or other lien on any of its property even if the full faith and credit of it is not pledged to the payment thereof, (b) any indebtedness for borrowed money or Funded Indebtedness if a Company is a Guarantor thereof and (c) any Subordinated indebtedness; the foregoing definitions shall be applicable to the respective plurals of the foregoing defined terms. 59 68 10. EXECUTION -- This Agreement may be executed in one or more counterparts, each counterpart to be executed by Borrower, by NCB-Agent and by one or more or all of the Banks. Each such executed counterpart shall be deemed to be an executed original for all purposes but all such counterparts taken together shall constitute but one agreement, which agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. Address: OM GROUP, INC. 3800 Terminal Tower Cleveland, Ohio 44113-2204 Telecopy: (216) 781-0902 By: /s/ James M. Materna ----------------------------------------- Printed Name: James M. Materna ------------------------------- Title: Chief Financial Officer -------------------------------------- Address: NATIONAL CITY BANK 1900 East Ninth Street Attn: Metro/Ohio Division Cleveland, Ohio 44114-3484 By: /s/ Timothy G. Healy Telecopy: 216/575-9396 ----------------------------------------- Printed Name: Timothy G. Healy ------------------------------- Title: Vice President -------------------------------------- Address: NATIONAL CITY BANK, as Agent 1900 East Ninth Street Attn: Metro/Ohio Division Cleveland, Ohio 44114-3484 By: /s/ Timothy G. Healy Telecopy: 216/575-9396 ----------------------------------------- Printed Name: Timothy G. Healy ------------------------------- Title: Vice President -------------------------------------- Address: ABN AMRO BANK N.V. One PPG Place, Suite 2950 Pittsburgh, PA 15222-5400 Telecopy: (412) 566-2266 By: /s/ Shirley K. Kersten ----------------------------------------- Printed Name: Shirley K. Kersten ------------------------------- Title: Assistant Vice President and Controller -------------------------------------- And by: /s/ Monica A. Meis ------------------------------------- Printed Name: Monica A. Meis ------------------------------- Title: Financial Control Officer -------------------------------------- 60 69 Address: MELLON BANK, N.A. 200 Public Square, 29th Floor Cleveland,Ohio 44114 Telecopy: (216) 575-0513 By: /s/ Henry W. Centa -------------------------------------- Printed Name: Henry W. Centa ---------------------------- Title: Vice President ----------------------------------- Address: KEYBANK NATIONAL ASSOCIATION 127 Public Square Cleveland, Ohio 44114 Telecopy: (216) 689-4981 By: /s/ Thomas J. Purcell -------------------------------------- Printed Name: Thomas J. Purcell ---------------------------- Title: Vice President ----------------------------------- 61 70 SUPPLEMENTAL SCHEDULE There is no item which Borrower must disclose in this Supplemental Schedule in order to be in full compliance with subsections 3D.01, 3D.02, 3D.03 and 3D.04, nor is there any addition or exception to the representations and warranties in section 4B. EXHIBIT A 71 TERM NOTE --------- $___________ Cleveland, Ohio, January ___, 1997 FOR VALUE RECEIVED, the undersigned, OM GROUP, INC. ("Borrower"), a Delaware corporation, promises to pay to the order of_________________________ at the main office of National City Bank ("NCB") in Cleveland, Ohio, the principal sum of ____________ DOLLARS (or if less, the aggregate unpaid principal balance from time to time shown on the reverse side hereof or entered in a loan account on payee's books and records, or both), together with interest computed thereon in accordance with the Credit Agreement referred to below, which principal and interest is payable in accordance with the provisions in the Credit Agreement. This note is issued pursuant to a certain Second Amended and Restated Credit Agreement (the "Credit Agreement") made as of January ___, 1997 between and among the payee, Borrower and NCB (for itself and as agent of the banks therein). The Credit Agreement establishes "Term Series" (one by each bank) aggregating up to One Hundred Twenty Million Dollars ($120,000,000) pursuant to which Borrower may obtain Term Loans from Banks upon terms and conditions specified therein. The Credit Agreement contains definitions applicable to this note, provisions governing the making of loans, the acceleration of the maturity thereof, rights of prepayment and other provisions applicable to this note. Each endorsement, if any, on the reverse side of this note (or any allonge thereto) shall be prima facie evidence of the data so endorsed. Address: OM GROUP, INC. 3800 Terminal Tower Cleveland, Ohio 44113-2204 By:____________________________________ Telecopy: (216) 781-0902 Printed Name:__________________________ Title: ________________________________ EXHIBIT B 72 REVOLVING NOTE -------------- $___________ Cleveland, Ohio, January ___, 1997 FOR VALUE RECEIVED, the undersigned, OM GROUP, INC. ("Borrower"), a Delaware corporation, promises to pay to the order of_________________________ at the main office of National City Bank ("NCB") in Cleveland, Ohio, the principal sum of _____________________ DOLLARS (or if less, the aggregate unpaid principal balance from time to time shown on the reverse side hereof or entered in a loan account on payee's books and records, or both), together with interest computed thereon in accordance with the Credit Agreement referred to below, which principal and interest is payable in accordance with the provisions in the Credit Agreement. This note is issued pursuant to a certain Second Amended and Restated Credit Agreement (the "Credit Agreement") made as of January ___, 1997 between and among the payee, Borrower and NCB (for itself and as agent of the banks therein). The Credit Agreement establishes "Revolving Commitments" (one by each Bank) aggregating up to Two Hundred Forty Million Dollars ($240,000,000) pursuant to which Borrower may obtain Revolving Loans from Banks upon terms and conditions specified therein. The Credit Agreement contains definitions applicable to this note, provisions governing the making of loans, the acceleration of the maturity thereof, rights of prepayment, activation and inactivation of portions of the Revolving Commitments and other provisions applicable to this note. Each endorsement, if any, on the reverse side of this note (or any allonge thereto) shall be prima facie evidence of the data so endorsed. Address: OM GROUP, INC. 3800 Terminal Tower Cleveland, Ohio 44113-2204 By: ________________________________ Telecopy: (216) 781-0902 Printed Name: ______________________ Title: ______________________________ EXHIBIT C 73 EXTENSION AGREEMENT ------------------- Cleveland, Ohio _____________, 1997 National City Bank 1900 East Ninth Street Attn: Metro/Ohio Division Cleveland, OH 44114-3484 ABN AMRO Bank N.V. One PPG Place, Suite 2950 Pittsburgh, PA 15222 KeyBank National Association 127 Public Square Cleveland, Ohio 44114 Mellon Bank, N.A. 200 Public Square, 29th Floor Cleveland, OH 44114 Subject: Extension of Revolving Commitments under Second Amended and Restated Credit Agreement dated January ___, 1997 Greetings: Reference is made to the Second Amended and Restated Credit Agreement by and among you, the undersigned ("Borrower") and National City Bank as your agent which provided for, among other things, Revolving Commitments aggregating up to $240,000,000 and available to Borrower, upon certain terms and conditions, on a revolving basis until January 31, 2002, (the "Expiration Date" now in effect) subject, however, to earlier reduction or termination as well as specific conditions regarding activation and inactivation or portions of the Revolving Commitment, in each case pursuant to the Credit Agreement. Borrower hereby requests that the Credit Agreement be amended by deleting the date "_____________________" from subsection 2B.02 (captioned "Expiration") and by substituting for that deleted date the date "_______________________." In all other respects the Credit Agreement shall remain in full effect. 74 This letter has been executed and delivered to each of you in triplicate. If you assent to the extension, kindly send or deliver two signed copies of your assent to National City Bank as you agent who will, if the extension becomes effective, forward one such copy to Borrower and inform you of the extension. Address: OM GROUP, INC. 3800 Terminal Tower Cleveland, Ohio 44113-2204 By: _____________________________________ Telecopy: (216) 781-0902 Printed Name: ___________________________ Title: __________________________________ The undersigned hereby assent to the foregoing. NATIONAL CITY BANK ABN AMRO BANK, N.V. By: _______________________________ By: _____________________________________ Printed Name: _____________________ Printed Name: ___________________________ Title: ____________________________ Title: __________________________________ KEYBANK NATIONAL ASSOCIATION MELLON BANK, N.A. By: _______________________________ By: _____________________________________ Printed Name: _____________________ Printed Name: ___________________________ Title: ____________________________ Title: __________________________________ EXHIBIT D 75 CREDIT REQUEST Cleveland, Ohio ____________, 1997 TO: National City Bank, as Agent SUBJECT: Second Amended and Restated Credit Agreement dated January ___, 1997 between and among OM Group, Inc., National City Bank, ABN AMRO Bank N.V., KeyBank National Association, Mellon Bank, N.A. and National City Bank as Agent Gentlemen: Each term in this Credit Request shall be defined in accordance with the subject Credit Agreement. Pursuant to subsection 2C.02 of the Credit Agreement, we request ( ) the Banks to grant us a Series of PR Loans in the aggregate principal sum of $_______ to be made available to us on the __th day of__________, _______. ( ) the Banks to grant us a Series of LIBOR Loans in the aggregate principal sum of $__________ to be made available to us on the ___th day of ___________, ____ and to have an interest period ending ______ months thereafter, and disburse the proceeds as follows:_________________________________________ ___________________________________________________. The proceeds will be used for the benefit of__________________ [insert name of company] for the purpose of __________________. Address: OM GROUP, INC. 3800 Terminal Tower Cleveland, Ohio 44113-2204 By: ________________________________________ Telecopy: (216) 781-0902 Printed Name: ______________________________ Title: _____________________________________ EXHIBIT E 76 CONTINUATION/CONVERSION REQUEST ------------------------------- TO: National City Bank, as Agent Subject: Second Amended and Restated Credit Agreement dated January ___, 1997 between and among OM Group, Inc., National City Bank, ABN SMRO Bank N.V., KeyBank National Association, Mellon Bank, N.A. and National City Bank as Agent Gentlemen: Each term in this Continuation/Conversion Request shall be defined in accordance with the subject Credit Agreement. Pursuant to subsection 2D.07 of the Credit Agreement, we request ( ) to convert Term Series comprised of LIBOR Loans in the principal amount of _____________ to a Term Series comprised of PR Loans. ( ) to convert Term Series comprised of PR Loans in the principal amount of _____________ to a Term Series comprised of LIBOR Loans. ( ) to continue Term Series comprised of LIBOR Loans in the principal amount of ____________ as another Term Series comprised of LIBOR Loans. This Continuation/Conversion Request is executed and delivered to NCB-Agent as of this _____th day of _____________,______. Address: OM GROUP, INC. 3800 Terminal Tower Cleveland, Ohio 44113-2204 By: ______________________________________ Telecopy: (216) 781-0902 Printed Name: ____________________________ Title: ___________________________________ EXHIBIT F 77 LIST OF SUBSIDIARIES -------------------- Legal Name Address of Chief Jurisdiction Equity - ---------- ---------------- ------------ ------ of Subsidiary Executive Office Where Incorporated Ownership - ------------- ---------------- ------------------ --------- D&O Incorporated 5-7 Ginza 5-chome Japan 50% Chuo-ku Tokyo, Japan OMO KoKKola P0 Box 26 Finland 100% Chemicals, Oy SF - 67101 Kokkola, Finland OMG Americas, Inc. 2301 Scranton Rd. USA-Ohio 100% Cleveland, Ohio 44113 OMG Europe GmbH Morsenbroicher Weg 200 Germany 100% D-40470 Dusseldorf Deutschland OMG Asia Pacific Suite D, 8F Taiwan 100% Co., Ltd. 170 Tun Hwa N. Road Taipei, Taiwan, R.O.C. Vasset, S.A. 59 Chemin de Moisselles France 100% 95460 Ezanville France J & 0, Inc. (Chusuk Hoesa J & 0) Korea 50% #2-3, Jook Gok Ri Korea Jin Young Eub Kim Hae City Kyung Nam, Korea EXHIBIT G 78 OMG Apex, Inc. P.O. Box 2407 Delaware 100% St. George, UT 84771 SCM Metal Products Inc. 2601 Weck Drive Delaware 100% P.O. Box 12166 Research Triangle Park, NC 27709-2166 SCM Metal Products 36, Robinson Rd. 18-01 Singapore 70% Singapore Pte. Ltd City House Singapore 068877 EXHIBIT G EX-10.42 3 EXHIBIT 10.42 1 Exhibit 10.42 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (the "Agreement") is made as of December 18, 1995 by and between OM Group, Inc., a Delaware corporation ("Employer"), and Terry L. Guckes of Cleveland, Ohio ("Executive"). WHEREAS, Employer and Executive desire to enter into this Agreement to provide for Executive's continued employment with Employer. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT. Employer agrees to employ Executive and Executive accepts such continued employment upon the terms and subject to the conditions set forth in this Agreement. (A) SERVICES. For the term set forth in Section 1(b), Executive shall serve as Vice President Planning & Development(1) and shall render such services of an executive and administrative character as Employer specifies. For as long as Executive is so employed, he shall devote his full productive time, energy and ability to his duties, except for incidental attention to the management of his personal investments. Executive may serve on the board of directors of other companies or organizations so long as such participation does not conflict with the interests or business of Employer or its subsidiaries or materially interfere with the performance of his duties hereunder. (B) TERM. Unless earlier terminated pursuant to the provisions of Section 7, the Initial Term of this Agreement shall commence on the date hereof and shall expire on December 31, 1996. If the Initial Term has been renewed pursuant to the provisions of Section 8 (the "Renewal Term"), the term of this Agreement shall extend through the expiration of any Renewal Term then in effect, unless earlier terminated pursuant to the provisions of Section 7. All references herein to the "term of this Agreement" shall be deemed to refer to the Initial Term as well as any Renewal Term then in effect if the Initial Term has been extended pursuant to Section 8. - ---------- (1) Subject to Board approval at February 6, 1996 meeting. 2 (B) AGREEMENT AS TO SCOPE. If, at the time of enforcement of any provision of Section 2(A), a court of competent jurisdiction holds that the restrictions stated therein are unreasonable under circumstances then existing, the parties agree that the maximum period, scope, or geographical area reasonable under such circumstances shall be substituted for the period, scope, or geographical area stated therein. 3. NON-SOLICITATION. Executive agrees that, during the term of this Agreement and for a period of (1) year thereafter, he will not knowingly, either directly or indirectly, for himself or for any other person or entity, divert, call on, solicit, or take away, or attempt to divert, call on, solicit, or take away present or actively solicited prospective employees or, with respect to competitive products or services, any present or actively solicited prospective suppliers (including, without limitation, cobalt suppliers) or customers of Employer, or any of its controlled subsidiaries. 4. CONFIDENTIAL INFORMATION. Executive acknowledges that during the course of his employment under this Agreement he will make use of, acquire and add to confidential information of a special and unique nature and value relating to such matters as trade secrets, systems, procedures, manuals, confidential reports and lists of suppliers, customers and other business contacts of Employer and its subsidiaries, as well as the nature and type of services rendered to such persons. Executive agrees that he will not disclose to an unauthorized person or use for his own account any of such information without the prior written consent of the Board of Directors of Employer, unless and to the extent that the aforementioned matters become generally known to any available for use by the public other than as a result of Executive's acts or omissions to act. 5. INVENTIONS AND PATENTS. Executive agrees that any inventions, innovations or improvements in Employer's or its subsidiaries' method of conducting their business (including new contributions, improvements, ideas and discoveries, whether patentable or not) conceived or made by him during his employment pursuant to this Agreement belong to Employer or its subsidiaries, as the case may be. Executive shall perform any actions reasonably requested by the Board of Directors of Employer to establish and confirm such ownership. Executive shall not claim any right, title or interest of any kind with respect to such inventions, innovations or improvements. 3 3 6. REMEDY FOR BREACH. In the event of a breach by Executive of any of the provisions of Sections 2, 3, 4, or 5, Employer or its subsidiaries, as the case may be, may, in addition to other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions thereof. 7. TERMINATION. (A) TERMINATION FOR CAUSE. Employer may terminate the employment of Executive for cause at any time prior to the expiration of the term of this Agreement. For purposes of this Agreement, "cause" shall mean Executive's (1) conviction of a felony, (2) willful misconduct or gross negligence in the conduct of his duties hereunder that continues after written notice thereof to Executive, or (3) willful act of fraud or theft. In the event of the termination for cause under this Section 7(A), Executive shall be entitled to receive (X) his base compensation provided for in Section 1(C) hereof through the date of termination of his employment, and (Y) all other amounts due him hereunder to the extent already earned and not theretofore paid (including any bonus payable under Section 1(D) for any fiscal year previously ended to the extent not theretofore paid). (B) TERMINATION WITHOUT CAUSE. Employer may in its sole discretion, terminate the employment of Executive for any reason upon written notice to Executive, which termination shall become effective immediately upon delivery of such notice. In the event of termination without cause under this Section 7(B), Executive shall be entitled to continue to receive all compensation and benefits described in Sections 1(C), 1(D) and 1(E) until the later of (1) the expiration of the Initial Term or Renewal Term then in effect, or (2) the one year anniversary of the delivery of notice of termination of employment under this Section 7(B). (C) TERMINATION BY EXECUTIVE. Executive may, in his sole discretion, terminate his employment for any reason upon six (6) months' prior written notice to Employer, which termination shall become effective upon the earlier of (1) the expiration of the six-month period following the delivery of such notice, or (2) any earlier date designated by Employer in a written notice to executive. In the event of termination by Executive under this Section 7(C), Executive shall be entitled to (X) to receive his base 4 4 compensation provided for in Section 1(C) through the effective date of termination of his employment, (Y) to receive his base compensation provided for in Section 1(C) for three (3) months following the effective date of termination of his employment, and (Z) to receive all other amounts due him hereunder to the extent already earned and not theretofore paid (including a bonus payable under Section 1(D) for any fiscal year previously ended to the extent not theretofore paid). (D) TERMINATION BY DEATH OR DISABILITY. In the event of Executive's death or permanent disability while in the employ of Employer, which disability in the opinion of a physician selected by Employer renders him incapable of performing the services contemplated under this Agreement, in addition to other provisions of this Agreement, the following provisions shall apply: (1) Employer shall pay to Executive or the estate of Executive the base compensation which would otherwise be payable to the Executive hereunder for a period of (1) year after such permanent disability or death occurs. (2) An amount shall be determined equal to the incentive compensation, if any, to which Executive would have been entitled if he had lived or remained capable of performing the contemplated under this Agreement, and a portion thereof based on the pro rata part of the year elapsed to the date of his death or permanent disability shall be paid in a lump sum to Executive, his estate or his personal representative, as the case may be. (3) Either of the benefits provided for in Section 7(D)(1) or 7(D)(2) may, at Executive's election, be paid to his designated beneficiary or beneficiaries in lieu of his personal representative. (4) In addition to other benefits outlined herein, Executives shall be entitled to all long-term disability pay and death benefit protection provided through Employer and/or insurance programs in effect from time to time. 8. RENEWAL. Unless either party gives written notice to the other patty at least six (6) months prior to the expiration of the Initial Term or any Renewal Term then in effect, this Agreement shall automatically be renewed for successive one (1) year Renewal 5 5 Terms upon the same terms and conditions as were in effect as of the commencement date of such Renewal Term. 9. NO SET-OFF. Neither Employer nor its subsidiaries shall have any right of set-off counterclaim, in respect of any claim, debt or obligation, against the payments or benefits to be made or provided to Executive under this Agreement. 10. NOTICES. All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or mailed, first class mail, postage prepaid, return receipt requested, or by any other express delivery technique calling for receipted delivery, as follows: (a) If to Executive: Terry L. Guckes, Ph.D. 145 Grey Fox Run Chagrin Falls, Ohio 44022 Telephone: (216) 247-1522 (b) If to Employer or its subsidiaries: OM Group, Inc. 3800 Terminal Tower Cleveland, Ohio 44113 Attn: M. J. Scott, Secretary Telephone: (216) 781-0083 Facsimile: (216) 781-0902 With a copy to: Squire, Sanders & Dempsey 4900 Society Center 127 Public Square Cleveland, Ohio 44114 Attn: Paul B. Campbell, Esquire Telephone: (216) 479-8666 Facsimile: (216) 479-8780 or such other address or to the attention of such other person as the recipient shall have specified by prior written notice to the sending party. Any notice under this Agreement will be deemed to have been given when so delivered or mailed. 6 6 11. SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not effect any other provision or any other provision or any other jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 12. ENTIRE AGREEMENT. This Agreement, those documents expressly referred to herein and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 13. COUNTERPARTS. This Agreement may be executed on separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. 14. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, Employer, and their respective successors and assigns; provided that Executive may not assign his rights or delegate his obligations hereunder without the prior written consent of Employer. Neither Employer nor its subsidiaries may assign their respective rights hereunder with respect to the employment of Executive to any person or entity other than to any of controlled subsidiaries of the Employer. 15. CHOICE OF LAW. All questions concerning the construction, validity and interpretation of the employment provisions of this Agreement will be governed by the internal law, and not the law of conflicts, of the State of Delaware. 16. AMENDMENTS AND WAIVERS. Any provision of this agreement may be amended or waived only with the prior written consent of Executive and Employer. 7 7 17. ALTERNATIVE DISPUTE RESOLUTION. Any dispute arising out of this Agreement (except a dispute relating to this Section 17 or Exhibit A attached hereto) shall be submitted to the Alternative Dispute Resolution procedures described in Exhibit A attached hereto. IN WITNESS WHEREOF, Employer has caused this Agreement to be executed by its duly authorized officer and Executive has executed this Agreement as of the date first above written. "EMPLOYER" OM GROUP, INC. By: /s/ Eugene Bak Its: President and Chief Operating Officer "EXECUTIVE" /s/ Terry L. Guckes 8 EX-10.44 4 EXHIBIT 10.44 1 Exhibit 10.44 STOCK PURCHASE AGREEMENT BETWEEN SUSI CORPORATION AND OM GROUP, INC. DATED DECEMBER 20, 1996 2
TABLE OF CONTENTS Page ---- 1. Sale and Purchase of Shares ........................................... 1 2. Purchase Price ....................................................... 1 2.1 Purchase Price ................................................. 1 2.2 Adjustment of Purchase Price ................................... 2 2.3 Payment of Purchase Price ...................................... 4 3. Closing .............................................................. 6 3.1 Date of Closing .................................................. 6 3.2 Termination .................................................... 6 4. Representations and Warranties of Seller ............................. 7 4.1 Organization, Standing and Authority of Seller ................. 7 4.2 Authorization of Agreement ..................................... 7 4.3 Consents of Third Parties ...................................... 7 4.4 Capitalization of the Subsidiary and Equity Investments ........ 8 4.5 Ownership of Shares ............................................ 9 4.6 Financial Statements and Preliminary Balance Sheet ............. 9 4.7 Absence of Certain Liabilities and Changes ..................... 10 4.8 Inventory ...................................................... 12 4.9 Receivables .................................................... 12 4.10 Taxes .......................................................... 13 4.11 List of Material Contracts ..................................... 14 4.12 Labor Matters .................................................. 15 4.13 Employee Benefit Plans and Benefit Arrangements ................ 16 4.14 Litigation; Compliance with Laws ............................... 20 4.15 Real Property ................................................... 21 4.16 Tangible Personal Property ..................................... 22 4.17 Proprietary Rights ............................................. 22 4.18 Environmental Matters .......................................... 24 4.19 Permits and Licenses ........................................... 26 4.20 Insurance ...................................................... 26 4.21 Suppliers and Customers ........................................ 26 4.22 Experience Matters ............................................. 26 4.23 Intercompany Accounts .......................................... 27 4.24 Divestiture Agreements ......................................... 27 4.25 Disclosure ..................................................... 27
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Page ---- 5. Representations and Warranties of Buyer ........................... 27 5.1 Buyer's organization ....................................... 27 5.2 Authorization of Agreement ................................. 27 5.3 Consents of Third Parties .................................. 28 5.4 Litigation ................................................. 28 5.5 Financing .................................................. 29 5.6 Investment ................................................. 29 6. Further Agreements of the Parties .................................. 29 6.1 Access to Information ...................................... 29 6.2 Conduct of the Business Pending the Closing ................ 30 6.3 Employee and Employee Benefit Matters ...................... 31 6.4 Other Action ............................................... 34 6.5 Notices .................................................... 34 6.6 HSR Act ..................................................... 34 6.7 Expenses ................................................... 35 6.8 Publicity .................................................. 35 6.9 Transfer Taxes ............................................. 35 6.10 Supplement to Disclosures .................................. 35 6.11 Preservation of Records .................................... 35 6.12 Certain Post-Closing Assistance by the Buyer ............... 36 6.13 Treasury Matters............................................ 36 6.14 SCM Name ................................................... 37 7. Conditions of Closing .............................................. 38 7.1 Conditions Precedent to Obligations of Buyer ............... 38 7.2 Conditions Precedent to Obligations of Seller .............. 39 8. Documents to be Delivered at the Closing ........................... 40 8.1 Documents to be Delivered by Seller ........................ 40 8.2 Documents to be Delivered by Buyer ......................... 41 9. Indemnification and Related Matters ................................ 42 9.1 Indemnification............................................. 42 9.2 Determination of Damages and Related Matters ............... 43 9.3 Time and Manner of Certain Claims .......................... 44 9.4 Defense of Claims by Third Parties ......................... 45
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Page ---- 9.5 Environmental Matters ................................... 45 10. Miscellaneous .................................................... 49 10.1 Finders ................................................. 49 10.2 Entire Agreement ........................................ 50 10.3 Jurisdiction and Governing Law .......................... 50 10.4 Schedules; Tables of Contents and Headings .............. 50 10.5 Notices ................................................. 50 10.6 Separability ............................................ 51 10.7 Waiver .................................................. 52 10.8 Binding Effect; Assignment .............................. 52 10.9 Best Knowledge .......................................... 52 10.10 Counterparts ............................................ 52 52
iii 5 STOCK PURCHASE AGREEMENT 6 STOCK PURCHASE AGREEMENT The parties to this Stock Purchase Agreement dated December 20, 1996 (this "Agreement") are SUSI Corporation, a Delaware corporation ("Seller"), and OM Group, Inc. a Delaware corporation ("Buyer"). Seller owns all of the issued and outstanding shares of common stock, par value $.10 per share (the "Shares"), of SCM Metal Products Inc., a Delaware corporation ("Subsidiary"). Subject to the terms and conditions stated herein, Seller wishes to sell and Buyer wishes to purchase from Seller all of the shares of the Subsidiary owned by Seller which constitute 100% of the issued and outstanding shares of the capital stock of the Subsidiary. The term "Business" shall mean the business and operations conducted by the Subsidiary. It is therefore agreed as follows: 1. Sale and Purchase of Shares. --------------------------- Subject to the terms and conditions of this Agreement, at the closing referred to in Section 3 (the "Closing"), Seller shall sell, assign, transfer, convey and deliver to Buyer and Buyer shall purchase, acquire and accept from Seller, the Shares. 2. Purchase Price. -------------- 2.1 Purchase Price. -------------- (a) The purchase price for the Shares shall be $122,000,000 subject to post-closing adjustment pursuant to Section 2.2. The Purchase Price shall be payable as provided in Section 2.3. 7 2.2 Adjustment of Purchase Price. ---------------------------- (a) The Purchase Price shall be adjusted as follows: (i) For purposes hereof "Final Net Worth" shall mean the assets of the Business less the liabilities of the Business, as reflected in the Final Balance Sheet referred to in Section 2.2(b). "Target Net Worth" shall mean the assets of the Business less the liabilities of the Business as reflected on the Preliminary Balance Sheet referred to in Section 4.6. (ii) If the amount of the Final Net Worth determined in accordance with this Section is less than the Target Net Worth, the Purchase Price shall be decreased by an amount equal to the difference between the Final Net Worth and the Target Net Worth but in no event shall the decrease be greater than $750,000. (iii) If the amount of the Final Net Worth is greater than the Target Net Worth, the Purchase Price shall be increased by an amount equal to the difference between the Final Net Worth and the Target Net Worth but in no event shall the increase be greater than $750,000. (b) The Final Net Worth shall be determined as of the close of business on the day immediately preceding the day of the Closing (the "Determination Time") on the basis of the balance sheet of the Business as of the Determination Time (the "Final Balance Sheet"). The Final Balance Sheet shall be prepared by Seller in accordance with generally accepted accounting principles as supplemented by the principles set forth in SCHEDULE 2.2 (the "Accounting Principles") and shall be reported upon by Price Waterhouse LLP ("PW"); PROVIDED HOWEVER that should PW be unable or unwilling to provide the report described above, Seller shall promptly engage another independent public accounting firm of national reputation (the "Alternate Firm") to provide such report, or Buyer and Seller may agree to the amount of Final Net Worth and the amount of any required adjustment 2 8 to the Purchase Price as contemplated by this Section 2.2. PW or the Alternate Firm, as the case may be, shall hereinafter be referred to as the ("Auditor"). Seller shall be responsible for the fees and expenses of the Auditor. (c) Seller shall engage the Auditor to examine the Final Balance Sheet and shall use its best efforts to deliver to Buyer the Final Balance Sheet within sixty (60) days after the Closing (or; in the event the Auditor is the Alternate Firm, within sixty (60) days after the Alternate Firm is engaged), together with a report of the Auditor thereon (i) setting forth the amount of Final Net Worth reflected in the Final Balance Sheet, (ii) stating that (y) the examination has been made in accordance with generally accepted auditing standards, and (z) the Final Balance Sheet has been prepared in conformity with the Accounting Principles, and (iii) setting forth the amount of any required adjustment to the Purchase Price pursuant to this Section 2.2. Buyer and Seller shall take such actions as are necessary to cause the Auditor's audit of the Final Balance Sheet to be performed expeditiously. During the period from the Closing Date (as defined in Section 3.1) until the date of delivery of the Final Balance Sheet, Buyer shall give Seller, the Auditor and other appropriate personnel such assistance and access to the assets and books and records of the Subsidiary as Seller and the Auditor shall reasonably request during normal business hours in order to enable them to prepare and examine, respectively, the Final Balance Sheet. Ernst & Young LLP or such other independent accounting firm engaged by Buyer at Buyer's sole expense (which shall not be the Unrelated Accounting Firm referred to below) ("Buyer's Auditor") shall have the opportunity to observe the taking of the inventory of the Seller in connection with the preparation of the Final Balance Sheet, and to examine the work papers, schedules and other documents prepared by Seller in connection with its preparation of the Final Balance Sheet. Seller shall use its reasonable efforts 3 9 to cause the Auditor to permit Buyer and Buyer's Auditor to examine the Auditor's work papers used in connection with its audit of the Final Balance Sheet. (d) Within thirty (30) days following the delivery of the Final Balance Sheet and the related report of the Auditor, Buyer shall deliver to Seller a notice of objection (an "Objection Notice") or a notice of acceptance (an "Acceptance Notice") with respect to the Final Balance Sheet and related auditor's report. Such Final Balance Sheet and related auditor's report shall be final and binding on the parties if an Acceptance Notice is delivered to Seller or if no Objection Notice is delivered to Seller within such thirty (30) day period. Any Objection Notice shall specify in reasonable detail the items on the Final Balance Sheet disputed and shall describe in reasonable detail the basis for the objection and all information in the possession of the objecting party which forms the basis thereof, as well as the amount in dispute. If an Objection Notice is given, the parties shall consult with each other with respect to the objection. If the parties are unable to reach agreement within fifteen (15) days after an Objection Notice has been given, any unresolved disputed items shall be promptly referred to Coopers and Lybrand (the "Unrelated Accounting Firm"). The Unrelated Accounting Firm shall be directed to render a written report on the unresolved disputed issues with respect to the Final Balance Sheet as promptly as practicable and to resolve only those issues of dispute set forth in the Objection Notice. The resolution of the dispute by the Unrelated Accounting Firm shall be final and binding on the parties. The fees and expenses of the Unrelated Accounting Firm shall be borne equally by Seller and Buyer. 2.3 Payment of Purchase Price. ------------------------- (a) At the Closing Buyer shall pay to Seller an amount equal to the Purchase Price by wire transfer of immediately available funds to an account designated by Seller. 4 10 (b) If Buyer delivers to Seller the Acceptance Notice referred to in Section 2.2(d) or fails to deliver an Objection Notice within the thirty (30) day period required by Section 2.2(d), then (i) in the event the Final Net Worth is less than the Target Net Worth, Seller shall within two (2) business days after the delivery of such Acceptance Notice or the expiration of such thirty (30) day period, as the case may be, pay to Buyer, the amount, if any, by which the Target Net Worth exceeds the Final Net Worth, or (ii) in the event the Final Net Worth exceeds the Target Net Worth, Buyer shall within two (2) business days after the delivery of such Acceptance Notice or the expiration of such thirty (30) day period, as the case may be, pay to Seller the amount, if any, by which the Final Net Worth is greater than the Target Net Worth. Alternatively, if Buyer delivers to Seller the Objection Notice referred to in Section 2.2(c), within two (2) business days after such delivery, (y) Seller shall pay to Buyer the amount, if any, by which the undisputed portion of the Final Net Worth is less than the Target Net Worth, or (z) Buyer shall pay to Seller the amount, if any, by which the undisputed portion of the Final Net Worth is greater than the Target Net Worth provided that in no event shall the amount be greater than $750,000. Within two (2) days after the resolution of any dispute by the parties or the Unrelated Accounting Firm relating to the Objection Notice, Seller shall pay to Buyer, or Buyer shall pay to Seller, as the case may be, the amount of any further adjustment required. (c) Any payment pursuant to Section 2.3(b) shall be made by certified or bank cashier's check, or, at the recipient's option, by wire transfer of immediately available funds and shall be accompanied by payment of an amount determined by computing simple interest on the amount of that payment at the rate of interest announced publicly by Bank of America in San Francisco from time to time as its "reference rate" (on the basis of a 365-day year) from the Closing Date to the date of payment. 5 11 3. Closing. ------- 3.1 DATE OF CLOSING. The Closing shall take place at the offices of Seller's Counsel (or at such other place as the parties may agree in writing) five (5) business days after the date when each of the conditions specified in Article 7 has been fulfilled (or waived by the party entitled to waive that condition). The date on which the Closing is held is referred to in this Agreement as the "Closing Date". At the Closing, the parties shall execute and deliver the documents referred to in Section 8. 3.2 TERMINATION. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written agreement executed by Seller and Buyer; (b) by Buyer, if any of the conditions specified in Section 7.1 shall not have been satisfied or waived in writing by Buyer on or before February 28, 1997; or (c) by Seller, if any of the conditions specified in Section 7.2 shall not have been satisfied or waived in writing by Seller on or before February 28, 1997. (d) This Agreement may in any event be terminated by Seller or Buyer if the Closing shall not have occurred by February 28, 1997. Upon such termination neither of the parties shall have any liability or further obligation arising out of this Agreement except for any liability resulting from its breach of this Agreement prior to termination. Buyer's obligations under Section 6.1 shall survive the termination of this Agreement. 6 12 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Buyer that: 4.1 ORGANIZATION, STANDING AND AUTHORITY OF SELLER. Seller and the Subsidiary are corporations duly organized, validly existing and in good standing under the laws of the state of their incorporation, and have full corporate power and authority to enter into and perform this Agreement. The Subsidiary is qualified to do business and is in good standing in each jurisdiction in which the nature of its business or the properties owned or leased by it requires qualification, except where the failure to be so qualified or in good standing would not have a material adverse effect upon the businesses, operations, assets or financial condition of the Business ("Material Adverse Effect"). Each state in which the Subsidiary is qualified to do business is set forth on SCHEDULE 4.1. SCHEDULE 4.1 also sets forth each jurisdiction in which assets of the Subsidiary are located and each jurisdiction in which the Subsidiary has employees. 4.2 AUTHORIZATION OF AGREEMENT. The execution, delivery and performance of this Agreement by Seller has been duly authorized by all necessary corporate action of Seller and this Agreement constitutes the valid and binding obligation of Seller enforceable against it in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights in general and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.3 CONSENTS OF THIRD PARTIES. Subject to receipt of the consents and approvals referred to in SCHEDULE 4.3, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby by Seller will not (i) violate or conflict with the certificate of incorporation or by-laws of Seller or the Subsidiary, (ii) conflict with, or result in 7 13 the breach of, or termination of, or constitute a default under (whether with notice or lapse of time or both), or accelerate or permit the acceleration of the performance required by, any indenture, mortgage, lien, lease, agreement, commitment or other instrument, or any order, judgment or decree, to which the Subsidiary is a party or by which Seller or the Subsidiary or any of their properties are bound, (iii) constitute a violation of any law, regulation, order, writ, judgment, injunction or decree applicable to Seller or the Subsidiary, or (iv) result in the creation of any lien, charge or encumbrance upon the capital stock, properties or assets of the Subsidiary, other than violations, conflicts, breaches, terminations, accelerations and defaults specified in the foregoing clauses (ii) through (iv) which could not reasonably be expected to have a material adverse effect on Seller's ability to perform its obligations under this Agreement. No consent, approval or authorization of any governmental authority is required on the part of Seller or the Subsidiary in connection with the execution, delivery and performance of this Agreement, except for: (a) filings with the Federal Trade Commission and the Department of Justice, pursuant to the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the "HSR Act") with respect to the sale of the Shares to Buyer, and; (b) filings with the Pension Benefit Guaranty Corporation, the Internal Revenue Service, the Department of Labor and any other similar governmental entity with respect to the transfer of assets and liabilities of Employee Benefit Plans (defined below) pursuant to this Agreement. 4.4 CAPITALIZATION OF THE SUBSIDIARY AND EQUITY INVESTMENTS. The capitalization of the Subsidiary is set forth on SCHEDULE 4.4. All of the outstanding shares of capital stock of the Subsidiary were duly authorized for issuance and are validly issued, fully paid and non-assessable and none of such shares are held in treasury. Except for this Agreement, there are no outstanding options 8 14 or rights of any kind to acquire any shares of any class of securities or any securities convertible into any shares of any class of securities of the Subsidiary, nor are there any obligations to issue any such options, rights or securities. There are no restrictions of any kind on the transfer of the shares, except as may be imposed by applicable federal and state securities laws. Except as set forth on SCHEDULE 4.4 the Subsidiary does not own any capital stock or other interest in any other corporation or business entity, nor is the Subsidiary subject to any obligations or requirements to make any investment in any entity. 4.5 OWNERSHIP OF SHARES. Seller is, and at the Closing will be, the record and beneficial owner of the Shares, free and clear of any claim, lien, security interest or other encumbrance ("Lien"), and the Shares will not be subject to any agreement or understanding with respect to voting or transfer thereof. At the Closing, Seller will transfer and deliver to Buyer valid title to all the Shares, free and clear of any Lien. 4.6 Financial Statements and Preliminary Balance Sheet. -------------------------------------------------- (a) FINANCIAL STATEMENTS. Seller has delivered to Buyer the following internally reported (for consolidation into the returns of Seller's Parent) financial information for the Subsidiary: (i) balance sheets as of the last day of the Subsidiary's fiscal years ended as of September 28, 1995 and September 28, 1996, and (ii) the related statements of operations for each of the three years in the period ended as of September 28, 1996 (collectively, the "Financial Statements"). Such Financial Statements are true and correct in all material respects, are in accordance with the books and records of the Subsidiary and present fairly, in all material respects, the financial position and results of operations 9 15 of the Subsidiary as of such dates and for such periods in conformity with generally accepted accounting principles applied on a consistent basis, except as indicated on SCHEDULE 4.6(a). (b) PRELIMINARY BALANCE SHEET. The unaudited balance sheet of the Business, dated as of September 28, 1996 (the "Preliminary Balance Sheet") was prepared from the hooks and records of Subsidiary in accordance with GAAP on a basis consistent with past practice and adjusted for those items set forth on Schedule 2.2. 4.7 ABSENCE OF CERTAIN LIABILITIES AND CHANGES. Except to the extent reflected or reserved for in the Preliminary Balance Sheet, to the best of Seller's knowledge, there are no liabilities or obligations, secured or unsecured, whether accrued, absolute, contingent or otherwise and whether known or unknown, material to the Business that would normally be shown on a balance sheet or related footnotes, if any, prepared in accordance with the Accounting Principles except (i) liabilities or obligations incurred in the ordinary course of business since the date of the Preliminary Balance Sheet, and (ii) liabilities and obligations disclosed in the Schedules hereto and liabilities and obligations not required to be so disclosed because of their failure to meet the materiality thresholds set forth therein. Since the date of the Preliminary Balance Sheet, the Subsidiary has operated the Business in the ordinary course and, except as set forth on SCHEDULE 4.7 or contemplated by SCHEDULE 6 2 there has not been: (a) any change in the business, assets, financial condition or results of operations of the Business that has had or could reasonably be expected to have a Material Adverse Effect; (b) any material change in the accounting methods or principles of the Subsidiary that would be required to be disclosed under the Accounting Principles; 10 16 (c) any grant of any severance or termination pay by the Subsidiary to any executive officer or director of the Subsidiary or any increase in compensation or benefits payable by the Subsidiary under existing employment agreements or severance or termination pay policies to any of their employees other than (x) in the ordinary course of business consistent with past practices, including without limitation normal merit increases for salaried employees, (y) increases or grants required by contracts disclosed herein or by applicable law, or (z) increases, agreements and bonuses disclosed in SCHEDULE 4.13; (d) any employment, bonus or deferred compensation agreement entered into between the Subsidiary and any of its directors, officers or other employees, other than as disclosed in SCHEDULE 4.13; (e) any entering into, amendment or termination of any material contract, agreement, lease, franchise, security, instrument, permit or license between the Subsidiary and any party, except in the ordinary course of business; (f) any declaration or payment of a distribution of cash or any other asset of the Subsidiary to the Seller (i) in the nature of a dividend, (ii) in redemption or as the purchase price of any of its capital stock, or (iii) in discharge or cancellation, whether in part or in whole, of any indebtedness owing to Seller, except in the ordinary course of business; (g) any purchase commitments in excess of its normal business requirements; or (h) any existing agreement or arrangement made by the Subsidiary to take any action that would cause any representations or warranty in this Section 4.7 to be untrue or incorrect. 11 17 4.8 INVENTORY. The Inventory is of a quality and quantity usable in the ordinary course of business of the Subsidiary, except for obsolete items or items below standard quality as to which a provision determined in a manner consistent with the prior practice of the Business has been made on the books of the Subsidiary in accordance with the Accounting Principles. The value of all inventory items, including finished goods, work-in-process and raw materials, has been recorded on the books of the Subsidiary at the lower of cost (determined in accordance with the accounting inventory valuation methods of the Subsidiary) or fair market value. 4.9 RECEIVABLES. All accounts receivable of the Subsidiary which either are reflected on the Preliminary Balance Sheet, or were created subsequent to the date of the Preliminary Balance Sheet, have arisen in the ordinary course of business. Allowances in accordance with the Accounting Principles have been reflected in the Preliminary Balance Sheet with respect to the receivables shown thereon, and, with respect to receivables created subsequent to the date of the Preliminary Balance Sheet, allowances have been set up on the books of the Subsidiary in accordance with the Accounting Principles. 4.10 TAXES. Except as set forth on SCHEDULE 4.10 (i) the Subsidiary has filed (or caused to be filed) in a timely manner (or, where permitted or required, the consolidated, combined or unitary group of which the Subsidiary is a member has flied (or caused to be filed) in a timely manner) all material Federal, state, local and foreign returns required by applicable law to be filed (each a "Return") with respect to all Federal, state, local and foreign taxes and assessments (including all interest, penalties and additions imposed with respect to such amounts) of the Subsidiary ("Taxes") and has paid (or the consolidated, combined or unitary group of which the Subsidiary is a member has paid on its behalf) all Taxes shown due on such Returns for which the Subsidiary may be liable, except for Taxes that are being contested in good faith by appropriate proceedings and set forth on 12 18 SCHEDULE 4.10; (ii) there is no outstanding agreement, waiver or consent providing for an extension of the statutory period of limitations applicable to the assessment of any Tax and no power of attorney granted by the Subsidiary with respect to any tax matter is currently in force; (iii) there is no action, suit, proceeding, investigation, audit or claim now pending against the Subsidiary with respect to any Tax, nor is there any assessment asserted by any Tax authority; (iv) the Subsidiary has not filed any agreement or consent under Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"); (v) no property of the Subsidiary is "tax-exempt use property" within the meaning of Section 168(h) of the Code nor property that Buyer will be required to treat as being owned by another person pursuant to Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986; (vi) Subsidiary has made timely payments of all Taxes required to be deducted and withheld from the wages paid to employees; (vii) Subsidiary has not been a party to any Tax allocation or sharing agreement; (viii) Subsidiary has not received a claim made by an authority in jurisdiction where it does not file Tax Returns that it is or may be subject to taxation by that jurisdiction; and (ix) Subsidiary has not agreed to (nor is it required to make) any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise. 4.11 LIST OF MATERIAL CONTRACTS. SCHEDULE 4.11 includes lists, as of the date of this Agreement, of: (a) all commitments and agreements for the purchase or sale of any materials, supplies or services that involve an expenditure by or payment to the Subsidiary of more than $50,000 for any one contract or series of related contracts; (b) all personal property leases under which the Subsidiary is either lessor or lessee that involve annual payments or receipts of $50,000 or more; (c) all agreements, mortgages, indentures and other instruments relating to indebtedness for borrowed money to which the Subsidiary is a party or by which it or its properties are bound that require annual 13 19 payments by the Subsidiary of more than $50,000, (d) all government contracts and all other agreements with customers that involve an annual payment to the Subsidiary of more than $50,000 for any one contract or services of related contracts, and (e) all non-competition agreements, license, sales representation, distributorship or consulting agreements, and non-disclosure agreements pertaining to the Subsidiary which are material to the Business. Seller has made available to Buyer complete and correct copies of all items listed on SCHEDULE 4.11 that are in writing, and the descriptions contained in SCHEDULE 4.11 of all items listed therein that are not in writing are complete and correct. Except as disclosed in SCHEDULE 4.11, as of the date of this Agreement, the Subsidiary is not in material default under the terms of any item listed on SCHEDULE 4.11. Except as disclosed in SCHEDULE 4.11, between the date of this Agreement and the Closing, the Subsidiary is not, or will not be, in default under the terms of any item listed on SCHEDULE 4.11. which default will have a Material Adverse Effect. To the best knowledge of Seller, as of the date of this Agreement, no party is in default under any of the contracts, arrangements, instruments or other agreements listed in SCHEDULE 4.11 and each is valid and in full force and effect. No party has notified Seller or the Subsidiary in writing of its intention to cease to perform any material services required to be performed by it or withhold any material payment required to be made by it thereunder. 4.12 Labor Matters. ------------- (a) During the two years ending on the date hereof, no petition has been filed or proceedings initiated by any employee or group of employees seeking recognition of a bargaining representative for the Subsidiary. During the two years ending on the date hereof, no strike or work stoppage of any kind has been called against the Subsidiary. To the best of Seller's knowledge, there is no organizational effort currently being made or threatened to organize employees of the Subsidiary for the purpose of forming or joining any labor union. There are no 14 20 controversies or disputes pending between the Subsidiary and any of its employees other than controversies and disputes with individual employees arising in the ordinary course of business which have not had and could not reasonably be foreseen to have, individually or in the aggregate, a Material Adverse Effect. Except as set forth on SCHEDULE 4.12 there are no unfair labor practice or other administrative or court proceedings pending, or to the best of Seller's knowledge, threatened, between the Subsidiary and its employees. (b) No present or former employee of the Subsidiary has asserted any claim of more than $50,000 against the Subsidiary (whether under federal or state law) under any employment agreement, or otherwise, on account of or for (i) overtime pay, other than overtime pay for the current payroll period, (ii) wages or salary for any period other than the current payroll period, (iii) vacation or time off (or pay in lieu thereof), other than that earned in respect of the previous twelve months, or (iv) any violation of any statute, ordinance or regulation relating to minimum wages or maximum hours of work. (c) No persons or parties (including but not limited to, governmental agencies of any kind) have asserted any claim, or, to the best of Seller's knowledge, have any basis for any action or proceeding against the Subsidiary which claim or basis for any action or proceeding would require a payment in excess of $50,000 arising out of any breach or violation by the Subsidiary of any statute, ordinance or regulation relating to discrimination in employment or employment practices or occupational safety and health standards (including without limitation, The Occupational Safety and Health Act, The Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, or the Age Discrimination in Employment Act of 1967) except as set forth on SCHEDULE 4.12 or SCHEDULE 4.18(b). 15 21 4.13 Employee Benefit Plans and Benefit Arrangements. ----------------------------------------------- (a) Definitions. ----------- (i) The term "Employees" shall mean all current and former employees of the Subsidiary, including employees on approved leaves of absence (whether family leave, workers' compensation leave, medical leave, or otherwise). A list of such former employees of the Subsidiary who are covered under any retiree life insurance or medical program will be provided by Seller to Buyer by 5:00 p.m. on December 24, 1996. (ii) The term "Employee Benefits Plans" shall mean all "employee benefit plans" as defined in Section 3(3) of ERISA, which are maintained or contributed to by the Subsidiary or any predecessor for Employees or in which the Subsidiary or any predecessor participates or participated and which are listed and identified as such on SCHEDULE 4.13(b). (iii) The term "Welfare Plans" shall mean all Employee Benefit Plans which are employee welfare benefit plans as defined in Section 3(1) of ERISA and which are listed on SCHEDULE 4.13(b). (iv) The term "Pension Plans" shall mean all Employee Benefit Plans which are employee pension benefit plans as defined in Section 3(2) of ERISA and which are listed and identified as such on SCHEDULE 4.13(b). (v) The term "Benefit Arrangements" shall mean all life and health insurance, hospitalization, savings, bonus, deferred compensation, incentive compensation, holiday, vacation, termination, severance pay, sick pay, sick leave, disability, tuition refund, service award, company car, scholarship, relocation, patent award, fringe benefit, contracts, collective bargaining agreements, individual employment contract, consulting contract, termination contract or severance contract and other policies or practices of the Subsidiary providing employee or executive 16 22 compensation or benefits to Employees (other than Employee Benefit Plans) which are listed on SCHEDULE 4.13(b). (vi) The term "Multiemployer Plan" shall mean a multiemployer pension plan as defined in Section 3(37)(A) of ERISA. (vii) The term "ERISA Affiliate" shall mean an entity that would be treated as a single employer with the Subsidiary under Section 414 of the Code. (b) Employee Benefit Arrangements. ----------------------------- (i) SCHEDULE 4.13(b) sets forth a complete and accurate list of all Employee Benefit Plans and all Benefit Arrangements. Seller has delivered or made available to Buyer copies of each Employee Benefit Plan, all amendments thereto, all related funding arrangements, all actuarial valuation reports for the most recent three years, a copy of Forms 5500 with all schedules thereto for the most recent three years, a copy of the most recent determination letter issued by the Internal Revenue Service for each Pension Plan, and a copy of the most recent summary plan description. Seller has delivered or made available to Buyer copies of each Benefit Arrangement or description thereof Seller has delivered or made available to Buyer all forms and notices being utilized in conjunction with any Employee Benefit Plan with respect to any Employee, including, but not limited to, any notices or informational material regarding retiree medical and life insurance programs, joint and survivor annuity notices and elections and spousal consent forms with respect to any Pension Plan, and all notices and elections intended to comply with the requirements of Section 601 of ERISA. (ii) Except as indicated on SCHEDULE 4.13(b), each Employee Benefit Plan and related funding arrangements: (a) are in form and have been administered in compliance with all applicable laws, including, without limitation, ERISA and the Code; (b) each 17 23 Pension Plan intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service with respect to such qualification or has been submitted timely to the Internal Revenue Service for such a favorable determination; (c) each trust maintained in conjunction with a Pension Plan intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service with respect to the exemption thereof under Section 501(a) of the Code; (d) none of the Pension Plans or related trusts, or any administrator or trustee thereof, or party-in-interest or disqualified person thereto has engaged in a transaction that could cause any of them to be liable for a civil penalty under Section 409 or 502(i) or any other section of ERISA or result in a tax under Section 4975 or 4976 or any other section of Chapter 43 of Subtitle D of the Code; (e) all amounts required to be paid by the Subsidiary to or pursuant to each of the Employee Benefit Plans on or before the Closing Date have been paid; (f) no Pension Plan has incurred any "accumulated funding deficiency," as defined in Section 412 of the Code; and (g) no "reportable event" within the meaning of Title IV of ERISA has occurred with respect to any Pension Benefit Plan subject thereto. (iii) The Subsidiary does not currently contribute, and has not contributed within the last five years, to any Multiemployer Plan and no event has occurred that presents a risk of the occurrence of any withdrawal from any Multiemployer Plan by the Subsidiary or an ERISA Affiliate of the Subsidiary which could result in any liability of the Subsidiary to such Multiemployer Plan. Except as set forth on SCHEDULE 4.13(b), no liability under Title IV of ERISA has been incurred by the Subsidiary that has not been satisfied in full, and no condition exists that presents a risk to the Subsidiary of incurring a liability under such Title IV other than liability for premiums due the Pension Benefit Guaranty Corporation ("PBGC"). Neither the Subsidiary or an ERISA Affiliate of the Subsidiary, nor any respective directors, officers, employees, or fiduciaries has 18 24 committed any breach of fiduciary responsibility imposed by ERISA or any other applicable law that would subject the Subsidiary to liability under ERISA or any other applicable law, contract, agreement, or commitment. The PBGC has not instituted proceedings to terminate any Pension Plan in which the Subsidiary participates, and no condition exists that presents a risk that such proceedings will be instituted. (iv) Any Employee Benefit Plan designed to satisfy the requirements of Section 125, Section 401(k), Section 409, Section 501(c)(9), Section 4975(e)(7), and/or Section 4980B of the Code, satisfies such section. (v) No "leased employee," as that term is defined in Section 414(n) of the Code, performs services for the Subsidiary. (vi) Notice of any Employee Benefit Plan or Benefit Arrangement required to be given to the Department of Labor under Section 2520.104.23 of Title 29 of the Code of Federal Regulations has been given. (vii) Except as indicated on Section 4.13, there is no audit which is in process by, or for which notification has been received from, the Internal Revenue Service, the Department of Labor or the PBGC with respect to any Employee Benefit Plan. 4.14 Litigation; Compliance with Laws. -------------------------------- (a) There are no judicial or administrative actions, proceedings or investigations pending or, to the best of Seller's knowledge, threatened, that question the validity of this Agreement or any action taken or to be taken by Seller in connection with this Agreement. There is no litigation, proceeding or governmental investigation pending or, to the best of Seller's knowledge, threatened, or any order, injunction or decree outstanding, against the Seller that, if 19 25 adversely determined, would individually or in the aggregate, adversely effect the Seller's ability to perform its obligations under this Agreement. (b) To the best of Seller's knowledge the Subsidiary is not in violation of any applicable law, regulation, ordinance or any other applicable requirement of any governmental body or court, which violations in the aggregate would have a Material Adverse Effect. As of the date of this Agreement, no written notice has been received by the Subsidiary since January 1, 1990 alleging any such violations, except as set forth on SCHEDULE 4.14. (c) Except as disclosed in SCHEDULE 4.14, these are no judicial or administrative actions or proceeding pending against the Subsidiary or, to the best knowledge of Seller, threatened against the Subsidiary or the Business. 4.15 Real Property. ------------- (a) SCHEDULE 4.15(a) sets forth all of the real property used in the Business and owned in fee by the Subsidiary (the fee property being hereinafter referred to as the "Owned Property"). The Owned Property is all of the real property used in the Business as presently conducted, and is, to the best of Seller's knowledge, adequate for the uses to which it is being put and sufficient for the conduct of the Business as presently conducted. The Seller has provided to Buyer copies of title insurance commitments from Lawyers Title Insurance Corporation with respect to the Owned Property (the "Title Commitments"). The matters set forth at Items 4, 5, 6, 8 and 9 of the North Carolina Title Commitment and at Items 6, 7, 8 and 10 of the Pennsylvania Title Commitment do not materially and adversely affect the use of the Owned Property. Except as set forth on SCHEDULE 4.15(a), the Subsidiary has, or as of the Closing will have, good and marketable title to each parcel of Owned Property free and clear of all Liens, other than (i) those reflected or reserved against in the Preliminary Balance Sheet, (ii) those reflected in the title commitments with 20 26 respect to the Owned Property that are listed on SCHEDULE 4.15(a), copies of which have been previously provided to Buyer, (iii) imperfections of title, easements, pledges, charges, restrictions and encumbrances, including without limitation, survey matters, landlord's liens, mechanics' liens, repairmen's liens and other similar liens, if any, that do not materially detract from the value of the property subject thereto or materially interfere with the manner in which it is currently being used in the Business or materially impair the operations of the Business, and (iv) taxes and general and special assessments not in default and payable without penalty or interest (liens of the type referred to in clauses (i) through (iv) above being hereinafter referred to as "Permitted Liens"). (b) There are no real property leases in effect as of the date hereof with respect to the Business under which the Subsidiary is a lessee, other than leases with respect to public warehouses used by the Subsidiary. (c) The Subsidiary has not received any notice of violation of any ordinance, law or regulation of any government resulting from the current uses of, or the buildings or improvements on, any of the parcels of real property owned by the Subsidiary or used in the conduct of its business. No proceedings are pending as of the date hereof or, to the best of Seller's knowledge, threatened for condemnation of all or any part of such real property. 4.16 TANGIBLE PERSONAL PROPERTY. All of the fixtures, machinery and equipment reflected in the Preliminary Balance Sheet (the "Tangible Personal Property") are in existence (except for dispositions made since the date of the Preliminary Balance Sheet in the ordinary course of business and minor items not substantial in character). The Subsidiary has delivered to the Buyer a Fixed Asset Listing by Tag Id. as of November 30, 1996. Substantially all of the Tangible Personal Property is located at the Owned Property. Except as set forth on SCHEDULE 4.16, the Subsidiary has good title to, or holds by valid and existing lease, all of the Tangible Personal Property, free and clear 21 27 of all Liens, other than Permitted Liens. The Tangible Personal Property is, to the best of Seller's knowledge, adequate for the uses to which it is being put and sufficient for the conduct of the Business as presently conducted. 4.17 Proprietary Rights. ------------------ (a) SCHEDULE 4.17(a) sets forth a list of all inventions which are the subject of issued letters patent or an application therefor and all trade and service marks which have been registered or for which an application for registration is pending, in each case which are owned and used or held for use by the Subsidiary in the Business (each a "Proprietary Right"), specifying as to each, as applicable; (i) the nature of such Proprietary Right; (ii) the owner of such Proprietary Right; (iii) the jurisdictions by or in which such Proprietary Right has been issued or registered or in which an application for such issuance or registration has been filed, including the respective registration or application numbers, if available; and (iv) material licenses, sublicenses and other agreements to which the Subsidiary is a party and pursuant to which any person is authorized to use such Proprietary Right. The Proprietary Rights include all proprietary rights that are used in the Business as presently conducted. (b) Except as set forth on SCHEDULE 4.17(b), the Subsidiary (i) is not a defendant in any claim, suit, action or proceeding which involves a claim of infringement of any Proprietary Rights, and (ii) does not have any knowledge of any existing infringement by any other person of any Proprietary Right. To the knowledge of Seller, (i) the Subsidiary has rights to use all Proprietary Rights in the conduct of the Business and (ii) the Business as currently conducted does not infringe on any proprietary right of any third party. Except as disclosed on SCHEDULE 4.17(b), no Proprietary Right is subject to any outstanding order, judgment, decree, stipulation or agreement restricting the use thereof by the Subsidiary or restricting the licensing thereof by the Subsidiary to 22 28 any person. Buyer acknowledges that from time to time the products of the Subsidiary are sold and services of the Subsidiary are rendered to customers whose standard terms and conditions of their purchase orders sometimes contain agreements under which the Subsidiary may be required to defend, indemnify and hold the customer harmless against any charge of patent, trademark or copyright infringement and that the Uniform Commercial Code imposes a similar obligation where the products were and are made to the specifications of the customer. With the exception of the foregoing, and except as may be provided in items disclosed on SCHEDULE 4.16 and SCHEDULE 4.17(b), the Subsidiary has not entered into any special agreement to indemnify any other person against any charge of infringement of any patent, trademark, service mark or copyright of the Business. 4.18 Environmental Matters. --------------------- (a) For purposes of this Section 4.18, the following terms shall have the indicated meaning: "ENVIRONMENTAL LAW" means any federal, state, or local statute, law, ordinance, rule, standard, or regulation and any order, consent decree, judicial or administrative decision or directive to which Seller is a party or is otherwise bound relating to pollution or protection of the health or environment, including natural resources (provided that the term does not include the Occupational Safety and Health Act or similar state laws governing employee exposures); "HAZARDOUS SUBSTANCE" means any substance, whether liquid, solid or gas: (a) listed, identified or designated as hazardous or toxic under any Environmental Law, (b) which, applying criteria specified in any Environmental Law, is hazardous or toxic, or (c) which is regulated under any Environmental Law, and includes without limitation asbestos and asbestos- containing material, radioactive material and petroleum products; 23 29 (b) Except as set forth in SCHEDULE 4.18(b), there are no pending, or to Seller's knowledge, threatened claims, actions or proceedings against the Subsidiary or Seller relating to: (i) an asserted liability of Seller or the Subsidiary or, with respect to the Owned Property, any prior owner, occupier or user of the Owned Property, under any Environmental Law or the terms and conditions of any permit, license, authority, settlement or other obligation arising under any Environmental Law; (ii) the handling, storage, use or disposal of Hazardous Substances from, on or under or within Owned Property on or into the air, water, surface water, ground water, land surface or subsurface strata; (iii) the actual or threatened discharge, release or emissions of Hazardous Substances from, on or under or within the Owned Property on or into the air, water, surface water, ground water, land surface or subsurface strata; or (iv) actual or asserted claims for personal injuries or damages to property related to or arising out of exposure to Hazardous Substances discharged, released or emitted from or into, or transported from or to, the Owned Property. (c) Except as set forth in SCHEDULE 4.18(c), to the best of Seller's knowledge, the Subsidiary has timely filed all required reports, obtained all required approvals and permits, and generated and maintained all required data, documentation and records under all applicable Environmental Laws. Except as disclosed in SCHEDULE 4.18(c), to the best of Seller's knowledge, there are no underground storage tanks present on the Owned Property and, if there are 24 30 such tanks, all tanks comply with applicable law and all required permits in respect thereof are in full force and effect. (d) Except as set forth in SCHEDULE 4.18(d), to the best of Seller's knowledge, no Hazardous Substances have been, or have been threatened to be, discharged, released or emitted on or into the air, water, surface water, ground water, land surface or subsurface strata or transported to or from the Owned Property except in accordance with Environmental Law (in particular, but without limitation, in accordance with any permits issued pursuant thereto). 4.19 PERMITS AND LICENSES. Set forth in SCHEDULE 4.19 is a list of all permits, licenses, franchises or other authorizations held by the Subsidiary. Except as set forth on SCHEDULE 4.19 the Subsidiary has all material permits, licenses, franchises and other authorizations necessary for the conduct of the Business as currently conducted, all such permits, licenses, franchises and authorizations are valid and in full force and effect and the Business is in compliance with the terms and conditions of such permits except to the extent that any such non-compliance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 4.20 INSURANCE. SCHEDULE 4.20 lists all insurance policies pursuant to which the Subsidiary is insured as of the date of this Agreement. 4.21 SUPPLIERS AND CUSTOMERS. Except for suppliers or customers who, as of the date of this Agreement, have re-established their relationships with the Subsidiary, no supplier or customer which accounted for more than five percent (5%) of the sales or purchases of the Subsidiary since October 1, 1995 has terminated or, to the knowledge of the Subsidiary, threatened to terminate, its relationship with the Subsidiary. To the knowledge of Seller as of the date hereof, there will not be any adverse effect on the relationship of the Subsidiary with any of its suppliers or customers solely due to U.S. Industries, Inc. ("Parent") ceasing to beneficially own the capital stock of the Subsidiary. 25 31 4.22 EXPERIENCE MATTERS. SCHEDULE 4.22 contains a reasonably detailed description of the history of the experience of the Business during the two (2) years ending on the date hereof with respect to (i) product liability claims and product warranty claims exceeding $10,000, and (ii) all workers' compensation claims. SCHEDULE 4.22 also contains a reasonably detailed description, as of the date of this Agreement, of all product warranty, product liability and workers' compensation claims currently pending. 4.23 INTERCOMPANY ACCOUNTS. All intercompany accounts of the Subsidiary will be discharged or canceled as of the Closing Date. 4.24 DIVESTITURE AGREEMENTS. The Subsidiary has no obligations or liabilities under any other divestiture agreement or in connection with the demerger of Parent from Hanson PLC entered into by Parent or its subsidiaries. 4.25 DISCLOSURE. Neither this Agreement (including the Exhibits hereto) nor the Financial Statements nor any certificate or information furnished by Seller or the Subsidiary under this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller as follows: 5.1 BUYER'S ORGANIZATION. Buyer is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has the full corporate power and authority to enter into and to perform this Agreement. 26 32 5.2 AUTHORIZATION OF AGREEMENT. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby by Buyer have been duly authorized by all necessary corporate action of Buyer and this Agreement constitutes the valid and binding obligation of Buyer enforceable against it in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3 CONSENTS OF THIRD PARTIES. The execution, delivery and performance of this Agreement by Buyer will not (i) violate or conflict with the certificate of incorporation, by-laws or other constitutional documents of Buyer; (ii) conflict with, or result in the breach or termination of, or constitute a default under (whether with notice or lapse of time or both), or accelerate or permit the acceleration of the performance required by, any indenture, mortgage, lien, lease, agreement, commitment or other instrument or any order, judgment or decree, to which Buyer is a party or by which it or its properties are bound other than certain credit agreements which will be amended prior to the Closing; or (ii) constitute a violation of any law, regulation, order, writ, judgement, injunction or decree applicable to Buyer, other than violations, conflicts, breaches, terminations, accelerations and defaults specified in the foregoing clauses (ii) and (iii) which could not reasonably be expected to have a material adverse effect on Buyer's ability to perform its obligations under this Agreement. No consent, approval or authorization of any governmental authority is required on the part of Buyer in connection with the execution, delivery and performance of this Agreement, except for filings with the Federal Trade Commission and the Department of Justice pursuant to the HSR Act. 27 33 5.4 LITIGATION. There are no judicial or administrative actions, proceedings or investigations pending or, to the best of Buyer's knowledge, threatened, that question the validity of this Agreement or any action taken or to be taken by Buyer in connection with this Agreement. There is no litigation, proceeding or governmental investigation pending or, to the best of Buyer's knowledge, threatened, or any order, injunction or decree outstanding, against the Buyer that, if adversely determined, would have a material adverse effect upon Buyer's ability to perform its obligations under this Agreement. 5.5 FINANCING. Buyer has all funds, or has delivered copies of a letter from financial institutions as to the provision of funds, as necessary to pay the Purchase Price and related fees and expenses, and (assuming the availability of any such funding from financial institutions) Buyer has the financial capacity to perform all of its other obligations under this Agreement and the closing documents to be executed hereunder. Buyer, immediately after the Closing, will be solvent, will be able to meet its obligations and debts as they become due, will have arrangements in place for funding of the Subsidiary so that it will be able to meet its obligations and debts as they come due, the value of Buyer's assets at such time will exceed Buyer's liabilities, and Buyer at such time will have, and will cause the Subsidiary to have, adequate capital for the conduct of its business, including the Business. 5.6 INVESTMENT. Buyer is purchasing the Shares for investment purposes and not with a view to the resale or distribution of the Shares, and will not sell the Shares in violation of applicable federal and state securities laws. 6. FURTHER AGREEMENTS OF THE PARTIES. 28 34 6.1 ACCESS TO INFORMATION. Prior to the Closing, Buyer may make such investigation of the business and properties of the Subsidiary as Buyer may desire, and upon reasonable notice, Seller shall give to Buyer and its counsel, accountants and other representatives reasonable access, during normal business hours throughout the period prior to the Closing, to the property, books, commitments, agreements, records, files and personnel of the Subsidiary, and Seller shall furnish to Buyer during that period all copies of documents and information concerning the Business as Buyer may reasonably request subject to applicable law. Buyer shall hold, and shall cause its counsel, accountants and other agents and representatives to hold, all such information and documents in accordance with, and subject to the terms of, the confidentiality agreement previously executed by Buyer with respect to this transaction. 6.2 CONDUCT OF THE BUSINESS PENDING THE CLOSING. Until the Closing, except as otherwise set forth in SCHEDULE 6.2 or contemplated by this Agreement, Seller shall, and shall cause the Subsidiary to, comply with the provisions set forth below: (a) the Subsidiary shall operate the Business in the ordinary course; (b) Seller shall promptly notify Buyer of, and furnish to Buyer, any information that Buyer may reasonably request with respect to the occurrence of any event or the existence of any state of facts that would result in any of Seller's representations and warranties not being true if they were made at any time prior to or as of the date of the Closing, except that any representation or warranty which relates to a specific date in Sections 4.11 and 4.22 shall not require such notice; (c) Except as provided for under the existing Employee Benefit Plans and Benefit Arrangements, as defined below, the Subsidiary shall not (i) grant or agree to grant any bonuses to any employee, (ii) grant any general increase in the rates of salaries or compensation of 29 35 its employees or any specific increase to any employee except such as are in accordance with regularly scheduled periodic increases, or (iii) provide for any new pension, retirement or other employment benefits to any of its employees or any increase in any existing benefits; (d) the Subsidiary shall not amend its certificate of incorporation or by-laws or enter into any merger or consolidation agreement; (e) the Subsidiary shall use commercially reasonable efforts to maintain and preserve the Business intact, to retain its present employees so that they will be available to Buyer after the Closing and to maintain its relationships with customers, suppliers and others so that those relationships will be preserved after the Closing; (f) the Subsidiary shall not sell, assign, voluntarily encumber, grant a security interest in or license with respect to, or dispose of, any of its material assets or properties, tangible or intangible, or incur any material liabilities, except for sales and dispositions made, or liabilities incurred, in the ordinary course of business; (g) the Subsidiary shall maintain in full force and effect all insurance currently maintained by the Subsidiary with respect to the Business; and (h) neither Seller nor the Subsidiary will talk to, or entertain offers from, other potential purchasers of the Subsidiary, and Seller will notify Buyer if there are any contacts 30 36 from third parties who express an interest in purchasing the Subsidiary and identity any such third party. 6.3 Employee and Employee Benefit Matters. ------------------------------------- (a) EMPLOYMENT OF EMPLOYEES AT CLOSING; INDEMNIFICATION OF SELLER FOR TERMINATION LIABILITY. On the Closing Date, Buyer agrees that the Subsidiary will continue to employ the Employees at the same compensation levels and on substantially the same terms and conditions of employment in effect as of the Determination Time. Additionally, Buyer agrees to continue the Employee Benefit Plans and Benefit Arrangements on substantially the same terms following the Closing Date, with the exception of the Subsidiary's Long Term Incentive Plan ("LTIP"). Seller will fund the Subsidiary to discharge all obligations under the LTIP in the event the LTIP is terminated at Closing. Buyer hereby agrees to indemnify Seller from any and all termination or severance liability (including, without limitation, any liability related to or arising out of the Worker Adjustment and Retraining Notification Act, 29 U.S.C. 2101 et seq., the continuation coverage rules of Section 4980B of the Internal Revenue Code and part 6 of Subtitle B of Title I of ERISA ("COBRA"), and any similar state and local laws) with respect to the Employees. (b) TRANSFER OF ASSETS OF THE PENSION PLANS. After the Closing Date, Seller shall cause the assets of the Pension Plans listed on SCHEDULE 6.3 to be transferred to a trust or trusts or other funding medium established by Buyer (the "New Pension Trusts"). Any such transfer shall occur as soon as reasonably practicable following receipt of Seller of (i) notification from Buyer that the applicable New Pension Trust has been established and (ii) an opinion from counsel to Buyer that such New Pension Trust meets the requirements of Section 501(a) of the Code. The amount of assets transferred from any trust in which a Pension Plan is invested prior to the Closing Date shall be equal to the entire interest of the Pension Plan on the date of transfer. The amount to be transferred 31 37 pursuant to this Section 6.3 with respect to any defined benefit plan shall be in the form of cash and the amount transferred with respect to any defined contribution plan shall be in the form agreed to by Buyer and Seller, except with respect to the assets held in the fixed income fund, Seller shall direct the trustee to spin off cloned contracts from such guaranteed investment contracts and similar investments as will produce a substantially equivalent rate of return as under the fixed income fund, to the extent practicable. If no cloned contract can be obtained within three (3) months of the Closing Date, the Seller shall transfer the aggregate then fair market value of the Pension Plans' investment in such contract to the applicable New Pension Trusts in cash or in such other marketable instruments as the Seller and Buyer mutually agree. To the extent the process of obtaining the cloned contract extends beyond the date the balance of the assets of such Pension Plan are transferred, Seller shall not charge any administration expenses to the Buyer under Section 6.3(c) below. (c) INTERIM ADMINISTRATION OF PENSION PLANS. Prior to the transfer of the assets of the Pension Plans to the New Pension Trust pursuant to Section 6.3(b), Seller shall continue the administration of the Pension Plans. For purposes of the preceding sentence, "administration" shall include all actions required on a routine basis for the proper maintenance of the Pension Plans, including, but not limited to, the payment of all benefits or other distributions to participants required by the provisions of the Pension Plans; provided, however, that "administration" shall not include the making of any employer or sponsor contributions which are or may be required to be made to such plans. As consideration for Seller's obligation to continue the administration of such plans, Buyer agrees for a sixty (60) day period following the Closing Date to reimburse Seller, upon the delivery of proper invoices identifying the applicable Pension Plan and services provided, for all out-of-pocket expenses incurred by Seller in administration of the plans including, but not limited to, the routine fees charged by the Pension Plans' trustees, actuaries or third-party administrators. If the transfer to the 32 38 New Pension Trusts has not occurred by the end of the sixty (60) day period referred to in the preceding sentence, Buyer shall continue to reimburse Seller for the applicable portion of all fees incurred by the Seller in the administration of the plans and, if the transfer has not occurred because of the failure of Buyer to satisfy the requirements of Sections 6.3(b) above, the Buyer shall in addition pay the Seller $5,000 for each month, pro-rated by calendar days, after the date of the expiration of the sixty (60) day period until the transfer to the New Pension Trusts has occurred, but in no event shall such administration continue by Seller beyond May 31, 1997, unless the transfer has not occurred through the failure of Seller to satisfy its responsibilities under Section 6.3(b) of this Agreement. (d) Seller shall prepare the financial statements of the trusts required for Form 5500 for the plan year ended December 31, 1996 and shall provide copies of such statements to Buyer. All expenses relating to such preparation of financial statements shall be borne by Seller. (e) Seller and Buyer agree to provide each other with such records and information as they may reasonably request in order to carry out their respective obligations under this Section 6.3. During the period following the Closing and prior to the transfer of assets of the Pension Plans to the New Pension Trusts pursuant to Section 6.3(b), Seller shall promptly forward to Buyer any correspondence or written communications received from the IRS, the Department of Labor, or the PBGC with respect to any Pension Plan. 6.4 OTHER ACTION. Each of the parties shall use its best efforts to cause the fulfillment at the earliest practicable date but, in any event, prior to the Closing Date, of all of the conditions to their respective obligations to consummate the transactions under this Agreement. 33 39 6.5 NOTICES. Each party shall promptly notify the other party in writing of, and furnish to such party any information that such party may reasonably request with respect to, the occurrence of any event or the existence of any state of facts that would (a) result in the party's representations and warranties not being true if they were made at any time prior to or as of the Closing Date, except that any representation or warranty which relates to a specific date in Sections 4.11 and 4.22 shall not require such notice, or (b) impair the party's ability to perform its obligations under this Agreement. 6.6 HSR ACT. As promptly as practicable after the execution of this Agreement, each party shall, in cooperation with the other, but at its own expense, file any reports or notifications and pay any fees that may be required to be paid by it under applicable law including filings under the HSR Act with the Federal Trade Commission and the Antitrust Division of the Department of Justice, and shall furnish to the other all such information in its possession as may be necessary for the completion of the reports or notifications to be filed by the other. Each party will use its good-faith beet efforts to obtain any early termination of the applicable waiting period, and shall promptly make any further filings pursuant thereto that may be necessary, proper or advisable. 6.7 EXPENSES. Except as otherwise specifically provided in this Agreement, Buyer and Seller shall bear their own respective expenses incurred in connection with this Agreement and in connection with all obligations required to be performed by each of them under this Agreement. 6.8 PUBLICITY. Buyer and Seller shall consult with each other before issuing any press release concerning the transactions contemplated by this Agreement and, except as may be required by applicable law or any listing agreement with or regulation or rule of any stock exchange on which the securities of the Subsidiary's parent or Buyer (or its parent) are listed or traded, will not 34 40 issue a press release prior to such consultation. If Buyer or Seller is so required to issue a press release it shall use its best efforts to inform the other party hereto prior to issuing it. 6.9 TRANSFER TAXES. Any sales taxes, real property transfer or gains taxes, recording fees or any other taxes payable as a result of the sale of the Shares or any other action contemplated by this Agreement shall be paid by the Buyer. Seller agrees to pay all costs associated with the transfer of the Johnstown property to Subsidiary. 6.10 SUPPLEMENT TO DISCLOSURES. For purposes of determining the accuracy of the representations and warranties of Seller contained in Article 4 and the fulfillment of the conditions precedent set forth in Section 7.1(a), the Schedules delivered by Seller shall be deemed to include only that information contained therein on the date of this Agreement and as the same may be amended or supplemented by Seller with Buyer's consent (which shall not be unreasonably withheld) prior to the Closing Date. 6.11 PRESERVATION OF RECORDS. Buyer and Seller agree, at their own expense that each (a) shall preserve and keep the records of the Subsidiary for a period of seven years from the Closing, or for any longer periods as may be required by any government agency or ongoing litigation, and (b) shall make such records available to the other as may be reasonably required by the other. In the event either party wishes to destroy such records after the time specified above, it shall first give sixty (60) days' prior written notice to the other and Seller shall have the right at its option and expense, upon prior written notice given to the other within that sixty (60) day period, to take possession of the records within thirty (30) days after the date of one party's notice to the other. 6.12 Certain Post-Closing Assistance by the Buyer. -------------------------------------------- (a) Buyer agrees to cause the appropriate personnel, at no out-of-pocket cost or expense to Buyer, to prepare all customary accounting, tax, employment, benefits-related and 35 41 similar reports for the Subsidiary for periods up to the Closing Date which are reasonably requested by Seller. (b) Buyer agrees to cause the appropriate personnel to assist Seller in the prosecution or defense of any claims and litigation (including counterclaims and tax refund claims filed by the Seller) for which Seller has indemnified Buyer hereunder or which Buyer has not assumed, provided that such assistance does not unreasonably disrupt the ordinary business operations of the Business. Such services shall be rendered by the Buyer to the Seller at no out-of-pocket cost or expense to Buyer. Buyer agrees promptly to pay to Seller upon receipt of any amount collected by Buyer in connection with any action, suit or proceeding for which Seller has agreed to indemnify Buyer under Section 9.1(a). 6.13 Treasury Matters. ---------------- (a) Seller shall continue to cause the funding of the Subsidiary's checks, in accordance with past practices, which are presented for payment through the day prior to the Closing Date. Seller shall have no obligation to fund checks which are presented for payment on and after the Closing Date, provided that there is an accrual on the Final Balance Sheet therefor. Buyer shall assume all of the bank accounts of the Business on the Closing Date and be prepared to fund the above-mentioned checks which are presented for payment on and after the Closing Date. Amounts received in the lockbox and depository accounts of the Business through the Determination Time shall be retained by Seller notwithstanding that, consistent with past practices, such collections may not be credited to Seller or its affiliates until or after the Closing Date. (b) the Subsidiary is party to or financially supported by certain letters of credit, bonding arrangements and/or guarantees, related to the Business, in respect of which the Subsidiary's affiliates are subject to continuing obligations (the "Credit Support Documents"). The 36 42 parties shall use their commercially reasonable efforts to terminate the Credit Support Documents as soon as practicable after the Closing. Buyer shall cause the obligations which are secured by the Credit Support Documents and which relate to Buyer's operation of the Business after the Closing to be discharged in such a manner that the Subsidiary and its affiliates will not be required to make any payments under the Credit Support Documents in relation thereto. Should any such payments be required and paid' Buyer shall reimburse the party making payment upon demand. It is understood that the Subsidiary shall not have any right to incur any new obligations secured or supported by the Credit Support Documents after the Closing and Buyer shall cause the Subsidiary not to incur any such obligations. Notwithstanding the foregoing, the guaranty by Parent of the line of credit between NationsBank, N.A. and the Subsidiary will be terminated prior to the Closing. 6.14. SCM NAME. Buyer acknowledges that Subsidiary's use of the name "SCM" is limited. Notwithstanding any provisions of this Agreement to the contrary, Seller's only obligation with respect to the name SCM is to provide Subsidiary with the use of such name for one year after the Closing Date. 37 43 7. Conditions of Closing. --------------------- 7.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligation of Buyer to consummate the purchase under this Agreement is subject to the fulfillment, prior to or at the Closing, of each of the following conditions (any or all of which may be waived by Buyer): (a) all representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects, at and as of the time of the Closing with the same effect as though made again at, and as of, that time (except that any representation or warranty that relates to a specific date in Sections 4.11,4.12,4.15(c), 4.21 and 4.22 shall be true and correct on and as of that date); (b) Seller shall have performed and complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by Seller prior to or at the Closing; (c) Buyer shall have been furnished with the documents referred to in Section 8.1; (d) the waiting period under the HSR Act, if applicable, shall have expired or been terminated; (e) no provision of any applicable law or regulation shall prohibit Seller, and there shall not be in effect any injunction or restraining order issued by a court of competent jurisdiction in any action or proceeding against Seller regarding the consummation of the sale and purchase of the Shares pursuant to this Agreement; (f) between the date hereof and the Closing, there shall have been no material damage or destruction to the assets of the Business by fire, flood, windstorm or other Act of God; 38 44 (g) there shall have been no material adverse change in the business or properties of the Business; and (h) before Closing, Buyer shall receive at Seller's expense a survey of the Owned Property prepared after the date hereof by a registered land surveyor, which survey will not show any encroachment of improvements on or from the property or other matters that would materially and adversely affect the use of such property. 7.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligation of Seller to consummate the sale under this Agreement is subject to the fulfillment, prior to or at the Closing, of each of the following conditions (any or all of which may be waived by Seller): (a) all representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects at and as of the time of the Closing with the same effect as though made again at, and as of; that time; (b) Buyer shall have performed and complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by Buyer prior to or at the Closing; (c) Seller shall have been furnished with the documents referred to in Section 8.2; (d) the waiting period under the HSR Act, if applicable, shall have expired or been terminated; and (e) no provision of any applicable law or regulation shall prohibit Buyer, and there shall not be in effect any injunction or restraining order issued by a court of competent jurisdiction in any action or proceeding against Buyer regarding the consummation of the sale and purchase of the Shares pursuant to this Agreement. 39 45 8. Documents to be Delivered at the Closing. ----------------------------------------- 8.1 DOCUMENTS TO BE DELIVERED BY SELLER. At the Closing, Seller shall deliver, or cause to be delivered, to Buyer the following: (a) one or more executed stock powers or other instruments of transfer, dated the Closing Date, transferring to Buyer all of the Seller's right, title and interest in and to the Shares; (b) a copy of resolutions of the hoard of directors of Seller authorizing the execution, delivery and performance of this Agreement by Seller and a certificate of the secretary or assistant secretary of Seller, dated the Closing Date, that such resolutions were duly adopted and are in full force and effect; (c) a certificate, dated the Closing Date, executed by an officer of Seller certifying to the fulfillment of the conditions specified in Sections 7.1(a); (d) a favorable opinion of the General Counsel to Seller, subject to customary qualifications and limitations, as to the due execution and delivery of this Agreement and the documents delivered by Seller at the Closing and as to the matters set forth in Sections 4.1, 4.2. and 4.4, and, to the best of such counsel's knowledge, Sections 4.3, 4.5 and 4.14; (e) a Noncompete Agreement substantially in the form of EXHIBIT A hereto; and (f) a Tax Sharing and Indemnification Agreement substantially in the form of EXHIBIT B hereto. 40 46 8.2 DOCUMENTS TO BE DELIVERED BY BUYER. At the Closing, Buyer shall deliver to Seller the following: (a) payment and evidence of the wire transfer referred to in Section 2.3(a); (b) a copy of the resolutions of the board of directors of Buyer authorizing the execution, delivery and performance of this Agreement by Buyer, and a certificate of its secretary or assistant secretary, dated the Closing Date, that such resolutions were duly adopted and are in full force and effect; (c) a certificate, dated the Closing Date executed by an officer of Buyer certifying to the fulfillment of the conditions specified in Section 7.2(a) and 7.2(b); (d) a favorable opinion of General Counsel to Buyer as to subject to customary qualifications and limitations, as to the due execution and delivery of this Agreement and the documents delivered by Buyer at the Closing and as to the matters set forth in Sections 5.1, 5.2 and, to the best of such counsel's knowledge, Sections 5.3 and 5.4; and (e) a Tax Sharing and Indemnification Agreement substantially in the form of EXHIBIT B hereto. 9. Indemnification and Related Matters. ----------------------------------- 9.1 Indemnification. --------------- (a) Subject to the provisions of this Article 9, Seller agrees to indemnify and hold Buyer and its affiliates, predecessors, successors and assigns (and their respective officers, directors, employees and agents) harmless from and against all actions, suits, proceedings, claims, demands, assessments, judgments, damages, costs and expenses, in excess of any reserves or accruals on the Final Balance Sheet which have been specifically identified in the books and records of the Subsidiary used for preparation of the Preliminary Balance Sheet or which relate to events subsequent 41 47 to September 28, 1996 for which specific reserves will be provided on the Final Balance Sheet, including reasonable attorneys' fees arising or resulting from the following: (i) a breach of any representation or warranty on the part of Seller under the terms of this Agreement or any other document other than the Tax Sharing and Indemnification Agreement executed by Seller pursuant hereto; (ii) non-fulfilment of any agreement on the part of Seller under the terms of this Agreement or any other document executed by Seller pursuant hereto; and (iii) Environmental Damages, to the extent and in the manner set forth in Section 9.5. (b) Subject to the provisions of this Article 9, Buyer agrees to indemnify and hold Seller and its affiliates, predecessors, successors and assigns (and their respective officers, directors, employees and agents) harmless from and against all actions, suits, proceedings, claims, demands, assessments, judgments, damages, costs and expenses, including reasonable attorneys' fees arising or resulting from the following: (i) a breach of any representation or warranty on the part of Buyer under the terms of this Agreement or any other document executed by Buyer pursuant hereto; (ii) non-fulfillment of any agreement on the part of Buyer under the terms of this Agreement or any other document executed by Buyer pursuant hereto; (iii) Environmental Damages, to the extent and in the manner set forth in Section 9.5; (iv) any and all actions, suits and proceedings pending or commenced, or any other claims or demands pending or asserted against Seller or any affiliate of Seller before or after the Determination Time with respect to the Business (excluding Environmental 42 48 Damages) except for those actions, suits and proceedings which are the responsibility of Seller under Section 9.1(a); (v) any deductibles payable by Seller or Parent on or after the Closing with respect to claims of the Subsidiary covered by insurance policies listed in SCHEDULE 4.20; and (vi) any and all claims or liabilities in relation to the Employee Benefit Plans and Benefit Arrangements. 9.2 Determination of Damages and Related Matters. (a) In calculating any amounts payable to Buyer pursuant to Sections 9.1(a) or 9.5 or payable to Seller pursuant to Sections 9.1(b) or 9.5, (i) Seller or Buyer, as the case may be, shall receive credit for (y) any reduction in actual tax liability as a result of the facts giving rise to the claim for indemnification, and (z) any insurance recoveries, and (ii) no amount shall be included for Buyer's or Seller's, as the case may be, special or consequential damages. (b) Seller or Buyer, as the case maybe, shall have no liability under Sections 9.1 (a)(i) and 9.1 (b)(i) for breaches of representations and warranties under Articles 4 and 5 of this Agreement, respectively, unless the aggregate amount of the damages and losses to Seller or Buyer from all claims finally determined to arise under Article 4 and 5, respectively, exceed an amount equal to $750,000 and, in such event, Seller and Buyer shall be required to pay only the amount by which such aggregate amount of claims exceeds said amount in the aggregate; provided, further, that in no event shall the amount of Seller's aggregate liability under this Section 9 exceed the Purchase Price. 43 49 (c) The indemnification provided for in this Article 9 shall, from and after the Closing, be the sole remedy for any of the matters referred to herein and the indemnification under Section 9.5 shall be the sole remedy for any Environmental Claims and for any breach of representation or warranty regarding environmental matters. 9.3 TIME AND MANNER OF CERTAIN CLAIMS. Except as otherwise expressly provided herein, Seller and Buyer shall be liable for damages for breach of warranty set forth in Articles 4 or 5 of this Agreement respectively and asserted under Section 9.1 (a)(i) or Section 9.1 (b)(i) respectively only to the extent that notice of a claim therefor complying with the requirements of this Section is asserted by the other in writing and delivered prior to the expiration of a period ending eighteen (18) months from the Closing Date; provided, how ever, that no claim may be made by Buyer against Seller with respect to Sections 4.6(b), 4.8 and 4.9 after the resolution of the issues related to the payment to be made pursuant to Section 2.3(c) or the receipt of such payment. Any notice of a claim shall state specifically the facts giving rise to the alleged basis for the claim and estimate the amount of liability asserted against the other party by reason of the claim. 9.4 DEFENSE OF CLAIMS BY THIRD PARTIES. If any claim is made against Buyer or Seller, as the case may be, that, if sustained, would give rise to a liability of the other under this Agreement, Buyer or Seller, as the case may be, shall promptly cause notice of the claim to be delivered to the other and shall afford the other and its counsel, at the other's sole expense, the opportunity to defend or settle the claim. If such notice and opportunity are not given to the other, or if any claim is compromised or settled without its consent, no liability shall be imposed upon the other by reason of such claim, unless the party failing to provide such notice and opportunity can establish that such failure did not prejudice the other party. 44 50 9.5 Environmental Matters. --------------------- (a) Seller will indemnify and hold harmless Buyer and its Affiliates, as defined below, and the Subsidiary and will reimburse Buyer and its Affiliates, as defined below, and the Subsidiary for any liability, damages, costs and expenses including costs of investigation, analysis, cleanup, containment or other environmental remediation (collectively, "Environmental Damages") with respect to: (i) fines and penalties incurred for violations of Environmental Law arising out of operations of the Subsidiary on or prior to the Closing and there shall be no time limit on claims by Buyer against Seller for such liabilities; (ii) fines, penalties or corrective action arising out of a violation of the storage time limitations for Hazardous Materials under the Resource Conservation and Recovery Act arising out of operations of the Subsidiary on or prior to the Closing and there shall be no time limit on claims by Buyer against Seller for such liabilities; and (iii) the off-site disposal of Hazardous Materials by the Subsidiary prior to the Closing with respect to any off-site locations not listed on SCHEDULE 9.5(b) which liability shall terminate six (6) years after the Closing Date. (b) Buyer shall indemnify and hold harmless Seller and its Affiliates, as defined below, for any Environmental Damages with respect to the off-site disposal of Hazardous Materials by the Subsidiary prior to Closing with respect to the off-site locations identified in SCHEDULE 9.5(b) (the "Listed Off-Site Environmental Liabilities") provided, however, that Buyer, at or prior to Closing, may elect in writing to require Seller to indemnify and hold harmless Buyer and its Affiliates from any Environmental Damages with respect to the Listed Off-Site Environmental Liabilities and the litigation set forth on SCHEDULE 9.5(b). 45 51 (c) (i) This Section 9.5(c) governs the allocation between Seller and Buyer of Environmental Damages, other than as set forth in Section 9.5(a) and (b) above, arising from or in connection with any environmental condition existing as of the Closing (including any future spreading of contamination existing at such time) on any real property owned or leased by the Subsidiary with respect to any actions taken by the Buyer or the Subsidiary (y) in response to a claim, demand, investigation or inquiry made against Buyer or the Subsidiary by any governmental agency or any third party, or (z) to correct or remediate any environmental condition, as required by applicable law or regulations or a governmental agency, to achieve compliance with any Environmental Law. (ii) With respect to Environmental Damages arising out of the matters set forth in Section 9.5(c)(i) pursuant to which a claim is made by Buyer against Seller (A) before the first anniversary of the Determination Time, Seller shall indemnify and hold Buyer harmless to the extent of ninety-five percent (95%) of such Environmental Damages, and Buyer shall indemnify and hold Seller harmless to the extent of five percent (5%) of such Environmental Damages; or (B) after the first anniversary of the Determination Time but before the third anniversary of the Determination Time, Seller shall indemnify and hold Buyer harmless to the extent of ninety percent (90%) of such Environmental Damages, and Buyer shall indemnity and hold Seller harmless to the extent often percent (10%) of such Environmental Damages; or (C) after the third anniversary of the Determination Time but before the fifth anniversary of the Determination Time, Seller shall indemnify and hold Buyer harmless to the extent of seventy-five percent (75%) of such Environmental Damages, and Buyer shall indemnify and hold Seller harmless to the extent of twenty-five percent (25%) of such Environmental Damages; or (D) after the fifth anniversary of the Determination Time, or in the event 46 52 the Environmental Damages are attributable solelY to a period after the Determination Time, Buyer shall indemnify and hold Seller harmless to the extent of 100% of such Environmental Damages. (d) It is further agreed as follows: (i) The parties agree to act in good faith in undertaking work to remediate environmental matters that may give rise to a claim for indemnification hereunder with a view to avoiding unnecessary or excessive costs. (ii) Environmental Damages shall be limited to damages directly relating to rectifying the environmental matter to the minimum extent required by applicable law. Each party agrees that, except as required by law or regulations, it shall not by voluntary or discretionary action, accelerate the timing, or increase the cost, of any obligations of the other party under this Section 9.5. (iii) The party having liability for at least 51% of any Environmental Damages shall have the right to control and manage all discussions with third parties and all proceedings and activities regarding the satisfaction and discharge of the matter, provided that Buyer shall have the right to participate in any discussions affecting the business of the Subsidiary or the Owned Property, and in planning or performing any work at the Owned Property, and the parties shall make commercially reasonable efforts to avoid interfering with operations of the Business. (iv) In the event that action is required by Seller under this Section 9.5 to investigate, clean up or otherwise remedy a situation on the Owned Property, it is agreed that Buyer, at no cost, shall give Seller and its authorized representatives and agents access to and reasonable use of the property, all natural materials (including, without limitation, water, dirt, clay, rocks and dirt related materials) on the property and all equipment, facilities and utilities on the property, all subject to Section 9.5(d)(iii). 47 53 (v) For so long as Seller's indemnification contained in this Section 9.5 shall be in effect, Buyer shall provide to Seller a copy of all information or reports that are provided by Buyer to the National Response Center or other federal, state or local agency which may affect Seller's liability to Buyer under any claim made by Buyer under this Section 9.5. As soon as practicable following request by Seller, Buyer shall provide to Seller copies of all photographs in Buyer's possession with respect to each such matter. (vi) If Environmental Damages are attributed to transactions or occurrences that take place before and after the Closing and to which both Seller and Buyer (or their affiliates) have contributed, liability shall be further apportioned between Seller and Buyer on a reasonable basis, taking into account, in addition to other relevant factors, the degree of contribution on the part of Seller and Buyer before and after the Closing Date. Any disputes regarding such apportionment will be discussed by the parties in good faith and, if unresolved, will be referred to non-binding arbitration by a mutually agreed-upon independent environmental professional to be conducted in accordance with the rules then existing of the American Arbitration Association. The fees and expenses of such arbitration shall be shared equally by Buyer and Seller. 10. Miscellaneous. ------------- 10.1 FINDERS. Except for the engagement of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") by Buyer, Buyer and Seller respectively represent and warrant that they have not employed or utilized the services of any broker or finder in connection with this Agreement or the transactions contemplated by it. Seller shall indemnify and hold Buyer harmless from and against any and all claims for brokers' commissions made by any party as a result of this Agreement and the transactions contemplated hereunder to the extent that any such commission was incurred, or alleged to have been incurred, by, through or under Seller. Buyer shall indemnify and 48 54 hold Seller harmless from and against any and all claims for brokers' commissions made by DLJ and/or any other party as a result of this Agreement and transactions contemplated hereunder to the extent that any such commission was incurred, or alleged to have been incurred, by, through or under Buyer. 10.2 ENTIRE AGREEMENT This Agreement (with its Schedules and Exhibits) together with the existing confidentiality agreement between the parties contains, and is intended as, a complete statement of all of the terms of the arrangements between the parties with respect to the matters provided for, supersedes any previous agreements and understandings between the parties with respect to those matters (except as otherwise provided in Section 6.1), and cannot be changed or terminated orally. 10.3 JURISDICTION AND GOVERNING LAW. Seller and Buyer each hereby consent to personal jurisdiction in any action brought with respect to this Agreement and the transactions contemplated hereunder in any federal or state court within the State of New Jersey or the State of Ohio and agree that service of process may be accomplished pursuant to the provisions of Section 10.6 below. This Agreement shall be governed by and construed in accordance with the law of the State of New Jersey without giving effect to conflicts of law principles thereof. 10.4 SCHEDULES; TABLES OF CONTENTS AND HEADINGS. Any matter disclosed on any Schedule to this Agreement shall be deemed to have been disclosed on all other Schedules to this Agreement to the extent that it should have been disclosed on such other Schedule. The table of contents and section headings of this Agreement and titles given to Schedules to this Agreement are for reference purposes only and are to be given no effect in the construction or interpretation of this Agreement. 49 55 10.5 NOTICES. All notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally (including by confirmed legible telecopier transmission) or mailed by certified mail, return receipt requested, to the parties at the following addresses (or to such address as a party may have specified by notice given to the other party pursuant to this provision): If to Seller, to: SUSI Corporation c/o U.S. Industries, Inc. 101 Wood Avenue South Iselin, New Jersey 08830 Attention: General Counsel Telecopy No.: (908) 767-2208 with a copy to: Benesch, Friedlander, Coplan & Aronoff P.L.L. 2300 BP America Building 200 Public Square Cleveland, Ohio 44114 Attention: Irv Berliner Telecopy No.: (216)363-4588 If to Buyer, to: OM Group, Inc. 3800 Terminal Tower Cleveland, Ohio 44113 Attention; General Counsel Telecopy No.: (216) 781-0902 with a copy to; Squire, Sanders & Dempsey 4900 Key Tower 127 Public Square Cleveland, Ohio 44114-1304 Attention: Carolyn J. Buller Telecopy No.: (216)479-8776 50 56 10.6 SEPARABILITY. In the event that any provision hereof would, under applicable law, be invalid or enforceable in any respect, such provision shall be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and permissible under, applicable law. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect. 10.7 WAIVER. Any party may waive compliance by another with any of the provisions of this Agreement. No waiver of any provision shall be construed as a waiver of any other provision. Any waiver must be in writing. 10.8 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any person or entity not a party to this Agreement. No assignment of this Agreement or of any rights or obligation hereunder may be made by either party (by operation of law or otherwise) without the prior written consent of the other and any attempted assignment without the required consent shall be void; provided, however, that no such consent shall be required of Buyer or Seller to assign part or all of its rights under this Agreement to one or more of its subsidiaries or affiliates, but no such assignment by Buyer or Seller of its rights or obligations hereunder shall relieve Buyer or Seller of any of its obligations under this Agreement to the other. 10.9 BEST KNOWLEDGE. As used in this Agreement "to the best of Seller's knowledge" or words of similar import shall mean actual knowledge possessed by (i) an executive officer of Seller, (ii) an executive officer of the Subsidiary, and (iii) those individuals set forth on 51 57 SCHEDULE 10.9, and "to the best of Buyer's knowledge" or words of similar import shall mean actual knowledge possessed by an executive officer of Buyer. 10.10 COUNTERPARTS. This Agreement maybe executed in counterparts, each of which shall be an original, but which together shall constitute one and the same Agreement. 52 58 IN WITNESS WHEREOF, this Stock Purchase Agreement has been duly executed by the parties as of the date first set forth above. SUSI CORPORATION By: /s/ George H. MacLean ------------------------------ George H. MacLean OM GROUP, INC. By: /s/ James P. Mooney ------------------------------ James P. Mooney GUARANTY - -------- U.S. Industries, Inc., a Delaware corporation, hereby agrees to unconditionally guaranty the obligations of Seller set forth in this Agreement ACCEPTED AND AGREED: - ------------------- U.S. INDUSTRIES, INC. By: /s/ Christian R. Guntner --------------------------- Christian R. Guntner 53 EX-11 5 EXHIBIT 11 1 Exhibit 11 OM Group, Inc. Statement Regarding Computation Of Earnings Per Share
Year ended December 31, ------------------------------------------------------ 1996 1995 1994 ------------------------------------------------------ (in thousands, except per share data) Primary Average shares outstanding 18,624 18,638 18,716 Net effect of dilutive stock options - based on the treasury stock method using average market price 642 500 396 ====================================================== Totals 19,266 19,137 19,112 ====================================================== Net income $30,047 $25,933 $20,742 ====================================================== Per share amount $1.56 $1.36 $1.09 ====================================================== Fully Diluted Average shares outstanding 18,624 18,638 18,716 Net effect of dilutive stock options - based on the treasury stock method using the year-end market price, if higher than average market price 669 564 459 ====================================================== Totals 19,293 19,202 19,175 ====================================================== Net income $30,047 $25,933 $20,742 ====================================================== Per share amount $1.56 $1.35 $1.08 ======================================================
EX-21 6 EXHIBIT 21 1 Exhibit 21 SUBSIDIARY* PLACE OF ORGANIZATION OR INCORPORATION - ----------- -------------------------------------- OMG Americas, Inc. Ohio Vasset, S.A. France OMG Europe, GmbH Germany OMG Asia Pacific Co., Ltd. Taiwan OMG Kokkola Chemicals, Oy Finland OMG Apex, Inc. Delaware D&O, Inc. (50%) Japan J&O, Inc. (50%) Korea __________________ * Percentage in parentheses indicates the Company's ownership if other than 100%. EX-23 7 EXHIBIT 23 1 Exhibit 23 We consent to the incorporation by reference in the following Registration Statements of our report dated January 30, 1997, with respect to the consolidated financial statements of OM Group, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1996:
Registration Number Description Filing Date - ------------------- ----------- ----------- 33-74674 OM Group, Inc. Long-Term Incentive Compensation Plan -- Form S-8 Registration Statement -- 1,015,625 Shares January 27, 1994 333-07529 OMG Americas, Inc. Employees' Profit Sharing Plan -- Form S-8 Registration Statement -- 250,000 Shares July 3, 1996 333-07531 OM Group, Inc. Non-Employee Directors' Equity Plan -- Form S-8 Registration Statement -- 250,000 Shares July 3, 1996
/s/ ERNST & YOUNG LLP Cleveland, Ohio March 21, 1997 EX-24 8 EXHIBIT 24 1 Exhibit 24 OM GROUP, INC. Form 10-K Power of Attorney for Directors ------------------------------- The undersigned, a director of OM Group, Inc., a Delaware corporation (the "Company"), which anticipates the filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") a Form 10-K (together with any and all subsequent amendments, the "Form 10-K"), does hereby constitute and appoint James P. Mooney, James M. Materna or Michael J. Scott and any one of them with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Form 10-K and any and all other documents to be filed with the Commission pertaining to the Form 10-K, with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving th acts of said attorneys and any of them and any such substitution. Executed this 21st day of March, 1997. /s/ Eugene Bak ------------------------------------ 2 OM GROUP, INC. Form 10-K Power of Attorney for Directors ------------------------------- The undersigned, a director of OM Group, Inc., a Delaware corporation (the "Company"), which anticipates the filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") a Form 10-K (together with any and all subsequent amendments, the "Form 10-K"), does hereby constitute and appoint James P. Mooney, James M. Materna or Michael J. Scott and any one of them with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Form 10-K and any and all other documents to be filed with the Commission pertaining to the Form 10-K, with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving th acts of said attorneys and any of them and any such substitution. Executed this 21st day of March, 1997. /s/ Markku Toivanen ------------------------------------ 3 OM GROUP, INC. Form 10-K Power of Attorney for Directors ------------------------------- The undersigned, a director of OM Group, Inc., a Delaware corporation (the "Company"), which anticipates the filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") a Form 10-K (together with any and all subsequent amendments, the "Form 10-K"), does hereby constitute and appoint James P. Mooney, James M. Materna or Michael J. Scott and any one of them with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Form 10-K and any and all other documents to be filed with the Commission pertaining to the Form 10-K, with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving th acts of said attorneys and any of them and any such substitution. Executed this 21st day of March, 1997. /s/ Lee R. Brodeur ------------------------------------ 4 OM GROUP, INC. Form 10-K Power of Attorney for Directors ------------------------------- The undersigned, a director of OM Group, Inc., a Delaware corporation (the "Company"), which anticipates the filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") a Form 10-K (together with any and all subsequent amendments, the "Form 10-K"), does hereby constitute and appoint James P. Mooney, James M. Materna or Michael J. Scott and any one of them with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Form 10-K and any and all other documents to be filed with the Commission pertaining to the Form 10-K, with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving th acts of said attorneys and any of them and any such substitution. Executed this 21st day of March, 1997. /s/ Thomas R. Miklich ------------------------------------ 5 OM GROUP, INC. Form 10-K Power of Attorney for Directors ------------------------------- The undersigned, a director of OM Group, Inc., a Delaware corporation (the "Company"), which anticipates the filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") a Form 10-K (together with any and all subsequent amendments, the "Form 10-K"), does hereby constitute and appoint James P. Mooney, James M. Materna or Michael J. Scott and any one of them with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Form 10-K and any and all other documents to be filed with the Commission pertaining to the Form 10-K, with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving th acts of said attorneys and any of them and any such substitution. Executed this 21st day of March, 1997. /s/ John E. Mooney ------------------------------------ 6 OM GROUP, INC. Form 10-K Power of Attorney for Directors ------------------------------- The undersigned, a director of OM Group, Inc., a Delaware corporation (the "Company"), which anticipates the filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Securities Exchange Act of 1934 (the "Act") a Form 10-K (together with any and all subsequent amendments, the "Form 10-K"), does hereby constitute and appoint James P. Mooney, James M. Materna or Michael J. Scott and any one of them with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Form 10-K and any and all other documents to be filed with the Commission pertaining to the Form 10-K, with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving th acts of said attorneys and any of them and any such substitution. Executed this 21st day of March, 1997. /s/ Frank Butler ------------------------------------ EX-27 9 EXHIBIT 27
5 This schedule contains summary financial information extracted from the OM Group, Inc. Consolidated Balance Sheet at December 31, 1996 and the OM Group, Inc. Consolidated Statement of Income for the twelve months ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1996 DEC-31-1996 7,818 0 60,264 210 195,050 271,167 167,805 57,184 438,633 97,306 109,295 0 0 188 185,134 438,633 387,999 387,999 304,025 336,578 (467) 0 7,485 44,403 14,356 30,047 0 0 0 30,047 1.56 1.56
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