-----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, Nu7ZFZKvPq3gv94WBOJ3YiZRjx2PFtmxRgn5EzVz8TOCHQQHA2dgNFCVs+gKfslo hMC/iJLZ38rR3oPw3Okpyw== 0000950135-99-004256.txt : 19990831 0000950135-99-004256.hdr.sgml : 19990831 ACCESSION NUMBER: 0000950135-99-004256 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19990830 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MACDERMID INC CENTRAL INDEX KEY: 0000061138 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890] IRS NUMBER: 060435750 STATE OF INCORPORATION: CT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-86129 FILM NUMBER: 99702367 BUSINESS ADDRESS: STREET 1: 245 FREIGHT ST CITY: WATERBURY STATE: CT ZIP: 06702 BUSINESS PHONE: 2035755700 S-4 1 MACDERMID, INCORPORATED 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ MACDERMID, INCORPORATED (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) CONNECTICUT (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 06-0435750 (I.R.S. EMPLOYER IDENTIFICATION NO.) 2890 (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER) 245 FREIGHT STREET WATERBURY, CT 06702-0671 (203) 575-5700 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ DANIEL H. LEEVER COPIES TO: CHIEF EXECUTIVE OFFICER MICHAEL E. MOONEY, ESQ. MACDERMID, INCORPORATED MICHAEL K. KREBS, ESQ. 245 FREIGHT STREET NUTTER, MCCLENNEN & FISH, LLP WATERBURY, CT 06702-0671 ONE INTERNATIONAL PLACE (203) 575-5700 BOSTON, MA 02110-2699 (617) 439-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this Form are being offered pursuant in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- PROPOSED TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2) - ----------------------------------------------------------------------------------------------------------------------- Common Stock, no par value.................. 7,827,000 $13,862,000 $3,853.64 - ----------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------
(1) In accordance with Rule 457(f)(2), the underlying value of the transaction has been computed using the aggregate book value of the equity capital of the company to be acquired, all of which will be exchanged for shares of the registrant. Such book value ($13,862,000) was calculated in accordance with generally accepted accounting principles as of June 30, 1999, the latest practicable date prior to filing this registration statement. (2) Fee previously paid pursuant to Exchange Act Rules 14a-6(i)(4) and 0-11 in connection with Schedule 14A filed on March 22, 1999 and an amendment to the Schedule 14A filed on August 18, 1999: $3,344.62 and $509.02. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 MACDERMID, INCORPORATED CROSS REFERENCE SHEET ITEM NUMBER IN FORM S-4 LOCATION IN JOINT PROXY STATEMENT PROSPECTUS A. INFORMATION ABOUT THE TRANSACTION 1. Forepart of Registration Facing Page of the Registration Statement and Outside Front Statement; Outside Front Cover Page of Cover Page of Prospectus Joint Proxy Statement/Prospectus 2. Inside Front and Outside Back Table of Contents; Selected Historical Cover Pages of Prospectus and Pro Forma Comparative Per Share Data; Where You Can Find More Information 3. Risk Factors, Ratio of Outside Front Cover Page of Prospectus; Earnings to Fixed Charges and Summary; Interests of Related Persons in Other Information the Merger; MacDermid Selected Financial Data; PTI Selected Financial Data; The Merger; Merger Transaction; The Companies; Exchange Ratio Assumptions 4. Terms of the Transaction Outside Front Cover Page of Prospectus; Summary; The Merger; Merger Transaction; Merger Agreement; MacDermid Special Meeting; PTI Special Meeting; Legal Matters 5. Pro Forma Financial Unaudited Pro Forma Combined Condensed Information Financial Statements; Notes to Unaudited Pro Forma Condensed Combined Financial Statements; Selected Historical and Pro Forma Comparative Per Share Data 6. Material Contacts with the Summary; The Merger; Merger Transaction; Company Being Acquired Merger Agreement 7. Additional Information * Required for Reoffering by Persons and Parties Deemed to be Underwriters 8. Interests of Named Experts * and Counsel 9. Disclosure of Commission * Position on Indemnification for Securities Act Liabilities B. INFORMATION ABOUT THE REGISTRANT 10. Information with Respect to Summary; the Merger; Merger Transaction; S-3 Registrants The Companies; Where You Can Find More Information 3 11. Incorporation of Certain Description of MacDermid Capital Stock; Information by Reference Where You Can Find More Information 12. Information with Respect to * S-2 and S-3 Registrants 13. Incorporation of Certain * Information by Reference 14. Information with Respect to * Registrants Other Than S-3 or S-2 Registrants C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED 15. Information with Respect to * S-3 Companies 16. Information with Respect to * S-2 or S-3 Companies 17. Information with Respect to Summary; The Merger; Merger Transaction; Companies Other Than S-2 or The Companies; Where You Can Find More S-3 Companies Information D. VOTING AND MANAGEMENT INFORMATION 18. Information if Proxies, Consents Outside Front Cover Page of Joint Proxy or Authorizations are to be Statement/Prospectus; Summary; Interests Solicited of Related Persons in the Merger; Merger Agreement; MacDermid Special Meeting; PTI Special Meeting; Legal Matters; Where You Can Find More Information 19. Information if Proxies, Consents * or Authorizations are not to be Solicited or in an Exchange Offer - ------------------------- * Omitted because the Item is inapplicable or the answer is negative. 4 JOINT PROXY STATEMENT FOR SPECIAL MEETINGS OF SHAREHOLDERS AND PROSPECTUS MACDERMID INC. LOGO POLYFIBRON TECH. LOGO To the Shareholders of MacDermid and PTI: The Boards of Directors of MacDermid, Incorporated and PTI, Inc. have approved a merger agreement which provides for MacDermid's acquisition of PTI. If the merger is completed, MacDermid will issue shares of its common stock to the holders of PTI securities in exchange for all of the issued and outstanding securities of PTI. The number of MacDermid shares issued in the merger will range from a minimum of 7,573,000 to a maximum of 7,827,000 shares. MacDermid common stock is traded on the NYSE under the trading symbol "MRD." We cannot complete the merger unless MacDermid shareholders and holders of PTI Class A common stock approve it. Please take the time to vote on the proposal to approve the merger agreement by completing and mailing the enclosed proxy card to us. HOLDERS OF PTI COMMON STOCK WILL NOT KNOW, AT THE TIME THEY VOTE, THE NUMBER OR VALUE OF THE MACDERMID SHARES THEY WILL RECEIVE FOR EACH SHARE OF PTI COMMON STOCK. PTI SHAREHOLDERS MAY MAKE INQUIRIES AS TO THE ESTIMATED EXCHANGE RATIO OF MACDERMID SHARES FOR SHARES OF PTI COMMON STOCK ON ANY GIVEN DATE PRIOR TO THE PTI SPECIAL MEETING BY CONTACTING THOMAS C. WEAVER, CORPORATE SECRETARY OF PTI, INC., AT (978) 439-2110. The dates, times and places of the special meetings are: FOR MACDERMID SHAREHOLDERS: Thursday, September 30, 1999 10:00 A.M. EDT Leever Building 245 Freight Street Waterbury, Connecticut 06702-0671 DANIEL H. LEEVER Chief Executive Officer MacDermid, Incorporated FOR PTI SHAREHOLDERS: Thursday, September 30, 1999 9:00 A.M. EDT 900 Middlesex Turnpike Billerica, Massachusetts 01821-3946 DAVID R. BECKERMAN President and Chief Executive Officer PTI, Inc. Joint Proxy Statement -- Prospectus dated August 30, 1999, and first mailed to shareholders on or about September 1, 1999. SHAREHOLDERS ARE URGED TO READ THE DETAILED INFORMATION ABOUT THE MERGER CONTAINED IN THIS JOINT PROXY STATEMENT -- PROSPECTUS INCLUDING THOSE MATTERS DISCUSSED IN "RISK FACTORS" BEGINNING ON PAGE 19 OF THIS JOINT PROXY STATEMENT -- PROSPECTUS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED THE SHARES TO BE ISSUED IN THE MERGER AND DESCRIBED IN THIS JOINT PROXY STATEMENT -- PROSPECTUS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS JOINT PROXY STATEMENT -- PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 5 MACDERMID INCORPORATED 245 FREIGHT STREET WATERBURY, CONNECTICUT 06702-0671 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD SEPTEMBER 30, 1999 A Special Meeting of Shareholders of MacDermid, Incorporated will be held at the Leever Building, 245 Freight Street, Waterbury, Connecticut 06702 on Thursday, September 30, 1999 at 10:00 A.M. EDT. The special meeting will be held for the following purpose: to consider and act upon a proposal to approve the Plan and Agreement of Merger, dated as of February 18, 1999 and amended as of July 27, 1999, among MacDermid, PTI, Inc., Citicorp Venture Capital, Ltd., a PTI shareholder, and MCD Acquisition Corp., a wholly owned subsidiary of MacDermid. The agreement provides for MacDermid to acquire PTI by exchanging shares of MacDermid common stock for all of the outstanding shares of PTI common stock and preferred stock, all as more fully described in the attached joint proxy statement -- prospectus. A copy of the merger agreement and the first amendment to the merger agreement are included in the joint proxy statement -- prospectus as Appendix A and Appendix B. Approval of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of MacDermid common stock. Only shareholders of record as of the close of business on August 6, 1999 will be entitled to notice of and to vote at the special meeting. YOUR PROXY VOTE IS VERY IMPORTANT. You are requested to vote, date and sign the enclosed proxy and promptly return it in the enclosed postage-paid envelope at your earliest convenience prior to the special meeting. Because it is impractical to eliminate duplication, separate proxies are mailed to persons whose names are shown in more than one way on MacDermid's stock records. Therefore, you may receive more than one proxy. Please vote, date, sign and return all proxies received. If you are an employee participating in the MacDermid, Incorporated Employees Profit Sharing and Employee Stock Ownership Plan or the MacDermid, Incorporated Employee Pension Plan, you will receive separate instructions covering shares held for your account in such plan or plans. THE MACDERMID BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT. By Order of the Board of Directors, John L. Cordani Corporate Secretary Waterbury, Connecticut August 30, 1999 - -------------------------------------------------------------------------------- IN ORDER TO AVOID UNNECESSARY EXPENSE, WE URGE YOU TO INDICATE VOTING INSTRUCTIONS ON THE ENCLOSED PROXY AND DATE, SIGN AND RETURN IT PROMPTLY PRIOR TO THE SPECIAL MEETING IN THE ENVELOPE PROVIDED, NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE. - -------------------------------------------------------------------------------- 6 PTI, INC. 900 MIDDLESEX TURNPIKE BILLERICA, MASSACHUSETTS 01821-3946 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD SEPTEMBER 30, 1999 A Special Meeting of Shareholders of PTI, Inc. will be held at 900 Middlesex Turnpike, Billerica, Massachusetts 01821 on Thursday, September 30, 1999 at 9:00 A.M. EDT. The special meeting will be held for the following purpose: to consider and act upon a proposal to approve and adopt the Plan and Agreement of Merger, dated as of February 18, 1999 and amended as of July 27, 1999, among PTI, MacDermid, Incorporated, Citicorp Venture Capital, Ltd., which is a PTI shareholder, and MCD Acquisition Corp., a wholly owned subsidiary of MacDermid. MacDermid proposes to acquire PTI by exchanging shares of MacDermid common stock for all of the outstanding shares of PTI common stock and preferred stock, all as more fully described in the attached joint proxy statement -- prospectus. A copy of the merger agreement and the first amendment to the merger agreement are included in the joint proxy statement -- prospectus as Appendix A and Appendix B. Approval of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of PTI Class A common stock. The PTI Board of Directors has fixed the close of business on August 6, 1999 as the record date for the determination of PTI shareholders who will be entitled to notice of and to vote at the special meeting. YOUR PROXY VOTE IS VERY IMPORTANT. You are requested to vote, date and sign the enclosed proxy and promptly return it in the enclosed postage-paid envelope at your earliest convenience prior to the special meeting. THE PTI BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. By Order of the Board of Directors, Thomas C. Weaver Corporate Secretary Billerica, Massachusetts August 30, 1999 - -------------------------------------------------------------------------------- NOTICE OF APPRAISAL RIGHTS. If the merger agreement is approved by the PTI shareholders at the PTI special meeting and the merger is completed, any PTI shareholder who (1) files with PTI a written objection to the merger before the taking of the vote to approve the merger agreement by the PTI shareholders and who states in that objection that he or she intends to demand payment for his or her shares if the merger is concluded and (2) does not vote those shares in favor of the approval of the merger agreement will be entitled to demand payment for his or her shares and an appraisal of the value of those shares, in accordance with the provisions of Section 262 of the Delaware General Corporation Law, a copy of which is attached as Appendix C to the accompanying joint proxy statement -- prospectus. See "Merger Transaction -- Appraisal Rights" in the joint proxy statement -- prospectus for more information concerning appraisal rights of dissenting PTI shareholders. - -------------------------------------------------------------------------------- 7 TABLE OF CONTENTS
PAGE ---- Answers to Frequently Asked Questions about the Merger..... i Summary.......................... 1 The Companies.................. 1 Merger Transaction............. 1 What PTI Security Holders Will Receive..................... 1 Escrowed Shares................ 3 Indemnification................ 3 Listing of MacDermid Common Stock and Restrictions on Transfer.................... 4 Material Federal Income Tax Consequences of the Merger...................... 4 Appraisal Rights............... 4 Ownership of MacDermid After the Merger.................. 5 Executive Officers and Directors of MacDermid After the Merger.................. 5 Reasons for the Merger......... 5 Recommendations to Shareholders................ 5 Vote Required to Approve the Merger Agreement............ 5 Risk Factors................... 5 Required Regulatory Approvals................... 6 Interests of Related Persons in the Merger.................. 6 Accounting Treatment........... 6 Termination of the Merger Agreement................... 7 MacDermid Selected Financial Data........................ 8 PTI Selected Financial Data.... 10 Exchange Ratio Assumptions..... 12 Unaudited Pro Forma Combined Condensed Selected Financial Data........................ 13 Selected Historical and Pro Forma Comparative Per Share Data........................ 15 Market Price Information....... 17
PAGE ---- Risk Factors..................... 19 Cautionary Statement Regarding Forward-Looking Information.... 22 MacDermid Special Meeting........ 23 Date, Time and Place........... 23 Record Date and Voting Rights...................... 23 Quorum and Voting of Proxies... 23 Shareholder Vote Required...... 24 Recommendation of the MacDermid Board....................... 24 Appraisal Rights............... 24 PTI Special Meeting.............. 25 Date, Time and Place........... 25 Record Date and Voting Rights...................... 25 Quorum and Voting of Proxies... 25 Shareholder Vote Required...... 26 Recommendation of PTI Board.... 26 Appraisal Rights............... 26 The Companies.................... 27 MacDermid...................... 27 PTI............................ 27 Merger Transaction............... 28 MacDermid Background and Reasons for the Merger...... 28 PTI Background and Reasons for the Merger.................. 31 The Merger..................... 33 What PTI Security Holders Will Receive in the Merger....... 33 Escrowed Shares................ 35 Indemnification................ 36 Listing of MacDermid Common Stock and Restrictions on Transfer.................... 37 Ownership of MacDermid After the Merger.................. 38 Executive Officers and Directors of MacDermid After the Merger.................. 39 Required Regulatory Approvals................... 40 Closing Date................... 41
8
PAGE ---- Interests of Related Persons in the Merger.................. 41 Accounting Treatment........... 43 Material Federal Income Tax Consequences of the Merger to MacDermid Shareholders... 43 Material Federal Income Tax Consequences of the Merger to PTI Shareholders......... 44 How to Surrender and Receive MacDermid Common Stock In Exchange for PTI Stock...... 46 Appraisal Rights............... 47 Merger Agreement................. 51 Representations and Warranties.................. 51 Conditions to the Merger....... 51 Conduct Pending Merger......... 54 Amendment and Waiver........... 57 Termination of Merger Agreement................... 58 Expenses....................... 58 Unaudited Pro Forma Combined Condensed Financial Information.................... 59 Trading Price of MacDermid Common Stock.......................... 70 Beneficial Ownership of MacDermid...................... 71 Description of MacDermid Capital Stock.......................... 75 Comparison of the Rights of Holders of MacDermid Common Stock and Holders of PTI Stock.......................... 76 Introduction................... 76 Filing Vacancies on the Board of Directors................ 76 Special Meetings of Shareholders; Shareholder Action by Written Consent... 77
PAGE ---- Amendment of Bylaws............ 77 Dissenters' Rights............. 77 Business Combinations and Reorganizations............. 78 PTI Management's Discussion and Analysis of Financial Condition and Results of Operations...... 80 General........................ 80 Net Sales and Operating Profits..................... 80 Sales.......................... 80 Costs and Expenses............. 81 Acquisitions................... 82 Income Taxes................... 85 Liquidity and Capital Spending.................... 85 Year 2000 Readiness............ 85 Beneficial Ownership of PTI...... 88 Legal Matters.................... 91 Experts.......................... 91 Other Matters.................... 91 Proposals for Next Annual MacDermid Meeting.............. 91 Where You Can Find More Information.................... 91 Index to Financial Statements.... F-1 APPENDIX - -- Plan and Agreement of Merger......................... A-1 - -- First Amendment to Plan and Agreement of Merger......... B-1 - -- DGCL sec.262.................. C-1 - -- Form of Escrow Agreement...... D-1 - -- Form of Agency Agreement and Waiver and Release.......... E-1
9 - -------------------------------------------------------------------------------- ANSWERS TO FREQUENTLY ASKED QUESTIONS ABOUT THE MERGER Q: WHAT DO I NEED TO DO NOW? A: Just mail your completed and signed proxy card in the enclosed return envelope as soon as possible, so that your shares may be represented at your special meeting. To assure that your vote is obtained, please give your proxy as instructed on your proxy card even if you currently plan to attend a meeting in person. Q: WHAT SHOULD I DO TO CHANGE MY VOTE? A: Just send in a later-dated, signed proxy card to your company's Corporate Secretary before your special meeting or attend your special meeting in person and vote. Please note, however, that attendance at your special meeting will not alone constitute a revocation of your proxy. You may revoke your proxy by sending a notice of revocation to your company's Corporate Secretary at the address designated in the Summary following these Questions and Answers. Q: MY SHARES ARE HELD IN MY BROKER'S NAME. WILL MY BROKER VOTE MY SHARES FOR ME? A: A broker generally can't exercise authority to vote on the merger agreement on your behalf, unless you have a special arrangement. If your shares are held in the name of your broker, the broker is the record holder but you retain voting control of the stock as the beneficial owner. Therefore, your broker will receive proxy materials with instructions to transmit those materials to you. Upon receipt, you should mail your completed and signed proxy card in the enclosed return envelope so that your shares may be represented at your special meeting. Q: WHAT WILL HAPPEN IF I DON'T VOTE? A: The failure to vote has the same effect as a vote against the approval of the merger agreement. Q: WILL I NEED TO SEND IN MY STOCK CERTIFICATES AFTER THE MERGER? A: No. If the merger is completed, we will send PTI shareholders written instructions for exchanging their share certificates. MacDermid shareholders will keep their existing certificates. - -------------------------------------------------------------------------------- i 10 - -------------------------------------------------------------------------------- IF YOU ARE A MACDERMID SHAREHOLDER, WHO CAN HELP ANSWER YOUR QUESTIONS? If you have questions about the merger, you should contact: MacDermid, Incorporated 245 Freight Street Waterbury, Connecticut 06702 Attention: John L. Cordani, Corporate Secretary Telephone: (203) 575-5646 IF YOU ARE A PTI SHAREHOLDER, WHO CAN HELP ANSWER YOUR QUESTIONS? If you have questions about the merger, you should contact: PTI, Inc. 900 Middlesex Turnpike Billerica, Massachusetts 01821-3946 Attention: Thomas C. Weaver, Corporate Secretary Telephone: (978) 439-2110 - -------------------------------------------------------------------------------- ii 11 - -------------------------------------------------------------------------------- SUMMARY This summary highlights information contained elsewhere in this joint proxy statement -- prospectus. This summary may not contain all the information that is important to you. For a more complete understanding of the proposed merger, you should read carefully this entire joint proxy statement -- prospectus as well as the other documents to which we refer. See "Where You Can Find More Information" on page 91. THE COMPANIES (SEE PAGE 27) MacDermid, Incorporated 245 Freight Street Waterbury, Connecticut 06702 (203) 575-5700 MacDermid develops, produces and markets a broad line of specialty chemical products which are used primarily in the metal and plastic finishing, electronics and graphic arts industries. MacDermid has manufacturing facilities and sales offices in North America, Europe and Asia. MacDermid, founded in 1922, is incorporated in Connecticut. PTI, Inc. 900 Middlesex Turnpike Billerica, Massachusetts 01821 (978) 439-2000 PTI is the parent company of Polyfibron Technologies, Inc. Polyfibron Technologies develops, produces and markets specialty chemicals that are used in the printing industry. Specifically, Polyfibron sells printing plates and printing blankets, both of which are used to transfer ink and thus form images on surfaces such as paper, cardboard or plastic film used for packaging. PTI's subsidiaries have manufacturing facilities located in the United States, France and Australia. PTI is incorporated in Delaware and was founded in 1994 when it acquired Polyfibron Technologies and other assets and liabilities from W.R. Grace & Co. MERGER TRANSACTION (SEE PAGE 28) The merger agreement provides that MacDermid will acquire PTI and all of the outstanding PTI capital securities consisting of common stock, preferred stock and a common stock warrant in exchange for shares of MacDermid common stock and warrants to purchase shares of MacDermid common stock. The acquisition will be accomplished through the merger of a MacDermid subsidiary into PTI. Upon completion of that merger, PTI will become a wholly owned subsidiary of MacDermid and shareholders of PTI will become shareholders of MacDermid. The merger agreement and the first amendment to the merger agreement are attached to this joint proxy statement -- prospectus as Appendix A and Appendix B. We encourage you to read the merger agreement as it is the legal document that governs the merger. The merger agreement also obligates MacDermid to refinance PTI's financial indebtedness upon completion of the merger. Accordingly, MacDermid has entered into an amended secured credit facility under which it will borrow the funds necessary to refinance the PTI debt. As of June 30, 1999, the amount of debt to be refinanced totaled $164.3 million. WHAT PTI SECURITY HOLDERS WILL RECEIVE (SEE PAGE 33) MacDermid will deliver 7,573,000 shares of MacDermid common stock to PTI shareholders upon the completion of the merger. Those shares will be allocated first to the holders of PTI preferred stock to satisfy the liquidation preference of that stock, and the balance of the MacDermid common stock will be allocated proportionately to holders of PTI common stock interests. The aggregate value of the 7,573,000 MacDermid shares received by PTI shareholders upon completion of the - -------------------------------------------------------------------------------- 1 12 merger will be approximately $260.4 million, assuming the market value of MacDermid stock is equal to $34.38, the reported closing price of MacDermid common stock on the NYSE on August 27, 1999. What Holders of PTI Preferred Stock Will Receive As a result of the merger, each share of PTI preferred stock will be converted into a number of shares of MacDermid common stock having a market value equal to the liquidation preference of that share of PTI preferred stock ($1,000) plus any owed dividends. The merger agreement specifies that the market value of MacDermid common stock will be based upon a 30-day trading average referred to in the merger agreement and this joint proxy statement -- prospectus as the "Current Market Price." See "Exchange Ratio Assumptions" on page 12 for a more detailed definition of Current Market Price. As of August 6, 1999, 9,175 shares of PTI preferred stock were outstanding. The holders of PTI preferred stock will receive in the merger shares of MacDermid common stock having an aggregate value of approximately $11.2 million, assuming approximately $439,437 of dividends are owed on the preferred stock, representing 105 days of unpaid dividends since the last dividend payment date on June 15, 1999. See "Exchange Ratio Assumptions" on page 12. PTI owes more dividends on some shares of preferred stock than others. Therefore, the number of shares of common stock that MacDermid will issue for any particular share of PTI preferred stock will vary ranging from a low of 28.268 shares to a high of 51.724 shares, based upon the assumptions described on page 12. What Holders of PTI Common Stock Will Receive After the PTI preferred stock liquidation preference is satisfied, the balance of the 7,573,000 MacDermid shares will be allocated among the holders of PTI common stock in proportion to their ownership of PTI common stock. As of August 6, 1999, there were 855,000 outstanding shares of PTI common stock. In addition, 150,000 shares of PTI common stock are issuable upon the exercise of a warrant held by Citicorp Mezzanine Partners, L.P. Under the terms of that PTI warrant, Citicorp Mezzanine Partners may purchase PTI common stock at an exercise price of approximately $.01 per share. For purposes of allocating the MacDermid common stock among holders of PTI common stock, the PTI warrant held by Citicorp Mezzanine Partners will be treated as if it had been exercised in full. MacDermid will issue a substitute common stock warrant to Citicorp Mezzanine Partners on equivalent terms. The description of MacDermid shares exchanged in the merger treats the PTI warrant as if excercised in full prior to the completion of the merger. The amount and value of MacDermid stock that any holder of PTI common stock will receive upon the completion of the merger will depend on the Current Market Price of MacDermid common stock and the amount of dividends owed on PTI preferred stock. See "Exchange Ratio Assumptions." ACCORDINGLY, HOLDERS OF PTI COMMON STOCK WILL NOT KNOW AT THE TIME THAT THEY VOTE THE NUMBER OR VALUE OF THE MACDERMID SHARES THEY WILL RECEIVE. PTI SHAREHOLDERS MAY MAKE INQUIRIES AS TO THE ESTIMATED EXCHANGE RATIO OF MACDERMID SHARES FOR SHARES OF PTI COMMON STOCK BASED UPON THE TRADING PRICE OF MACDERMID STOCK AT THAT TIME BY CALLING THOMAS C. WEAVER, PTI'S CORPORATE SECRETARY AT (978) 439-2110. 2 13 Hypothetical Exchange Ratios and Assumptions The following table illustrates the number of MacDermid shares that would be exchanged for each share of PTI common stock as of the completion of the merger at three hypothetical Current Market Prices of $34, $40 and $46 per share. MacDermid and PTI believe the range of hypothetical Current Market Prices reasonably reflects the trading prices of MacDermid common stock after the merger was announced. The hypothetical exchange ratios also assume in each case $439,437 of dividends are owed on PTI preferred stock. See "Exchange Ratio Assumptions."
NUMBER OF ASSUMED MACDERMID SHARES "CURRENT MARKET EXCHANGED FOR PRICE" OF EACH SHARE OF PTI MACDERMID STOCK COMMON STOCK - --------------- ----------------- $34.00 7.208 $40.00 7.257 $46.00 7.293
Escrow Fund Holders of PTI common stock and Citicorp Mezzanine Partners will also receive as of the completion of the merger an interest in an escrow fund that may entitle them to receive additional MacDermid shares a year or more after the merger is completed. ESCROWED SHARES (SEE PAGE 35) The escrow fund that will be established as of the completion of the merger will be used to satisfy any indemnification claim MacDermid is entitled to bring under the merger agreement. As of the completion of the merger, the escrow fund will consist of a total of 127,000 shares of MacDermid common stock and common stock equivalents. Those 127,000 MacDermid shares are sometimes referred to in this joint proxy statement -- prospectus as the "escrowed shares." Holders of PTI common stock and Citicorp Mezzanine Partners will be entitled to sell all or any portion of the MacDermid stock, or in the case of Citicorp Mezzanine Partners the MacDermid warrant, held in escrow for that investor's benefit. The proceeds of any sale, however, would remain in escrow until the termination of the escrow agreement. INDEMNIFICATION (SEE PAGE 36) MacDermid, on the one hand, and the PTI shareholders and Citicorp Mezzanine Partners, collectively, on the other hand, will be entitled to indemnification for a breach of the merger agreement. No party will be entitled to indemnification for a claim brought more than 12 months after the merger is completed. Further, neither MacDermid, on the one hand, nor the PTI shareholders and Citicorp Mezzanine Partners, collectively, on the other hand, will be entitled to indemnification until their damages exceed $2 million and then only to the extent of the excess. MacDermid's sole source of recourse for indemnification will be to the escrow assets. If the PTI shareholders and Citicorp Mezzanine Partners are entitled to indemnification, MacDermid will pay the damages solely in MacDermid shares and not in cash. In no event will the maximum indemnification payment by MacDermid on the one hand or PTI shareholders on the other hand exceed the Current Market Price of the escrowed shares as of the completion of the merger. Citicorp Venture Capital will act on behalf of the PTI shareholders and Citicorp Mezzanine Partners in all matters relating to the indemnification provisions of the merger agreement. The escrow will terminate and the remaining escrow assets, if any, will be distributed to the former holders of PTI common stock and Citicorp Mezzanine Partners upon the later of (a) 12 months after the completion of the merger or (b) the resolution of all MacDermid indemnification claims. 3 14 LISTING OF MACDERMID COMMON STOCK AND RESTRICTIONS ON TRANSFER (SEE PAGE 37) The shares of MacDermid common stock issued in connection with the merger will be listed on the NYSE under the ticker symbol "MRD." Transfer restrictions imposed by the Federal securities laws will apply to directors, executive officers and principal shareholders of PTI. MacDermid will provide Citicorp Venture Capital, Citicorp Mezzanine Partners and other PTI affiliates with registration rights allowing them to publicly resell their MacDermid shares. MacDermid stock issued to PTI shareholders who are, at the time the merger is completed, subject to contractual limitations on the resale of their PTI stock will be subject to those same contractual limitations. MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 43) MacDermid and PTI have received opinions from tax counsel, as of the date of this joint proxy statement -- prospectus, that the merger will be treated as a tax-free reorganization for U.S. federal income tax purposes, assuming the merger is completed on substantially the terms described in this joint proxy statement -- prospectus. The material tax consequences to MacDermid and PTI shareholders of the merger qualifying as a tax-free reorganization are: - - MacDermid shareholders will not have a taxable gain as a result of the merger; - - no gain or loss will be recognized by MacDermid or PTI as a result of the merger; - - PTI shareholders will not have taxable gain or loss on the exchange of PTI stock for MacDermid stock in the merger, except with respect to any cash received instead of a fractional share of MacDermid stock or as a consequence of the exercise of appraisal rights; - - the tax basis of MacDermid stock received by a PTI shareholder in the merger will be the same as the tax basis of the PTI stock exchanged in the merger, reduced by any amount allocable to a fractional share interest for which cash is received; and - - the holding period of the MacDermid stock that a PTI shareholder receives in the merger generally will include the holding period of the PTI stock exchanged for the MacDermid stock. Neither MacDermid nor PTI will proceed with the merger without resoliciting its shareholders unless it obtains, as of the date the merger is completed, an opinion from tax counsel confirming that the merger will be treated as a tax-free reorganization for U.S. federal income tax purposes. Those legal opinions will not bind the IRS, which could take a contrary position. APPRAISAL RIGHTS (SEE PAGE 47) PTI shareholders, but not MacDermid shareholders, are entitled under law to appraisal rights in connection with the merger. To exercise appraisal rights, a PTI shareholder must satisfy the following criteria: - - vote against approval of the merger agreement or abstain from voting; - - provide written notice of his or her intention to exercise appraisal rights to PTI on or before the date of the special meeting, even if the PTI shareholder is not entitled to vote at the PTI special meeting; and - - comply with other procedures as are required by Section 262 et seq. of the Delaware General Corporation Law. A copy of those sections of the Delaware law are attached to this joint proxy statement -- prospectus as Appendix C. 4 15 OWNERSHIP OF MACDERMID AFTER THE MERGER (SEE PAGE 38) On a pro forma basis, the shares of MacDermid common stock issued in the merger will range from 23.1% of the pro forma MacDermid shares outstanding if no escrowed shares are released to former PTI security holders to 23.4% if all escrowed shares are released. In each case this assumes that the MacDermid warrants issued to Citicorp Mezzanine Partners in the merger have been exercised in full and there is no change in the number of shares of MacDermid stock outstanding before the merger. On a pro forma basis, the shares of MacDermid common stock issued in the merger to Citicorp Venture Capital, one of PTI's principal shareholders, will range from approximately 12.5% of the pro forma MacDermid shares outstanding if no escrowed shares are released to former PTI security holders to approximately 12.6% if all escrowed shares are released. EXECUTIVE OFFICERS AND DIRECTORS OF MACDERMID AFTER THE MERGER (SEE PAGE 39) The only change in the executive officers and directors of MacDermid as a consequence of the merger is that a designee of Citicorp Venture Capital will become a MacDermid director. The MacDermid Board of Directors has approved an increase in the size of the Board to seven from six, effective as of the completion of the merger, and has elected Joseph M. Silvestri, an officer of Citicorp Venture Capital, to fill that vacancy. See page 39 for biographical information regarding Mr. Silvestri and information regarding Citicorp Venture Capital's right to designate a MacDermid director. REASONS FOR THE MERGER (SEE PAGES 28 AND 31) We believe that the merger of PTI and MacDermid will: - - create a combined company that will be a substantial global competitor in the supply of chemicals and related materials to the graphic arts industry; - - improve the diversity of the combined company's overall sources of revenue, both by product line and geography; and - - allow the combined company to participate in a much broader section of the graphic arts industry. Of course, these benefits depend on our ability to integrate the businesses of MacDermid and PTI successfully after the merger, and on other uncertainties described in "Risk Factors" beginning on page 19. RECOMMENDATIONS TO SHAREHOLDERS To MacDermid Shareholders: The MacDermid Board believes that the merger agreement is fair to you and in your best interests and recommends that you vote FOR the merger agreement. To PTI Shareholders: The PTI Board believes that the merger agreement is fair to you and is in your best interests and recommends that you vote FOR the merger agreement. VOTE REQUIRED TO APPROVE THE MERGER AGREEMENT MacDermid Shareholders Approval of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of MacDermid common stock. PTI Shareholders Approval of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of PTI Class A common stock. RISK FACTORS (SEE PAGE 19) You are encouraged to consider the risk factors described elsewhere in this joint proxy statement -- prospectus in deciding whether to vote in favor of the proposal to 5 16 - -------------------------------------------------------------------------------- approve the merger agreement. Those risks include the following: - - The number of MacDermid shares issued in the merger will not increase or decrease if the market price of MacDermid stock changes before the merger is completed. Accordingly, the market value of the MacDermid stock that a PTI shareholder may receive in the merger may be less than or greater than the market value of MacDermid stock that the shareholder would have received if the merger had been completed as of the date of this joint proxy statement -- prospectus. - - Neither MacDermid nor PTI engaged a financial advisor to evaluate the fairness to its shareholders, from a financial point of view, of the number of MacDermid shares to be exchanged in the merger for all of the outstanding PTI capital securities. Therefore, when deciding whether or not to approve the merger agreement, you will not have the benefit of a financial advisor's opinion and analysis that otherwise would be included in this joint proxy statement -- prospectus. REQUIRED REGULATORY APPROVALS (SEE PAGE 40) The Hart-Scott-Rodino Act prohibits MacDermid and PTI from completing the merger until we have furnished information to the Federal Trade Commission and a required waiting period has expired or been terminated. We have provided information to the Federal Trade Commission on February 26, 1999 and from time to time thereafter. The Federal Trade Commission has asserted, however, that our submissions have not satisfied all applicable requirements. Without agreeing with the Federal Trade Commission's assertion, MacDermid and PTI have represented to the Commission that we will not complete the merger without giving the Commission at least 35 days prior notice. As of the date of this joint proxy statement -- prospectus, we have not given that notice to the Federal Trade Commission. The Federal Trade Commission may seek to delay further the completion of the merger, or attempt to challenge the merger on antitrust grounds or negotiate a settlement that would likely involve the divestiture of a portion of the combined company's assets. INTERESTS OF RELATED PERSONS IN THE MERGER (SEE PAGE 41) Shareholders should be aware that a number of PTI officers are parties to severance agreements and other arrangements that provide them with interests in the merger that are different from, or in addition to, the interests of PTI shareholders as a whole. More specifically, four executive officers of PTI have severance and change of control agreements which generally provide these officers with up to 18 months of salary if they are terminated without cause or voluntarily leave the employ of PTI within a specified period after the merger is completed. PTI is also obligated to make cash payments in the aggregate of up to a maximum of $950,200 to 22 other employees under various severance and stay- bonus arrangements. ACCOUNTING TREATMENT (SEE PAGE 43) We expect the merger to be treated as a pooling of interests, which means that for accounting and financial reporting purposes, MacDermid will treat MacDermid and PTI as if they had always been combined. It is a condition to MacDermid's obligation to complete the merger that MacDermid receive a letter from its accountants stating that in their opinion the merger will appropriately be treated as a pooling of interests. - -------------------------------------------------------------------------------- 6 17 - -------------------------------------------------------------------------------- TERMINATION OF MERGER AGREEMENT (SEE PAGE 58) Either MacDermid or PTI can terminate the merger agreement and not proceed with the merger if: - - the other party materially breaches the merger agreement; or - - the merger is not completed by September 30, 1999, other than because the terminating party breached the merger agreement. MacDermid may also terminate the merger agreement and not proceed with the merger if more than 385,000 MacDermid shares that may potentially be issued in the merger are not issued because one or more PTI shareholders have reserved their appraisal rights. The termination of the merger agreement and the abandonment of the merger may occur before or after the merger agreement is approved by either or both MacDermid and PTI shareholders. If MacDermid or PTI terminates the merger agreement because of the failure of the PTI shareholders to approve the merger agreement, PTI must pay MacDermid a $5.0 million termination fee. - -------------------------------------------------------------------------------- 7 18 MACDERMID SELECTED FINANCIAL DATA You should read this selected financial data with MacDermid's Annual Report on Form 10-K for the year ended March 31, 1999 and MacDermid's Quarterly Report on Form 10-Q for the three months ended June 30, 1999. The selected historical financial data as of and for the five years ended March 31, 1999 are derived from MacDermid's consolidated financial statements, which have been audited by independent public accountants. Share and per share data have been restated to reflect the effects of three-for-one stock splits effective February 6, 1998 and November 15, 1996. The selected historical data as of and for the three months ended June 30, 1999 and June 30, 1998 have not been audited but, in the opinion of MacDermid's management, contain all adjustments, consisting solely of those of a normal recurring nature, necessary to present fairly the financial position and results of operations of MacDermid as of these dates and for these periods. The results of operations for the three months ended June 30, 1999 are not necessarily indicative of the results of operations that may be expected for the year ending March 31, 2000, or for any future period. EBITDA, as used in the table below, means earnings from operations before interest, taxes, depreciation and amortization. Although EBITDA is not defined by generally accepted accounting principles, MacDermid believes it to be beneficial to gaining an understanding of MacDermid's financial performance. However, EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and should not be used as an alternative to net income as an indicator of operating performance or to cash flows as a measure of liquidity. You should also be aware that acquisitions MacDermid has completed since April 1, 1994 may adversely affect your ability to compare the information reflected in the following table, and consequently, the information may be of limited use in evaluating MacDermid's historical performance or predicting its future operating results. See "Risk Factors." 8 19 - --------------------------------------------------------------------------------
AS OF AND FOR THREE MONTHS ENDED JUNE 30, AS OF AND FOR THE YEAR ENDED MARCH 31, ------------------------- ------------------------------------------------------------------- 1999 1998 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND RATIOS) OPERATING RESULTS Net sales....................... 119,067 81,070 $ 382,648 $ 314,058 $ 293,720 $ 235,891 $ 182,100 Income (loss) from continuing operations.................... 9,999 8,093 36,283 30,797 23,846 13,795 11,142 Net earnings available for common shareholders (before accounting change)(1)......... 9,999 8,093 36,283 30,488 22,010 13,195 11,142 Diluted earnings per common share(1)...................... 0.39 0.32 1.43 1.20 0.85 0.50 0.39 FINANCIAL POSITION AT YEAR END Working capital................. 68,944 50,279 63,248 50,814 46,883 59,714 34,711 Current ratio(2)................ 1.5 1.6 1.5 1.6 1.7 2.0 1.7 Capital expenditure............. 1,378 1,394 5,442 8,342 6,914 4,303 3,990 Total assets.................... 529,992 319,541 506,279 300,260 260,978 264,756 123,305 Long-term debt (includes short-term portion)........... 260,670 138,350 258,668 116,425 82,981 112,254 22,642 Percent of total capitalization (excluding preferred stock)... 62.7 55.5 64.6 52.5 50.9 63.0 29.7 Redeemable preferred stock...... -- -- -- -- 32,436 30,600 -- OTHER DATA Return on sales available for common shareholders (%)(1).... 8.4 10.0 9.5 9.7 7.5 5.6 6.1 Return on average common equity (%)(3)........................ 24.6 27.1 29.3 32.9 30.2 22.1 18.3 Cash provided by operations..... 2,230 3,098 53,540 35,335 37,437 17,493 19,854 Cash provided by (used in) investing activities.......... (9,502) (16,558) (171,016) (32,807) (5,406) (107,773) (9,740) Cash provided by (used in) financing activities.......... 1,250 15,315 129,851 (5,000) (33,969) 91,568 (9,322) EBITDA.......................... 25,503 17,433 80,157 66,451 55,579 38,758 26,516 SHARE DATA Common shareholders' equity..... 154,911 110,894 $ 142,039 $ 105,545 $ 80,058 $ 65,817 $ 53,654 Book value per common share..... 6.16 4.41 5.65 4.21 3.26 2.62 2.17 Cash dividends per common share......................... 0.02 0.02 0.08 0.07 0.0667 0.0667 0.0667 Common shares outstanding Diluted average during period.................... 25,430,215 25,475,820 25,427,288 25,483,844 25,912,677 26,383,844 28,372,599 Outstanding at period end... 25,157,299 25,138,068 25,145,343 25,095,906 24,561,459 25,148,079 24,682,797
- ------------------------- (1) Before cumulative effect of accounting change as a result of implementation of SFAS No. 112, "Employers Accounting for Postretirement Benefits," which resulted in one-time after tax charges of $371 ($0.01/common share) in 1995. (2) Current assets divided by current liabilities. (3) Return on Average Common Equity for the three months ended June 30, 1999 and 1998 is annualized so as to be comparative to the years ended March 31. This calculation is not necessarily indicative of the result which will occur at year end. - -------------------------------------------------------------------------------- 9 20 PTI SELECTED FINANCIAL DATA You should read this selected financial data with PTI's audited consolidated financial statements for the year ended December 31, 1998 and PTI's unaudited consolidated financial statements as of and for the six months ended June 30, 1999, all of which are included elsewhere in this joint proxy statement -- prospectus. PTI began business on December 29, 1994. The selected historical financial data as of and for the four years ended December 31, 1998 are derived from PTI's consolidated financial statements, which have been audited by independent public accountants. The selected historical financial data for the period January 1, 1994 to December 28, 1994, and as of December 28, 1994, were obtained from PTI's "predecessor company" consisting of parts of former W.R. Grace & Co. divisions that PTI acquired on December 29, 1994. The amounts have not been audited and contain no pro forma adjustment to give effect to PTI's acquisition of the Grace assets, including related financing. In connection with that acquisition, PTI elected to sell the non-printing product businesses whose operations were previously combined with those Grace assets. The net assets of those businesses were valued in the opening balance sheet at their actual net sales proceeds, less an allocation of interest expense on the incremental debt used to finance the businesses, plus the cash flows generated from the businesses during the holding period. In October 1995 and December 1995, respectively, the businesses were sold resulting in no change to the allocation of the original purchase price. For the period December 29, 1994 through the respective dates of disposal, the businesses generated profits of approximately $844,000 which have been excluded from PTI's consolidated statement of operations. Imputed interest expense during the period December 29, 1994 through the respective disposal dates of approximately $978,000 was allocated to the carrying value of the assets held for sale at the acquisition date and has not been included in the consolidated statement of operations for the period. The selected historical data as of and for the six months ended June 30, 1999 and June 30, 1998 have not been audited but, in the opinion of PTI's management, contain all adjustments, consisting solely of those of a normal recurring nature, necessary to present fairly the financial position and results of operations of PTI as of these dates and for these periods. The results of operations for the six months ended June 30, 1999 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 1999, or for any future period. EBITDA, as used in the table below, means earnings from operations before interest, taxes, depreciation and amortization. Although EBITDA is not defined by generally accepted accounting principles, PTI believes it to be beneficial to gaining an understanding of PTI's financial performance. However, EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and should not be used as an alternative to net income as an indicator of operating performance or to cash flows as a measure of liquidity. 10 21 - --------------------------------------------------------------------------------
W.R. GRACE PRINTING PRODUCTS (PREDECESSOR CO.) AS OF AND FOR AS OF SIX MONTHS ENDED 28-DEC-94 AND JUNE 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31, FOR THE PERIOD --------------------- --------------------------------------------- 1-JAN-94 TO 1999 1998 1998 1997 1996 1995 28-DEC-94(3) --------- --------- --------- --------- --------- --------- ------------------ (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND RATIOS) (UNAUDITED) OPERATING RESULTS Net sales............................ $ 120,177 $ 113,494 $ 227,956 $ 214,509 $ 146,577 $ 147,439 $ 149,508(4) Income (loss) from continuing operations(2)...................... 7,519 8,880 19,343 592 4,752 (1,412) 9,584(4) Net earnings available for common shareholders(2).................... 6,773 8,193 17,912 (780) 3,302 (2,984) 9,584 Diluted earnings per common share(2)........................... 6.74 8.15 17.82 (0.93) 3.30 (3.51) -- FINANCIAL POSITION AT YEAR END Working capital...................... 62,584 53,955 54,395 48,285 25,078 27,994 20,678 Current ratio (1).................... 2.0 2.2 1.9 2.1 1.7 1.7 1.5 Capital expenditure.................. 6,158 3,814 14,594 5,816 4,755 3,670 5,800 Total assets......................... 245,327 205,880 231,011 197,935 139,145 151,862 148,998(5) Long-term debt (includes short-term portion)........................... 160,659 146,715 147,714 147,142 102,395 101,998 23,893 Percent of total capitalization (excluding preferred stock)........ 91.8 99.6 92.3 105.9 100.9 99.0 18.6 Redeemable preferred stock........... 9,751 9,167 8,944 8,406 7,964 12,781 -- OTHER DATA Return on sales available for common shareholders(%)(2)................. 5.6 7.2 7.9 (0.4) 2.3 (2.0) 6.4 Return on average common equity(%)(2)(6).................... 101.7 430.2 854.2 (17.1) 5,413.1 (283.7) 9.2 Cash provided by (used in) operations......................... (406) 3,511 26,916 20,275 11,650 19,231 15,061 Cash provided by (used in) investing activities......................... (15,594) (3,984) (24,681) (61,474) (4,755) (7,930) (5,800) Cash provided by (used in) financing activities......................... 15,077 (347) 117 44,255 (7,393) (28,548) -- EBITDA............................... 25,908 27,899 55,801 37,986 29,113 21,763 24,824 SHARE DATA Common shareholders' equity.......... $ 14,265 $ 556 $ 12,367 $ (8,173) $ (930) $ 1,052 $ 104,378 Book value per common share.......... 16.68 0.65 14.46 (9.56) (1.09) 1.24 -- Cash dividends per common share...... -- -- -- -- -- -- Common shares outstanding Diluted average during period.... 1,005,000 1,005,000 1,005,000 1,001,250 1,000,000 1,000,000 -- Outstanding at period end........ 855,000 855,000 855,000 855,000 850,000 850,000 --
- ------------------------- (1) Current assets divided by current liabilities. (2) Earnings available to common shareholders and diluted earnings per share are before extraordinary loss of $1,322 ($1.55 per share) in 1997. (3) Operating results for the period January 1, 1994 to December 28, 1994 and as of December 28, 1994 were obtained from the predecessor company consisting of portions of various divisions of W.R. Grace & Co. that PTI acquired on December 29, 1994. (4) 1994 results include sales of approximately $11.2 million and a net loss of approximately $1.3 million for non-printing products businesses which were sold by PTI in 1995. (5) Total assets include assets related to non-printing products businesses valued by PTI at $11.6 million on December 29, 1994 and sold in 1995. (6) Return on Average Common Equity for the six months ended June 30, 1999 and 1998 is annualized so as to be comparative to the years ended December 31. This calculation is not necessarily indicative of the result which will occur at year end. - -------------------------------------------------------------------------------- 11 22 EXCHANGE RATIO ASSUMPTIONS This joint proxy statement -- prospectus presents pro forma share and per share data in various sections, including those titled "Unaudited Pro Forma Combined Condensed Selected Financial Data," "Selected Historical and Pro Forma Comparative Per Share Data" and "Beneficial Ownership of PTI." Unless otherwise stated, all pro forma share and per share data presented in this joint proxy statement -- prospectus assume the ratio of the number of shares of MacDermid common stock exchanged for each share of PTI common stock in the merger (the "exchange ratio") is equal to 7.233, which would have been the exchange ratio under the following assumptions: - the merger had been completed on August 27, 1999, the latest practicable date prior to the printing of this joint proxy statement -- prospectus, - only 7,573,000 shares of MacDermid common stock are issued in the merger, with none of the 127,000 escrowed shares being released to former holders of PTI common stock and the PTI warrant, and - a total of approximately $439,437 of dividends is owed on PTI preferred stock as of the completion of the merger, representing 105 days of unpaid dividends on the preferred stock, which dividends are paid semi-annually on June 15 and December 15. THE ACTUAL EXCHANGE RATIO WILL LIKELY BE DIFFERENT. As described in more detail elsewhere in this joint proxy statement -- prospectus, there is neither a minimum nor maximum exchange ratio. Instead, the merger agreement fixes the minimum and maximum number of shares of MacDermid common stock that will be issued in the merger. The minimum number of shares is fixed at 7,573,000, which would be the number of shares issued in the merger assuming no escrowed shares are released. The maximum number of shares is fixed at 7,827,000, which would be the number of shares issued in the merger assuming all of the escrowed shares are released and assuming MacDermid is liable to indemnify the PTI shareholders to the maximum extent provided in the merger agreement by issuing an additional 127,000 shares of MacDermid common stock. See "Merger Transaction." The actual exchange ratio will depend both on the "Current Market Price" of MacDermid common stock as of the completion of the merger and on the amount of dividends owed on the PTI preferred stock at that time. "Current Market Price" means the average of the daily closing price for MacDermid common stock on the NYSE for the 30 consecutive trading days preceding the completion of the merger, ignoring the highest and lowest closing prices during that period. The Current Market Price would have been $36.82 if the merger was completed on August 27, 1999. If the Current Market Price as of the completion of the merger is greater than the Current Market Price as of August 27, 1999, the exchange ratio would be greater than the assumed exchange ratio as of August 27, 1999. Conversely, if the Current Market Price as of the completion of the merger is less than the Current Market Price as of August 27, 1999, the exchange ratio would be less than the assumed exchange ratio as of August 27, 1999. See "Merger Transaction" for a table showing the exchange ratio at hypothetical Current Market Prices of $34, $40 and $46. The pro forma share and per share also assume the full exercise of the MacDermid warrant issued to Citicorp Mezzanine Partners upon completion of the Merger. The MacDermid warrant will have a nominal exercise price per share. See "Merger Transaction." 12 23 - -------------------------------------------------------------------------------- UNAUDITED PRO FORMA COMBINED CONDENSED SELECTED FINANCIAL DATA The following table is a summary of selected unaudited combined financial information from the section of this joint proxy statement -- prospectus titled "Unaudited Pro Forma Combined Condensed Financial Information." The combined financial information of MacDermid and PTI gives effect to the merger as a pooling of interests, as if the merger had been completed as of April 1, 1996, and MacDermid's acquisition of W. Canning plc as of April 1, 1998 that MacDermid accounted for using the purchase method of accounting. The pro forma combined condensed financial information for the year ended March 31 adds the fiscal year ended March 31 for MacDermid to the previous fiscal year ended December 31 for PTI. The proforma combined condensed financial information for the three months ended June 30, 1999 and 1998 adds three months ended June 30, for each of MacDermid and PTI. Share and per share data have been restated to reflect the effects of MacDermid's three-for-one stock split effective February 6, 1998. You should read the following summary with the "Unaudited Pro Forma Combined Condensed Financial Information" and the related notes and the financial information of MacDermid and PTI that are incorporated by reference or presented in this joint proxy statement -- prospectus. The Unaudited Pro Forma Combined Summary Financial Data is presented for illustrative purposes only. This information is not necessarily indicative of the operating results or financial position that would have occurred if the merger had been completed on the dates indicated. Further, this information is not necessarily indicative of MacDermid's future operating results or financial condition.
AS OF AND FOR THREE MONTHS ENDED JUNE 30, AS OF AND FOR THE YEAR ENDED MARCH 31, ------------------------- --------------------------------------- 1999 1998 1999 1998 1997 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND RATIOS) OPERATING RESULTS Net sales...................................... $ 182,066 $ 138,308 $ 702,507 $ 528,064 $ 440,297 Income (loss) from continuing operations....... 14,260 12,141 56,035 31,389 28,598 Net earnings available for common shareholders................................. 14,260 12,141 56,035 31,080 26,762 Diluted earnings per common share (1).......... 0.43 0.37 1.70 0.94 0.80 FINANCIAL POSITION AT YEAR END Working capital................................ 131,528 104,234 117,643 99,099 71,961 Current ratio (2).............................. 1.7 1.8 1.6 1.8 1.7 Capital expenditures........................... 4,441 5,208 20,036 14,158 11,669 Total assets................................... 775,319 525,421 737,290 498,195 400,123 Long-term debt (includes short-term portion)... 425,982 285,065 406,382 263,567 185,376 Percent of total capitalization (excluding MacDermid preferred stock)................... 70.4 70.3 71.3 71.4 68.0 Redeemable preferred stock..................... -- -- -- -- 32,436 OTHER DATA Return on sales available for common shareholders (%)............................. 7.8 8.8 8.0 5.9 6.1 Return on average common equity (%) (3)(4)..... 29.7 37.2 41.6 32.2 32.1 Cash provided by operations.................... 5,816 9,282 80,456 55,610 49,087 Cash provided by (used in) investing activities................................... (11,993) (18,936) (195,697) (94,281) (10,161) Cash provided by (used in) financing activities................................... 162 10,610 129,968 39,255 (41,362) EBITDA......................................... 39,548 31,384 135,958 104,437 84,692
(See footnotes on following page) - -------------------------------------------------------------------------------- 13 24 - --------------------------------------------------------------------------------
AS OF AND FOR THREE MONTHS ENDED JUNE 30, AS OF AND FOR THE YEAR ENDED MARCH 31, ------------------------- --------------------------------------- 1999 1998 1999 1998 1997 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND RATIOS) SHARE DATA Common shareholders' equity (3)................ $ 178,927 $ 120,617 $ 163,350 $ 105,778 $ 87,092 Book value per common share (1)................ 5.65 3.81 5.16 3.35 2.80 Cash dividends per common share (1)............ 0.0159 0.0159 0.0636 0.0555 0.0529 Common shares outstanding (1) Diluted average during period.............. 33,003,215 33,048,820 33,000,288 33,056,844 33,485,677 Outstanding at period end.................. 31,645,406 31,626,175 31,633,450 31,584,013 31,049,566
- ------------------------- (1) The pro forma per share net income, cash dividends and book value are based upon an assumption that the ratio of shares of MacDermid common stock exchanged for each share of PTI common stock in the merger is equal to 7.233. THE ACTUAL EXCHANGE RATIO WILL LIKELY BE DIFFERENT. See "Exchange Ratio Assumptions" and "Merger Transaction -- What PTI Security Holders Will Receive in the Merger." As described in more detail elsewhere in this joint proxy statement -- prospectus, a total of 127,000 shares of MacDermid common stock will be released from escrow to PTI security holders if MacDermid makes no claim against the escrowed shares. In that scenario, MacDermid's pro forma diluted shares outstanding would increase by approximately 0.3%, which would decrease pro forma diluted earnings per common shares by less than $.01 per share in each of the periods presented. A total of 254,000 additional shares of MacDermid common stock may be issued to PTI security holders if all of the 127,000 escrow shares are released to PTI security holders and if MacDermid is liable to indemnify PTI security holders to the maximum extent provided in the merger agreement by issuing an additional 127,000 outstanding shares of MacDermid common stock. In that scenario MacDermid's pro forma diluted shares outstanding would increase by approximately 0.6%, which would decrease pro forma diluted earnings per common share by less than $.01 per share in each of the periods presented. See "Exchange Ratio Assumptions" and "Merger Transaction -- Escrowed Shares and Indemnification." (2) Current assets divided by current liabilities. (3) Includes preferred share amounts for PTI as these would be redeemed in the merger in exchange for shares of MacDermid common stock. (4) Return on Average Common Equity for the three months ended June 30, 1999 and 1998 is annualized so as to be comparative to the years ended March 31. This calculation is not necessarily indicative of the result which will occur at year end. - -------------------------------------------------------------------------------- 14 25 SELECTED HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA The following table shows unaudited comparative per share data for MacDermid and PTI, using the pooling of interests method of accounting. The information should be read in conjunction with the consolidated historical financial statements and related notes of MacDermid and PTI that are incorporated by reference or presented in this joint proxy statement -- prospectus, and the unaudited pro forma combined condensed financial information, including related notes, which appear elsewhere in this joint proxy statement -- prospectus. See "Unaudited Pro Forma Combined Condensed Financial Information." The pro forma data is presented for comparative purposes only and is not necessarily indicative of the combined financial position or results of operations which would have been realized had the merger been completed during the periods or as of the dates for which the pro forma data is presented. The pro forma per share net income, cash dividends and book value shown in the following table are based upon an assumption that the ratio of shares of MacDermid common stock exchanged for each share of PTI common stock in the merger is equal to 7.233. THE ACTUAL EXCHANGE RATIO WILL LIKELY BE DIFFERENT. See "Exchange Ratio Assumptions." The pro forma data per basic share of McDermid common stock will increase if the exchange ratio is less than 7.233 and decrease if the exchange ratio is greater than 7.233, reflecting a decrease or increase in the number of shares allocated to the warrant to be issued to Citicorp Mezzanine Partners. The pro forma data per diluted share of MacDermid common stock will not change, however, if the actual exchange ratio is greater or less than 7.233. Conversely, the pro forma data per share of PTI common stock, both basic and diluted, will increase if the actual exchange ratio is greater than 7.233 and will decrease if the actual exchange ratio is less. See "Merger Transaction -- What PTI Security Holders Will Receive in the Merger" for a table illustrating the exchange ratios at hypothetical Current Market Prices of $34, $40 and $46.
AS OF AND FOR THREE MONTHS ENDED JUNE 30, YEARS ENDED MARCH 31, ----------------------- ------------------------------------ 1999 1998 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- PER SHARE OF MACDERMID COMMON STOCK(1): Income from continuing operations: Historical: Basic net income per share......................... $ 0.40 $ 0.32 $ 1.44 $ 1.22 $ 0.89 Diluted net income (loss) per share................ 0.39 0.32 1.43 1.20 0.85 Pro forma: Basic net income per share......................... 0.45 0.39 1.77 0.99 0.86 Diluted net income per share....................... 0.43 0.37 1.70 0.94 0.80 Shares used for earnings calculation: Historical (basic)................................... 25,145,343 25,149,149 25,136,712 24,976,931 24,735,191 Historical (diluted)................................. 25,430,215 25,475,820 25,427,288 25,483,844 25,912,677 Pro forma (basic).................................... 31,633,450 31,637,256 31,624,819 31,465,038 31,223,298 Pro forma (diluted).................................. 33,003,215 33,048,820 33,000,288 33,056,844 33,485,677 Cash dividends declared per share: Historical......................................... .02 .02 .08 .07 .0667 MacDermid/PTI pro forma............................ .0159 .0159 .0636 .0555 .0529 Book value (as of period end): Historical........................................... 6.16 4.41 5.65 4.21 3.26 Pro forma............................................ 5.65 3.81 5.16 3.35 2.80
(See footnotes on following page.) 15 26 - --------------------------------------------------------------------------------
AS OF AND FOR THREE MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ----------------------- ------------------------------------ 1999 1998 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- PER SHARE OF PTI COMMON STOCK(2): Income (loss) from continuing operations: Historical: Basic net income (loss) per share (3).............. $ 4.55 $ 4.73 $ 20.95 $ (0.92) $ 3.88 Diluted net income (loss) per share (3)............ 3.87 4.03 17.82 (0.92) 3.30 Equivalent pro forma: Basic net income per share......................... 3.25 2.82 12.80 7.16 6.22 Diluted net income per share....................... 3.11 2.68 12.30 6.80 5.79 Cash dividends declared per share: Historical......................................... -- -- -- -- -- MacDermid/PTI pro forma............................ .1150 .1150 .4600 .4014 .3826 Book value (as of period end): Historical........................................... 16.68 0.65 14.46 (9.56) (1.09) Equivalent pro forma................................. 40.87 27.56 37.32 24.23 20.25
- --------------- (1) The pro forma data per share of MacDermid common stock shown in the table will decrease for each escrowed share released to former holders of PTI common stock and the PTI warrant. See "Merger Transaction -- Escrowed Shares and Indemnification." (2) The pro forma data per share of PTI common stock shown in the table will increase for each escrowed share released to former holders of PTI common stock and the PTI warrant. See "Merger Transaction -- Escrowed Shares and Indemnification." (3) Earnings per share are before extraordinary loss of $1,322 ($1.55 per share) in 1997. - -------------------------------------------------------------------------------- 16 27 MARKET PRICE INFORMATION MacDermid common stock is listed and traded principally on the New York Stock Exchange under the symbol "MRD." There is no established trading market for PTI common stock. The following table provides, for the periods indicated, the high and low sale prices per share for MacDermid common stock as reported on the NYSE.
YEAR LOW HIGH - ---- ------ ------ Fiscal year ended March 31, 1999: First quarter............................................. $28.25 $42.38 Second quarter............................................ 23.38 40.50 Third quarter............................................. 29.88 39.13 Fourth quarter............................................ 32.75 41.94 Fiscal year ending March 31, 2000 First quarter............................................. 32.00 46.50 Second quarter (through August 27, 1999).................. 33.00 46.75
MacDermid common stock traded at the following highs and lows during the past several months, as reported by the NYSE.
AUGUST MARCH APRIL MAY JUNE JULY (THROUGH AUGUST 27, 1999) ------ ------ ------ ------ ------ ------------------------- High................. $38.00 $43.25 $46.50 $46.50 $46.75 $38.00 Low.................. $32.81 $32.00 $39.31 $40.13 $35.00 $33.00
All shareholders are advised to obtain current market quotations for MacDermid common stock. We cannot predict what the market price of MacDermid common stock will be at or after the completion of the merger. The market price of MacDermid common stock will fluctuate between the date of this joint proxy statement -- prospectus, the date of the MacDermid and PTI special meetings and the date on which the merger is completed and afterwards. We cannot guarantee when or if the various closing conditions, including the receipt of the approval of the Federal Trade Commission, will be satisfied. See "Merger Agreement -- Termination of Merger Agreement" for a discussion of the right MacDermid and PTI each will have to terminate the merger agreement at any time after September 30, 1999, even if the shareholders approve the merger. AS DESCRIBED IN MORE DETAIL ELSEWHERE IN THIS JOINT PROXY STATEMENT -- PROSPECTUS, THE NUMBER OF SHARES OF MACDERMID COMMON STOCK TO BE EXCHANGED FOR EACH SHARE OF PTI COMMON STOCK WILL DEPEND BOTH ON THE "CURRENT MARKET PRICE" OF MACDERMID COMMON STOCK AS OF THE COMPLETION OF THE MERGER AND ON THE AMOUNT OF DIVIDENDS OWED ON THE PTI PREFERRED STOCK AT THAT TIME. "Current Market Price" means the average of the daily closing price for MacDermid common stock on the New York Stock Exchange for the 30 consecutive trading days preceding the completion of the merger, ignoring the highest and lowest closing prices during that period. See "Exchange Ratio Assumption" and "Merger Transaction." 17 28 The following table provides the closing sales price of MacDermid common stock as reported on the NYSE and the equivalent per share price of PTI common stock giving effect to the merger on February 18, 1999, which was the last business day preceding the announcement of the merger, and on August 27, 1999, which was the last practicable date prior to the mailing of this joint proxy statement -- prospectus.
CLOSING PRO FORMA MARKET VALUE PER SHARE: SALES PRICE EQUIVALENT PER SHARE - ----------------------- ----------- -------------------- February 18, 1999.......................................... $38.88 $281.80 August 27, 1999............................................ $34.38 $248.67
The pro forma equivalent market values of PTI common stock shown in the preceding table have been calculated assuming an exchange ratio of 7.248 as of February 18, 1999 and an exchange ratio of 7.233 as of August 27, 1999. Those exchange ratios were determined using a Current Market Price of $38.73 as of February 18, 1999 and a Current Market Price of $36.82 as of August 27, 1999, which would have been the Current Market Prices had the merger been completed as of those dates, together with the other assumptions described in this joint proxy statement -- prospectus. See "Exchange Ratio Assumptions." THE ACTUAL EQUIVALENT MARKET VALUE OF PTI COMMON STOCK IN THE MERGER WILL LIKELY BE DIFFERENT. If the actual Current Market Price as of the completion of the merger is greater than the Current Market Price as of August 27, 1999, the exchange ratio and the pro forma equivalent value of the PTI common stock would be greater than the assumed exchange ratio and pro forma equivalent value shown in the preceding table. Conversely, if the actual Current Market Price as of the completion of the merger is less than the Current Market Price as of August 27, 1999, the exchange ratio and the pro forma equivalent value of the PTI common stock would be less than the assumed exchange ratio and pro forma equivalent value shown in the preceding table. 18 29 RISK FACTORS The following risks should be considered by the MacDermid and PTI shareholders in deciding whether to vote in favor of approval of the merger agreement. In addition, we strongly urge you to consider the items disclosed elsewhere in this joint proxy statement -- prospectus, including under the caption "Cautionary Statement Concerning Forward-Looking Statements" and in the documents incorporated by reference in this joint proxy statement -- prospectus. THERE IS NO GUARANTEE THAT THE HOLDERS OF PTI COMMON STOCK WILL RECEIVE ANY PARTICULAR VALUE FOR THEIR SHARES OF PTI COMMON STOCK. Holders of PTI common stock will not know, at the time they vote, the ratio of the number of shares of MacDermid common stock to be exchanged for each share of PTI common stock. That ratio will depend on the market value of MacDermid stock during the 30 trading days prior to the completion of the merger and on the amount of dividends owed on the PTI preferred stock. There is no minimum or maximum exchange ratio. See "Exchange Ratio Assumptions." IN ASSESSING THE FINANCIAL TERMS OF THE MERGER PRIOR TO APPROVING THE MERGER AGREEMENT, NEITHER THE MANAGEMENT NOR THE BOARDS OF DIRECTORS OF MACDERMID AND PTI HAD THE BENEFIT OF AN OPINION FROM A FINANCIAL ADVISOR REGARDING THE FAIRNESS OF THOSE TERMS TO THE MACDERMID AND PTI SHAREHOLDERS. Neither MacDermid nor PTI engaged a financial advisor to evaluate the fairness, from a financial point of view, of the amount of MacDermid stock to be exchanged in the merger for all of the outstanding shares of PTI common stock and preferred stock and the PTI warrant. Instead, MacDermid and PTI relied on the experience of their management and directors in evaluating the transaction. Other members of the investment community, including analysts who periodically assess MacDermid's performance, may conclude that MacDermid has materially over-valued or under-valued PTI. Such a determination could materially affect the price at which shares of MacDermid common stock trade before and after the merger is completed. MACDERMID AND PTI SHAREHOLDERS WILL HAVE LIMITED INDEMNIFICATION FOR DAMAGES FOR ANY MISREPRESENTATION OR OTHER BREACH OF THE MERGER AGREEMENT. MacDermid and the PTI shareholders as a group will not be indemnified by the other under the merger agreement if damages are $2.0 million or less. In addition, the amount of damages for which MacDermid and the PTI shareholders may be indemnified will not exceed the Current Market Price of the 127,000 escrowed shares as of the completion of the merger. Therefore, neither MacDermid nor the PTI shareholders will be indemnified for the first $2.0 million of damages and any damages exceeding the value of the escrowed shares. Further, any claim for indemnification must be asserted within 12 months after the merger is completed. It is possible, therefore, that the party entitled to indemnification may not become aware of a breach of the merger agreement until after the deadline for asserting an indemnification claim. ANTITRUST REVIEW MAY PREVENT OR DELAY THE MERGER OR REQUIRE THE DIVESTITURE OF A PORTION OF THE COMBINED COMPANY'S ASSETS. MacDermid and PTI have made several submissions to the Federal Trade Commission under the Hart-Scott-Rodino Act beginning on February 26, 1999. The Commission has asserted, however, that those submissions did not satisfy all applicable requirements. Without agreeing with the Federal Trade Commission's assertion, MacDermid and PTI have represented to the Commission that they will not 19 30 complete the merger without giving the Commission at least 35 days prior notice. The Federal Trade Commission may take one or more of several actions including the following: - - seek to prevent the merger by initiating a lawsuit alleging the merger will violate federal antitrust laws; - - allow the merger to proceed; or - - seek to negotiate a settlement which would likely involve a divestiture of a portion of the combined company's assets. In particular, you should note that if the Federal Trade Commission commences a lawsuit to challenge the merger on antitrust grounds, we would not be able to proceed with the merger unless the court specifically rules against the Federal Trade Commission's request to delay the merger. We also cannot guarantee that we would be able to negotiate a divestiture that would be acceptable to us and the Federal Trade Commission. See "Merger Transaction -- Required Regulatory Approvals." MACDERMID'S PROFITABILITY COULD BE ADVERSELY AFFECTED IF IT IS UNABLE TO INTEGRATE PTI'S OPERATIONS EFFECTIVELY. The merger involves the integration of two companies that have previously operated independently. MacDermid may not be able to integrate the operations of PTI without encountering difficulties. These difficulties could include interruptions and dislocations associated with the integration of different business strategies and disparate business backgrounds and operating cultures of the two companies. In addition, after the merger, the combined resources of the two companies may not be adequate to handle the needs of the combined companies. MacDermid's inability to integrate PTI's business efficiently could adversely affect MacDermid's profitability in a variety of ways. Examples include the following: - - difficulty integrating PTI could adversely affect MacDermid's revenue from existing operations by diverting management's attention; - - integration problems could adversely affect MacDermid's ability to retain or expand PTI's customer base; and - - delays in integration could increase MacDermid's expenses by requiring MacDermid to incur greater personnel and consulting expenses and could defer or preclude MacDermid's ability to realize cost reductions for the combined company. MACDERMID'S INCREASED FINANCIAL LEVERAGE AS A RESULT OF THE MERGER COULD ADVERSELY AFFECT ITS LIQUIDITY AND FINANCIAL CONDITION. MacDermid's increased leverage could adversely affect its liquidity, as a substantial portion of available cash from operations will have to be applied to meet debt service requirements. In the event of a cash shortfall, MacDermid could be forced to reduce other expenditures and forego potential acquisitions to be able to meet its debt service obligations. MacDermid's increased leverage could also adversely affect its ability to obtain additional financing for working capital, acquisitions or other purposes and could make MacDermid more vulnerable to economic downturns and competitive pressures. MacDermid expects to incur between $155 million and $165 million of additional senior debt in connection with the merger in order to refinance PTI's outstanding financial indebtedness. In addition, PTI's ratio of shareholders' equity to assets of 5.8% as of June 30, 1999 is relatively low compared to MacDermid's ratio of 29.2% as of that date. As a consequence of both those factors, MacDermid's pro forma ratio of long-term debt as a percentage of total capitalization will increase materially upon completion of the merger. Moreover, the 20 31 increase in MacDermid's long-term debt as a percentage of its capitalization as a consequence of the merger will follow the increase in its leverage that resulted from MacDermid's December 1998 acquisition of W. Canning plc. The following table illustrates the pro forma impact of the merger and the Canning acquisition on MacDermid's ratio of long-term debt to capitalization.
ACTUAL AT ACTUAL AT JUNE 30, 1999 JUNE 30, JUNE 30, PRO FORMA 1998 1999 FOR PTI MERGER --------- --------- --------------- MacDermid ratio of long-term debt to equity capital..... 55.5% 62.7% 71.4%
Similarly, MacDermid's debt in relation to its cash flow and EBITDA increased materially as a result of the Canning acquisition and will further increase as a result of the merger, as illustrated by the following table:
ACTUAL ACTUAL PRO FORMA AS OF AND AS OF AND FOR PTI MERGER FOR YEAR ENDED FOR YEAR ENDED AS OF AND MARCH 31, MARCH 31, FOR YEAR ENDED 1998 1999 MARCH 31, 1999 --------------- --------------- ------------------ MacDermid ratio of long-term debt to cash provided by operations.......... 3.3x 4.8x 5.1x MacDermid ratio of long-term debt to EBITDA.............. 1.8x 3.2x 3.0x
See "MacDermid Selected Financial Data" and "Unaudited Pro Forma Combined Condensed Selected Financial Data." MACDERMID'S HISTORICAL OPERATING RESULTS MAY BE OF LIMITED USE IN EVALUATING ITS HISTORICAL PERFORMANCE AND PREDICTING ITS FUTURE RESULTS BECAUSE OF THE ACCOUNTING FOR RECENT ACQUISITIONS. Since March 31, 1995, MacDermid has acquired a number of businesses with a total of approximately $337.6 million in assets, including the December 1998 acquisition of W. Canning plc. for approximately $148.2 million and the December 1995 acquisition of the electronics and printing division of Hercules Incorporated for approximately $139.0 million. MacDermid used the purchase method of accounting for each of its previous acquisitions, and therefore, the operating results of each acquired company are included in MacDermid's financial statements only from the date of its acquisition. Because of MacDermid's recent acquisitions and its use of the purchase method of accounting, MacDermid's historical operating results may be of limited relevance in evaluating the historical financial performance of the combined company and predicting its future operating results. MACDERMID'S FAILURE TO MANAGE ITS GROWTH STRATEGY EFFECTIVELY MAY HAVE A MATERIAL ADVERSE EFFECT ON MACDERMID'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION. An important element of MacDermid's business strategy continues to involve active and substantial efforts to acquire or combine with other companies that would complement MacDermid's existing businesses. No assurance can be given, however, that MacDermid will be able to identify additional suitable acquisition targets or consummate any other acquisitions. If MacDermid is able to identify and complete future acquisitions, its ability to manage future growth will depend primarily upon its ability to do the following: - - monitor operations; - - control costs; - - maintain positive customer relations; - - maintain regulatory compliance; and - - attract, assimilate and retain additional qualified personnel. MacDermid's failure to achieve any of those objectives in an efficient and timely manner may cause interruptions and dislocations in its business. These problems may have a negative effect on 21 32 MacDermid's existing operations, as well as its ability to retain the customers of the acquired businesses, operate the businesses profitably or otherwise implement its growth strategy. Also, the presence of one or more material liabilities of an acquired company that are unknown to MacDermid at the time of acquisition may have a material adverse effect on MacDermid. VOTING CONTROL OF MACDERMID HELD BY ITS DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL SHAREHOLDERS MAY PERMIT THESE SHAREHOLDERS TO EXERCISE EFFECTIVE CONTROL OVER THE OUTCOME OF CORPORATE ACTIONS REQUIRING SHAREHOLDER APPROVAL. MacDermid's directors and executive officers and the MacDermid Employees Profit Sharing and Employees Stock Ownership Plan and pension plan will beneficially own, in the aggregate, approximately 29.0% of the MacDermid stock outstanding immediately after the merger. Citicorp Venture Capital will beneficially own, in the aggregate, approximately 12.5% of the MacDermid stock outstanding immediately after the merger. As a result, if these shareholders take a common position, they could exercise effective control over the outcome of corporate actions requiring shareholder approval, including the election of directors and the approval of significant corporate transactions, such as a merger or sale of all or substantially all of MacDermid's assets. The investment objectives of these shareholders may not be the same as yours or as those of MacDermid's other shareholders. - -------------------------------------------------------------------------------- CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION THIS JOINT PROXY STATEMENT -- PROSPECTUS, AS WELL AS THE OTHER DOCUMENTS TO WHICH WE REFER IN THIS JOINT PROXY STATEMENT -- PROSPECTUS, DESCRIBE MANY OF THE POSITIVE FACTORS AFFECTING MACDERMID'S FUTURE BUSINESS PROSPECTS. SHAREHOLDERS SHOULD ALSO BE AWARE OF FACTORS THAT COULD HAVE A NEGATIVE IMPACT ON THOSE PROSPECTS. THOSE FACTORS INCLUDE POLITICAL, ECONOMIC OR OTHER CONDITIONS SUCH AS CURRENCY EXCHANGE RATES, INFLATION RATES, RECESSIONARY OR EXPANSIONARY TRENDS, TAXES AND REGULATIONS AND LAWS AFFECTING MACDERMID'S BUSINESS; COMPETITIVE PRODUCTS, ADVERTISING, PROMOTIONAL AND PRICING ACTIVITY; THE DEGREE OF ACCEPTANCE OF NEW PRODUCT INTRODUCTIONS IN THE MARKETPLACE; TECHNICAL DIFFICULTIES THAT MAY ARISE WITH NEW PRODUCT INTRODUCTIONS; AND THE DIFFICULTY OF FORECASTING SALES AT VARIOUS TIMES IN VARIOUS MARKETS. - -------------------------------------------------------------------------------- 22 33 MACDERMID SPECIAL MEETING This joint proxy statement -- prospectus is being furnished to MacDermid shareholders in connection with the solicitation of proxies by the MacDermid Board of Directors for use at the MacDermid special meeting. At the MacDermid special meeting, MacDermid shareholders will be asked to consider and vote upon a proposal to approve the merger agreement under which shares of MacDermid common stock will be exchanged for all of the outstanding shares of PTI common stock and preferred stock, all as summarized in this joint proxy statement -- prospectus and as more fully described in the merger agreement. Attached as Appendix A and Appendix B to this joint proxy statement -- prospectus are the merger agreement and the first amendment to the merger agreement. DATE, TIME AND PLACE The MacDermid special meeting will be held at the Leever Building, 245 Freight Street, Waterbury, Connecticut 06702 on Thursday, September 30, 1999, at 10:00 A.M. EDT. RECORD DATE AND VOTING RIGHTS The MacDermid Board fixed August 6, 1999 as the record date for the determination of shareholders entitled to notice of and to vote at the MacDermid special meeting. As of the record date, there were 25,157,299 shares of MacDermid common stock outstanding, held by approximately 1,420 holders of record. Each holder of record of shares of MacDermid common stock on the record date is entitled to cast one vote per share, in person or by proxy, at the MacDermid special meeting. As of August 6, 1999, directors and executive officers of MacDermid and their affiliates had the right to vote 5,043,160 shares, or approximately 20.0% of the outstanding shares of MacDermid common stock. The directors and executive officers of MacDermid have advised MacDermid that they intend to vote their shares of MacDermid common stock "FOR" approval of the merger agreement. See "Beneficial Ownership of MacDermid." QUORUM AND VOTING OF PROXIES The presence, in person or by proxy, of the holders of a majority of the outstanding shares of MacDermid common stock entitled to vote is necessary to constitute a quorum at the MacDermid special meeting. Shareholders voting or abstaining from voting will be counted as present for purposes of constituting a quorum. Under the NYSE rules, brokers who hold shares in street name for customers will not have authority to vote these shares on the proposal to approve the merger agreement unless they have received written instructions from beneficial owners. Shares not voted on the proposal and abstentions will have the same effect as votes against the proposal. All shares which are entitled to vote and are represented at the MacDermid special meeting by properly executed proxies received before or at the MacDermid special meeting, and not revoked, will be voted at the MacDermid special meeting in accordance with the instructions indicated on the proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT. The MacDermid Board knows of no matter to be presented at the MacDermid special meeting other than the proposal to vote on the approval of the merger agreement. If any other matter is properly presented at the MacDermid special meeting for consideration, such as consideration of a motion to adjourn the MacDermid special meeting to another time and/or place, including for the purpose of soliciting additional proxies, the persons appointed as proxies will have discretion to vote on these matters in accordance with their 23 34 best judgment, except that shares represented by proxies which have been voted "AGAINST" approval of the merger agreement will not be voted in respect of any motion made for adjournment of the MacDermid special meeting for purposes of soliciting additional votes to approve the merger agreement. Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked or superseded by any of the following actions: - filing a written notice of revocation bearing a later date than the proxy with the Corporate Secretary of MacDermid (John L. Cordani) at or before the taking of the vote at the MacDermid special meeting; - duly executing a later dated proxy relating to the same shares and delivering it to the Corporate Secretary of MacDermid (John L. Cordani) before the taking of the vote at the MacDermid special meeting; or - attending the MacDermid special meeting and voting in person. MacDermid shareholders should note, however, that merely attending the MacDermid special meeting in person without casting a vote at the meeting will not constitute a revocation of a proxy. MacDermid will pay all expenses of this solicitation, including the cost of preparing and mailing this joint proxy statement -- prospectus to MacDermid shareholders. Directors, officers and employees of MacDermid will also solicit proxies in person or by telephone, telegram, facsimile transmission or other means of communication. MacDermid will not pay these individuals for their solicitation activity but will reimburse them for their reasonable out-of-pocket expenses. Arrangements will also be made with custodians, nominees and fiduciaries for forwarding of proxy solicitation materials to beneficial owners of shares held of record by the custodians, nominees and fiduciaries, and MacDermid will reimburse the custodians, nominees and fiduciaries for reasonable expenses. MacDermid also has retained D.F. King & Co., Inc. of New York, New York to assist it in distributing the joint proxy statement -- prospectus to and soliciting proxies from shareholders. The fee paid by MacDermid for King's services will be approximately $4,000, plus reimbursement of out-of-pocket costs. SHAREHOLDER VOTE REQUIRED Under the rules of the NYSE, the approval of the merger agreement requires the affirmative vote of the holders of a majority of the shares of MacDermid common stock outstanding as of the record date for the MacDermid special meeting. RECOMMENDATION OF MACDERMID BOARD The MacDermid Board of Directors believes the merger agreement is in the best interests of MacDermid's shareholders and has unanimously approved the merger agreement. THE BOARD OF DIRECTORS OF MACDERMID UNANIMOUSLY RECOMMENDS THAT THE MACDERMID SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO APPROVE THE MERGER AGREEMENT. APPRAISAL RIGHTS The MacDermid shareholders who elect to dissent from the approval of the merger agreement will not be entitled to have their shares appraised and purchased in accordance with the Connecticut Business Corporation Act if the merger is completed. 24 35 PTI SPECIAL MEETING This joint proxy statement -- prospectus is being furnished to shareholders of PTI in connection with the solicitation of proxies by the Board of Directors of PTI for use at the PTI special meeting. At the PTI special meeting, shareholders of PTI will be asked to consider and vote upon a proposal to approve the merger agreement under which shares of MacDermid common stock will be exchanged for all of the outstanding shares of PTI common stock and preferred stock, all as summarized in this joint proxy statement -- prospectus and as more fully described in the merger agreement. Attached as Appendix A and Appendix B to this joint proxy statement -- prospectus are the merger agreement and the first amendment to the merger agreement. DATE, TIME AND PLACE The PTI special meeting will be held at 900 Middlesex Turnpike, Billerica, Massachusetts 01821, on Thursday, September 30, 1999, at 9:00 A.M. EDT. RECORD DATE AND VOTING RIGHTS The PTI Board fixed August 6, 1999 as the record date for the determination of shareholders entitled to notice of and to vote at the PTI special meeting. Only the holders of PTI Class A common stock are entitled to vote at the PTI special meeting. As of the record date, there were 100.002 shares of PTI Class A common stock outstanding, held by approximately 19 holders of record. Each holder of record of shares of PTI Class A common stock on the record date is entitled to cast one vote per share, in person or by proxy, at the PTI special meeting. As of August 6, 1999, PTI directors and executive officers and their affiliates had the right to vote 51.518 shares of PTI Class A common stock or approximately 51.518% of the shares of PTI Class A common stock outstanding as of that date. See "Beneficial Ownership of PTI." QUORUM AND VOTING OF PROXIES The presence, in person or by proxy, of the holders of a majority of the outstanding shares of PTI Class A common stock entitled to vote is necessary to constitute a quorum at the PTI special meeting. Shareholders voting or abstaining from voting on any issue will be counted as present for purposes of constituting a quorum. Shares not voted on the proposal and abstentions will have the same effect as votes against the proposal. All shares which are entitled to vote and are represented at the PTI special meeting by properly executed proxies received before or at the PTI special meeting, and not revoked, will be voted at the PTI special meeting in accordance with the instructions indicated on the proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT. The PTI Board knows of no matter to be presented at the PTI special meeting other than the proposal to vote on the approval of the merger agreement. If any other matter is properly presented at the PTI special meeting for consideration, such as consideration of a motion to adjourn the PTI special meeting to another time and/or place, including for the purpose of soliciting additional proxies, the persons appointed as proxy will have discretion to vote on these matters in accordance with their best judgment. Shares represented by proxies which have been voted "AGAINST" approval of the merger agreement will not be voted in respect of any motion made for adjournment of the PTI special meeting for purposes of soliciting additional votes to approve the merger agreement. 25 36 Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked or superseded by any of the following actions: - filing a written notice of revocation bearing a later date than the proxy with the Corporate Secretary of PTI (Thomas C. Weaver) at or before the taking of the vote at the PTI special meeting; - duly executing a later dated proxy relating to the same shares and delivering it to the Corporate Secretary of PTI (Thomas C. Weaver) before the taking of the vote at the PTI special meeting; or - attending the PTI special meeting and voting in person. PTI shareholders should note, however, that merely attending the PTI special meeting in person without casting a vote at the meeting will not alone constitute a revocation of a proxy. PTI will pay all expenses of this solicitation, including the cost of mailing this joint proxy statement -- prospectus to PTI shareholders. Directors, officers and employees of PTI will also solicit proxies in person or by telephone, telegram, facsimile transmission or other means of communication. PTI will not pay these individuals for their solicitation activity but will reimburse them for their reasonable out-of-pocket expenses. SHAREHOLDER VOTE REQUIRED Under PTI's Certificate of Incorporation and the Delaware General Corporation Law, the approval of the merger agreement requires the affirmative vote of the holders of a majority of the shares of PTI Class A common stock, the only class of PTI stock entitled to vote at the PTI special meeting. RECOMMENDATION OF PTI BOARD The PTI Board believes that the merger agreement is in the best interests of PTI's shareholders and has unanimously approved the merger agreement. THE BOARD OF DIRECTORS OF PTI UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF PTI VOTE "FOR" THE PROPOSAL TO APPROVE THE MERGER AGREEMENT. SEE "MERGER TRANSACTION -- INTERESTS OF RELATED PERSONS IN THE MERGER." APPRAISAL RIGHTS If the merger is completed, holders of PTI common stock who previously elected to dissent from the approval of the merger agreement and holders of non-voting PTI common stock and PTI preferred stock may be entitled to have their shares appraised and purchased in accordance with Section 262 of the Delaware General Corporation Law. IN ORDER FOR A PTI SHAREHOLDER TO EXERCISE APPRAISAL RIGHTS, A NOTICE OF THAT SHAREHOLDER'S INTENTION TO EXERCISE HIS OR HER APPRAISAL RIGHTS AS PROVIDED UNDER DELAWARE LAW MUST BE SENT BY THAT SHAREHOLDER AND RECEIVED BY PTI BEFORE THE PTI SPECIAL MEETING, AND THAT SHAREHOLDER MUST VOTE, IF ENTITLED TO DO SO, AGAINST THE APPROVAL OF THE MERGER AGREEMENT, OR ABSTAIN FROM VOTING, AND COMPLY WITH THOSE PROCEDURES REQUIRED BY DELAWARE LAW, AS MORE FULLY DESCRIBED IN "MERGER TRANSACTION -- RIGHTS OF APPRAISAL." FAILURE TO SEND NOTICE, TO VOTE AGAINST THE APPROVAL OF THE MERGER AGREEMENT OR TO FOLLOW THE OTHER PROCEDURES WILL CONSTITUTE A WAIVER OF THE SHAREHOLDER'S APPRAISAL RIGHTS. SEE APPENDIX C TO THIS JOINT PROXY STATEMENT -- PROSPECTUS FOR A DISCUSSION OF APPRAISAL RIGHTS AND A DESCRIPTION OF THE PROCEDURES THAT MUST BE FOLLOWED TO PERFECT APPRAISAL RIGHTS. 26 37 THE COMPANIES MACDERMID MacDermid is a leading global manufacturer of speciality chemicals and processes. MacDermid's main product offerings encompass three broad businesses and processes: (a) electronics/printed circuits, (b) industrial finishing of metals and plastics and (c) graphic arts. MacDermid has manufacturing facilities and sales offices located in 19 countries in North America, Europe and Asia. MacDermid's graphic arts products generally consist of liquid photopolymers for use in the manufacture of printing plates. Photopolymers used in the graphic arts industry generally harden when exposed to light. In making printing plates, the photopolymer sheet is selectively contacted with light so that hardened raised areas, corresponding to the image to be printed, are created when the unexposed (i.e., soft) photopolymer is removed. MacDermid is a Connecticut corporation that was founded in 1922. MacDermid's principal executive office is located at 245 Freight Street, Waterbury, Connecticut 06702. MacDermid's telephone number is (203) 575-5700. In December 1998, MacDermid acquired W. Canning plc. for approximately $148.2 million. The acquisition, which was financed primarily through borrowings under a senior credit facility, was accounted for using the purchase method of accounting for business transactions. Canning, an international specialty chemical organization based in Birmingham, England, has operations predominantly in Europe and North America and, to a lessor extent, in Asia. Canning operates in four principal product groupings: surface finishing with emphasis in plating technologies, synthetic lubricants and fluids for the offshore oil industry, sealants and adhesives used by component manufacturers and additives for fuel, water and waste treatment facilities. See "Where You Can Find More Information" for a description of various documents incorporated by reference into this joint proxy statement -- prospectus that contain more information on MacDermid. PTI PTI is the parent company of Polyfibron Technologies, Inc, NAPP Systems, Inc. and Rollin S.A. Through its subsidiaries, PTI develops, produces and markets specialty chemicals and related materials, including printing plates, used primarily in the printing industry to transfer images to surfaces such as paper, cardboard or film. PTI's subsidiaries have manufacturing facilities located in the United States, France and Australia. PTI's principal product lines include solid sheet photopolymer printing plates for use by the flexographic printing industry. In solid sheet flexographic printing, a flexible substance (such as rubber or photopolymers) is used to create printing plates in order to selectively transfer ink onto a surface, thereby creating an image. PTI, a Delaware corporation, was founded in 1994, when it acquired Polyfibron Technologies, Rollin and other assets and liabilities from W.R. Grace & Co. PTI's principal executive office is located at 900 Middlesex Turnpike, Billerica, Massachusetts 01821. PTI's telephone number is (978) 439-2000. PTI has completed several acquisitions since 1994, the largest of which occurred in January 1997 when it acquired NAPP Systems for approximately $56.8 million in a transaction that was accounted for using the purchase method of accounting. NAPP Systems develops, manufactures and markets proprietary expendable products and processing equipment for imaging systems primarily for use in the newspaper industry. In addition, NAPP Systems distributes expendable products and processing equipment to the commercial printing industry. 27 38 MERGER TRANSACTION We believe that this summary together with the section of this joint proxy statement -- prospectus entitled "Merger Agreement" describes all material terms of the merger and the merger agreement. However, we recommend that you read carefully the complete text of the merger agreement and other information that may be important to you. The merger agreement and the first amendment to the merger agreement are attached to this joint proxy statement -- prospectus as Appendix A and Appendix B and are incorporated by reference into this joint proxy statement -- prospectus. MACDERMID BACKGROUND AND REASONS FOR THE MERGER Since MacDermid's acquisition of its existing graphic arts business from Hercules Incorporated in December 1995, MacDermid has investigated a number of strategies for expanding its product offerings to the graphic arts industry and for expanding the geographic scope of this business line. MacDermid's existing graphic arts business, located primarily in North America, consists of the sale of liquid photopolymers and related materials for use in the manufacture of flexographic printing plates. Liquid photopolymers, while economical to use, present technological limitations in that they can be used only with water-based inks, thus limiting their market potential. Solid sheet photopolymers, on the other hand, are capable of use with both water-based and solvent-based inks, and are thus suitable for a wider variety of uses. MacDermid believes that increasing its graphic arts product line to include solid sheet photopolymer printing plates and related products will enable MacDermid to utilize more completely the marketing and manufacturing expertise it has developed in the graphic arts sector. In addition, MacDermid believes the diversification will be important if, as MacDermid expects, customer demand for solid sheet photopolymer products increases as compared to demand for liquid photopolymer products. Similarly, MacDermid expects that by penetrating the graphic arts industry outside of North America, which represents a much larger potential market, MacDermid will be able to increase its revenue and net income from the graphic arts industry more quickly than it could if it continued to compete solely in North America. MacDermid also believes a more geographically diverse revenue base will mitigate, at least in part, the adverse impact on MacDermid of a deterioration in business conditions in any particular region. Following the 1995 Hercules acquisition, MacDermid was involved in discussions with five other companies, including PTI, in an effort to expand MacDermid's printing business and to enable MacDermid to supply solid sheet photopolymer printing plates and related printing products to the graphic arts industry. MacDermid's discussions with those companies were extensive and included consideration of acquisitions, joint ventures, licensing arrangements and distribution arrangements. Between the completion of the Hercules acquisition and the fall of 1997, MacDermid discussed a licensing and distribution arrangement for solid sheet photopolymers with a large multi-national chemical company based in Asia. Those discussions were inconclusive, and MacDermid's evaluation of that business opportunity led it to believe that MacDermid could achieve its strategic objectives in the graphic arts industry more effectively by acquiring an existing business rather than beginning a new distribution program for solid sheet photopolymer products. MacDermid began to examine the possibility of acquiring PTI in the fall of 1997. After a thorough investigation was made, MacDermid concluded that the acquisition of PTI would provide the most desirable opportunity for MacDermid to increase its 28 39 participation in the printing market, to further the geographic diversification of its business, and to add a significant business to MacDermid that could be expected to be accretive to MacDermid's earnings on a per share basis. MacDermid's negotiations with PTI at that time were unsuccessful, primarily because the parties were unable to agree upon the valuation of PTI. MacDermid valued PTI's capital stock at approximately $240 million to $260 million while PTI sought a value of approximately $280 million to $300 million. In addition, PTI wanted the merger agreement to provide for a floating exchange ratio that would increase or decrease within a specified range if the market price of MacDermid common stock decreased or increased between the date of the merger agreement and the completion of the merger; however, a floating exchange ratio was unacceptable to MacDermid. MacDermid and PTI terminated negotiations in January 1998. MacDermid thereafter resumed its examination of other ways to achieve its strategic objectives in the graphic arts sector. In one case, MacDermid unsuccessfully explored a joint venture with a large multi-national chemical company based primarily in Europe. MacDermid also considered the acquisition of a subsidiary or division of two other companies. In each of those cases, preliminary due diligence revealed that the product lines and customer bases that MacDermid would acquire were not broad enough to satisfy MacDermid's objectives. MacDermid was successful, however, in negotiating a licensing and distribution arrangement for solid sheet photopolymers with the multi-national chemical company based in Asia with which it had previous discussions. MacDermid continued to believe, however, that it could better achieve its strategic objectives by acquiring an existing business such as PTI rather than beginning a new distribution program for solid sheet photopolymer products. In December 1998, negotiations for the acquisition of PTI started anew when PTI indicated to MacDermid that PTI was willing to accept a fixed exchange ratio and a valuation of PTI that was generally consistent with the value PTI sought in late 1997 and early 1998. In response to PTI's overture, MacDermid initially offered to issue 7,000,000 shares of MacDermid common stock. Based upon the average trading price for MacDermid common stock in the fourth quarter of calendar 1998 of $35.64, MacDermid's proposal valued PTI's capital stock at approximately $265 million. PTI countered by seeking a total of 9,000,000 million shares of MacDermid common stock for PTI shareholders, valuing PTI at approximately $321 million. After further negotiations, MacDermid and PTI ultimately agreed in January 1999 that MacDermid would issue a minimum of 7,573,000 shares of MacDermid common stock as of the completion of the merger and would place 127,000 shares of MacDermid common stock in escrow to satisfy any indemnification payment MacDermid would be entitled to receive under the merger agreement. Based upon the average trading price for MacDermid common stock in January 1999 of $38.72, the minimum value for PTI's capital stock was approximately $293 million, assuming no escrowed shares are released to PTI shareholders. After reaching an agreement in principle on those basic terms, MacDermid and PTI then evaluated the other party's financial condition and recent operating results, developed its own internal assessment of the other party's future financial prospects, and negotiated the terms of the merger agreement. MacDermid and PTI entered into the merger agreement on February 18, 1999. MacDermid and PTI entered into the first amendment to the merger agreement on July 27, 1999. The primary purpose of the first amendment is to extend the termination date of the merger agreement to September 30, 1999 from July 31, 1999, in order to provide more time for MacDermid and PTI to prepare this joint proxy statement -- prospectus and to seek the Federal Trade Commission's approval to proceed with the 29 40 merger. The first amendment also sets forth the parameters within which MacDermid and PTI would be willing to negotiate a settlement with the Federal Trade Commission if necessary to obtain the Commission's approval. See "-- Required Regulatory Approvals" below. In addition, in order to permit PTI to negotiate and complete any sale of assets that might be required as part of a settlement with the Federal Trade Commission, the first amendment modified the restrictions under the merger agreement on PTI's sale of assets during the term of that agreement. See "Merger Agreement -- Conduct Pending the Merger." MacDermid believes that PTI is among one of the top three competitors worldwide in each of its two principal product lines based upon 1998 sales data. In one product line, PTI had 18% of worldwide sales compared to approximately 30% achieved by E.I. DuPont de Nemours. In the second product line, PTI had 14% of worldwide sales compared to approximately 30% achieved by Day International. E.I. DuPont de Nemours & Co. and Day International were the leading competitors in those product lines in 1998. Thus, MacDermid believes that the acquisition of PTI will immediately establish MacDermid as one of the leading global suppliers of specialty chemicals and related materials to the graphic arts industry, as well as provide MacDermid with a fully integrated array of product offerings to this industry. As a result of MacDermid's diligence efforts, MacDermid has become familiar with PTI's operations and the potential that those operations represent for MacDermid. MacDermid's management believes that the PTI acquisition is strategically desirable primarily for the following reasons: - The PTI acquisition will improve significantly MacDermid's position as a supplier to the graphic arts industry. MacDermid estimates that it currently has the fifth greatest market share among suppliers of specialty chemicals and related materials to the graphic arts industry. MacDermid hopes that the acquisition of PTI and its solid sheet photopolymer business will improve MacDermid's status as a global competitor in the supply of specialty chemicals and related materials to the graphic arts industry. - The PTI acquisition will increase the diversity of MacDermid's overall sources of revenue, both by product line and geography. MacDermid hopes that this further diversification will increase the stability of MacDermid's cash flow by providing MacDermid with three essentially equivalent businesses in electronics, industrial finishing of metals and plastics and graphic arts. In addition, MacDermid expects that the PTI acquisition will further balance MacDermid's overall geographic diversification. - The PTI acquisition will allow MacDermid to participate in a much broader section of the graphic arts industry by providing MacDermid the ability to offer solid sheet photopolymers, newspaper plates, printing blankets, printing rollers and printing sleeves. In addition, the acquisition will provide MacDermid with the ability to expand its graphic arts business beyond North America. - The PTI acquisition will add an additional business base to MacDermid which is expected to be accretive to MacDermid's per share earnings in the first full fiscal year and to be further accretive in subsequent years. - The PTI acquisition will add a management team and employee base with significant experience in the specialty chemical/graphic arts industry. PTI's management team has, on average, 15 years of experience in the specialty 30 41 chemicals and/or graphic arts business. Although none of PTI's officers will become executive officers of MacDermid upon the completion of the merger, MacDermid and PTI expect that several of PTI's senior officers, including David R. Beckerman who has 40 years of experience in the speciality chemical/graphic arts industry, will have substantial responsibility in the combined company's graphic arts business. MacDermid also considered the following challenges or potential disadvantages of the proposed acquisition: - PTI's business will represent a significant portion of the combined company's operations, and therefore MacDermid's future net income per share and its market capitalization would depend significantly on PTI's operating results; - the sale by both MacDermid and PTI of liquid flexographic photopolymer products could cause the Federal Trade Commission to scrutinize whether the proposed merger would have an impermissible anticompetitive effect, which scrutiny likely would increase the cost and uncertainty of the proposed transaction (see "-- Required Regulatory Approvals," below); and - The challenges of and risks associated with integrating PTI's operations with those of MacDermid would be greater than any prior acquisition MacDermid had undertaken because of PTI's size and the geographic scope of its operations. Although MacDermid has acquired and integrated four significant business lines during the past five years without any material disruption in the acquired businesses, there can be no assurance that the strategic goals of the PTI merger will be achieved. See "Risk Factors" and "Cautionary Statement Regarding Forward-Looking Information." PTI BACKGROUND AND REASONS FOR THE MERGER Polyfibron Technologies' historic predecessor, Dewey & Almy, began to produce specialty chemicals and related materials used to transfer images to surfaces such as paper or cardboard in 1946 in Adams, Massachusetts. Dewey & Almy was acquired by W.R. Grace & Co. in 1954. Since then, their presence in the graphic arts industry was expanded by (a) implementing new product lines, (b) geographical growth, and (c) acquisitions. When this portion of W.R. Grace & Co.'s specialty chemicals division was bought out by its management and PTI was formed, this growth continued. PTI continually explores opportunities to expand its participation in the graphic arts industry, both domestically and around the world, although none of those strategic transactions was considered an alternative to the merger with MacDermid. Several opportunities have come to fruition, including the acquisitions of NAPP Systems in 1997, Jager Jeune SA and Axcyl SA in 1998 and Supratech and International Composites in 1999. PTI began to examine the possibility of merging with MacDermid in the fall of 1997. During late 1996 and early 1997, PTI's board of directors was contacted by several investment banks with the suggestion that a business combination of some sort with MacDermid could provide significant strategic benefits to both companies. MacDermid had recently acquired the Hercules business and was believed to be very interested in growing its graphic arts segment. There were no valuation discussions with any of these investment banks regarding a possible combination with MacDermid. However, PTI was also discussing a potential initial public offering of its common stock with several major investment banking firms. The indications of PTI's value provided by those firms in connection with the offering came in a very broad range. Moreover, there was significant 31 42 uncertainty as to whether a public offering could be completed in then prevailing market conditions and how the market ultimately would value PTI in an offering. The initial MacDermid proposal described above valued PTI within the range which might be achievable in a public offering. Accordingly, it was the opinion of PTI's management and board of directors that the MacDermid offer represented a good opportunity for PTI shareholders and that they were unlikely to achieve greater value in a public equity offering. After MacDermid approached PTI in late 1997 regarding a possible business combination, PTI undertook a thorough investigation of MacDermid and commenced negotiations regarding the terms of a possible transaction. The negotiations terminated, however, in January 1998 for the reasons described above. After PTI and MacDermid terminated discussions in early 1998, a third party contacted PTI's chief executive officer regarding the possible acquisition of PTI. Preliminary discussions were held between PTI's chief executive officer and executives of the third party during the spring of 1998. Those discussions did not lead to the third party making an offer to acquire PTI, for reasons which PTI believes were primarily related to the third party's interest in acquiring only PTI's printing plate business and not its printing blanket business. Since the third party declined to make an offer, the possible transaction never became of sufficient substance to be considered by PTI's board of directors as an alternative to the proposed merger with MacDermid. In December 1998, negotiations for the merger with MacDermid started anew for the reasons described above and led to the execution of a merger agreement on February 18, 1999. Also for the reasons described above, PTI and MacDermid entered into the first amendment to the merger agreement on July 27, 1999. See "-- MacDermid's Background and Reasons for the Merger," above. As a result of PTI's discussions with MacDermid, PTI has become familiar with MacDermid's operations and the potential that those operations represent for PTI. PTI's management believes that the combination with MacDermid is strategically desirable for the following reasons: - PTI will be provided with an opportunity to combine its company with MacDermid, a company that has achieved significant growth and profitability in recent years. - The PTI shareholders will be provided with MacDermid common stock, which has outperformed broad stock market indices for each of the last five years. - PTI's management believes that the combination of PTI and MacDermid will create a more substantial global competitor in the supply of chemicals and related materials to the graphic arts industry. - PTI's management believes that the combination of PTI and MacDermid will improve the diversity of the combined company's overall sources of revenue, both by product line and geography. There can be no assurance that these goals will be achieved, however. In particular, the past performance of MacDermid common stock is not necessarily indicative of future performance. See "Risk Factors," "Cautionary Statement Regarding Forward-Looking Information," and "Trading Price of MacDermid Common Stock." The PTI board of directors considered the following negative factors associated with the terms and potential consequences of the proposed merger: - the terms of the merger subjected the PTI shareholders to some uncertainty as to the value of the consideration they would be receiving upon completion of the 32 43 merger, because the merger agreement provided no protection against volatility in the MacDermid stock price; - PTI management was concerned that PTI would suffer a significant loss of independence and autonomy as a consequence of the merger by becoming a division of the combined, MacDermid controlled, entity; and - PTI management was also concerned as to what opportunities there would be for PTI employees within the new group and how PTI employees would be treated generally within that group. THE MERGER The merger agreement provides that MacDermid will acquire PTI and all of the outstanding PTI capital securities consisting of common stock, preferred stock and a common stock warrant in exchange for shares of MacDermid common stock and warrants to purchase shares of MacDermid common stock. The acquisition will be accomplished through the merger of MCD Acquisition Corp., a wholly owned MacDermid subsidiary, into PTI. The merger agreement also obligates MacDermid to refinance PTI's financial indebtedness upon completion of the merger. Accordingly, MacDermid has entered into an amended secured credit facility under which it will borrow the funds necessary to refinance the PTI debt. As of June 30, 1999, the amount of debt to be refinanced totaled $164.3 million. Expenses related to the merger are anticipated to aggregate approximately $11.7 million. This amount consists primarily of charges resulting from anticipated debt refinancing, and professional fees. The merger agreement and the first amendment to the merger agreement are attached to this joint proxy statement -- prospectus as Appendix A and Appendix B and are described in more detail in the section of this joint proxy statement -- prospectus titled "Merger Agreement." We encourage you to read the merger agreement as it is the legal document that governs the merger. We also encourage you to review the section of this joint proxy statement -- prospectus titled "Comparison of the Rights of Holders of MacDermid Common Stock and Holders of PTI Stock." After the merger, the rights of former PTI shareholders will be governed by Connecticut law and MacDermid's charter and bylaws rather than Delaware law and PTI's charter and bylaws. WHAT PTI SECURITY HOLDERS WILL RECEIVE IN THE MERGER If the merger is completed, each PTI shareholder will receive a portion of 7,573,000 shares of MacDermid common stock. As described in more detail below and elsewhere in this joint proxy statement -- prospectus, the number of MacDermid shares received by any PTI shareholder will depend primarily on the following: - the market value of MacDermid common stock during the 30 trading days preceding the completion of the merger; and - the number of shares of PTI common stock and preferred stock owned by the shareholder. In addition, holders of PTI common stock and the holder of a warrant to purchase PTI common stock will also receive upon the completion of the merger an interest in an escrow fund that may entitle them to receive additional MacDermid shares a year or more after the merger is completed. As of August 6, 1999, there were 9,175 outstanding shares of PTI preferred stock and 855,000 outstanding shares of PTI common stock. In addition, 150,000 shares of PTI 33 44 common stock are issuable upon the exercise of a warrant held by Citicorp Mezzanine Partners, L.P. Under the terms of the PTI warrant, Citicorp Mezzanine Partners may purchase PTI common stock at an exercise price of approximately $.01 per share. The 7,573,000 shares of MacDermid common stock delivered upon the completion of the merger will be allocated first to the holders of PTI preferred stock to satisfy the liquidation preference of that stock. As a result of the merger, each share of PTI preferred stock will be converted into a number of shares of MacDermid common stock having a value equal to the liquidation preference of that share of preferred stock ($1,000) plus any owed dividends. For purposes of that allocation, the MacDermid stock will be valued at the "Current Market Price." After the PTI preferred stock liquidation preference is satisfied, the balance of the 7,573,000 MacDermid shares will be allocated among the holders of PTI common stock in proportion to their ownership of PTI common stock. For purposes of that allocation, the PTI warrant held by Citicorp Mezzanine Partners will be treated as if it had been exercised in full. MacDermid will issue a substitute common stock warrant to Citicorp Mezzanine Partners on equivalent terms. Except as otherwise specified in this joint proxy statement -- prospectus, the description of MacDermid shares exchanged in the merger treats the PTI warrant as if exercised in full prior to the completion of the merger. The amount and value of MacDermid stock that any holder of PTI common stock will receive upon the completion of the merger will depend on the then Current Market Price of MacDermid common stock and the amount of dividends owed on PTI preferred stock. See "Exchange Ratio Assumptions" on page 12. ACCORDINGLY, HOLDERS OF PTI COMMON STOCK WILL NOT KNOW AT THE TIME THAT THEY VOTE THE NUMBER OR VALUE OF THE MACDERMID SHARES THEY WILL RECEIVE. PTI SHAREHOLDERS MAY MAKE INQUIRIES AS TO THE ESTIMATED EXCHANGE RATIO OF MACDERMID SHARES FOR SHARES OF PTI COMMON STOCK BASED UPON THE TRADING PRICE OF MACDERMID STOCK AT THAT TIME BY CALLING THOMAS C. WEAVER, PTI'S CORPORATE SECRETARY AT (978) 439-2110. The following table illustrates the number of MacDermid shares that would be exchanged for each share of PTI common stock upon the completion of the merger at three hypothetical Current Market Prices of $34, $40 and $46 per share. MacDermid and PTI believe the range of hypothetical Current Market Prices shown in the table reasonably reflects the trading prices of MacDermid common stock after the merger was announced. The hypothetical exchange ratios also assume in each case approximately $439,437 of dividends are owed on the preferred stock, representing 105 days of unpaid dividends since the last dividend payment date on June 15, 1999. See "Exchange Ratio Assumptions."
NUMBER OF MACDERMID SHARES EXCHANGED FOR ASSUMED "CURRENT MARKET EACH SHARE OF PTI PRICE" OF MACDERMID STOCK COMMON STOCK ------------------------- -------------------- $34.00........................ 7.208 $40.00........................ 7.257 $46.00........................ 7.293
The following table provides the last reported sales prices per share of MacDermid stock traded on the NYSE on February 18, 1999, the last trading day before announcement of the merger agreement, and on August 27, 1999, the latest practicable date before the printing of the joint proxy statement -- prospectus: February 18, 1999...................... $38.88 August 27, 1999........................ $34.38
34 45 If only 7,573,000 MacDermid shares are issued in the merger, the aggregate value of the consideration received by PTI shareholders will be approximately $260.4 million, assuming the value of MacDermid stock is equal to its closing price on the NYSE on August 27, 1999. No assurance can be given as to the market price of MacDermid stock upon the completion of the merger. Shareholders are advised to obtain current market quotations of the MacDermid common stock. See "Trading Price of MacDermid Common Stock" for the high and low prices at which MacDermid common stock traded during the past several months, as reported by the NYSE. The holders of PTI preferred stock will receive in the merger shares of MacDermid common stock having an aggregate value of approximately $11.2 million, based upon the assumptions used elsewhere in this joint proxy statement -- prospectus. PTI owes more dividends on some shares of preferred stock than others. Therefore, the number of shares of common stock that MacDermid will issue for any particular share of PTI preferred stock will vary ranging from a low of 28.268 shares to a high of 51.724 shares. In general, based upon the assumptions described on page 12 of this joint proxy statement--prospectus, the distribution of shares of MacDermid common stock among the holders of the three series of PTI preferred stock will be as follows: - a majority of the holders of PTI Series 2 preferred stock will receive 28.268 shares of MacDermid common stock for each share of Series 2 preferred stock; - a majority of the holders of PTI Series 3 preferred stock will receive 51.724 shares of MacDermid common stock for each share of Series 3 preferred stock; - a majority of the holders of PTI Series 4 preferred stock will receive 35.810 shares of MacDermid common stock for each share of Series 4 preferred stock. ESCROWED SHARES The holders of PTI common stock and Citicorp Mezzanine Partners will also receive an interest in an escrow fund that will be established upon the completion of the merger. The escrow fund will be used to satisfy any indemnification claim MacDermid is entitled to bring under the merger agreement. Upon the completion of the merger, the escrow fund will consist of shares of MacDermid common stock and a MacDermid warrant issued for Citicorp Mezzanine Partners. Assuming the warrant held by Citicorp Mezzanine Partners to purchase shares of PTI common stock has not been exercised in whole or part prior to the completion of the merger, the escrow fund will consist of 108,045 shares of MacDermid common stock and the MacDermid warrant entitling the holder to purchase 18,955 shares of MacDermid common stock at a nominal exercise price of approximately $.01 per share. The issued and outstanding shares of MacDermid common stock in escrow and the shares of MacDermid common stock purchasable upon exercise of the warrant are sometimes collectively referred to in this joint proxy statement -- prospectus as the "escrowed shares." The escrow agent will maintain a separate subaccount for each former holder of PTI common stock and Citicorp Mezzanine Partners. Subject to complying with any applicable legal or contractual transfer restrictions, each of those investors will be entitled to sell all or any portion of the MacDermid stock, or the MacDermid warrant in the case of Citicorp Mezzanine Partners, held in escrow for that investor's benefit. The proceeds of any sale would remain in escrow until the termination of the escrow agreement, however, and would be required to be invested in cash or cash equivalent investments, including short-term U.S. treasury securities. Holders of PTI common stock, other than Citicorp Mezzanine 35 46 Partners and its transferees, will not be entitled to a distribution of all or any portion of the shares of MacDermid common stock underlying the warrant. The material terms of the escrow and related indemnification provisions are described below. We also recommend that you read carefully the complete text of the escrow agreement for the precise legal terms of the escrow. The form of escrow agreement is attached to this joint proxy statement -- prospectus as Appendix D and is incorporated by reference into this joint proxy statement -- prospectus. INDEMNIFICATION Subject to several limitations, summarized below, MacDermid, on the one hand, and the PTI shareholders and Citicorp Mezzanine Partners, collectively, on the other hand, are entitled under the merger agreement to indemnification for damages, as defined in the merger agreement, arising out of the inaccuracy of any representation in the merger agreement or the breach of any warranty, covenant or other obligation in the merger agreement. No party will be entitled to indemnification for a claim brought more than 12 months after the merger is completed. Further, neither MacDermid, on the one hand, nor the PTI shareholders and Citicorp Mezzanine Partners, collectively, on the other hand, will be entitled to indemnification until their damages exceed $2 million and then only to the extent of the excess. If MacDermid is entitled to indemnification under the merger agreement, MacDermid's sole source of recourse will be to the assets contained in the escrow. MacDermid's claims against the escrow will be allocated proportionately against each subaccount based on the number of escrowed shares held in that subaccount immediately after the closing of the merger and will be payable from each subaccount first in escrowed shares and second in other assets, if any, held in escrow. In the case of Citicorp Mezzanine Partners, if shares of MacDermid common stock are not then held in the Citicorp Mezzanine Partners' subaccount, the portion of any indemnification claim allocable to its subaccount will be paid by reducing the number of shares purchasable under the MacDermid warrant. In no event will the PTI shareholders or Citicorp Mezzanine Partners be liable for damages in excess of the value of the escrowed shares held in their escrow subaccount immediately after the completion of the merger. The value of the escrowed shares will be the "Current Market Price" of MacDermid stock at the time the merger is completed. If the PTI shareholders and Citicorp Mezzanine Partners are entitled to indemnification, MacDermid will pay the damages solely in MacDermid shares and not in cash. MacDermid will not be required to issue more than 127,000 shares of MacDermid common stock in the aggregate to PTI security holders in payment of all indemnification claims under the merger agreement. The value of the escrowed shares will be the "Current Market Price" of MacDermid stock at the time the merger is completed. Further, as a condition to MacDermid's obligation to complete the merger each PTI shareholder and Citicorp Mezzanine Partners must sign an agency agreement, which, among other things, waives, to the fullest extent permitted by law, its, his or her rights and remedies for damages arising from the merger except for the rights to indemnification specifically provided in the merger agreement. We recommend that you read carefully the complete text of the agency agreement for the precise legal terms of the waiver of damages. The form of agency agreement is attached to this joint proxy statement -- prospectus as Appendix E and is incorporated by reference into this joint proxy statement -- prospectus. The agency agreement also provides for the appointment of Citicorp Venture Capital as attorney-in-fact to act on behalf of the PTI shareholders and Citicorp Mezzanine Partners in all matters relating to the indemnification provisions of the merger agreement, 36 47 including when to bring and pay an indemnification claim. This appointment does not grant Citicorp Venture Capital any beneficial rights in the escrowed shares. Any disputes between MacDermid, on the one hand, and Citicorp Venture Capital, on the other hand, regarding a claim for indemnification will be resolved by arbitration. We recommend that you read carefully the complete text of the agency agreement for the precise legal terms of Citicorp Venture Capital's authority. The escrow will terminate and the remaining escrow assets, if any, will be distributed to the former holders of PTI common stock and Citicorp Mezzanine Partners upon the later of (a) 12 months after the completion of the merger or (b) the resolution of all MacDermid indemnification claims. LISTING OF MACDERMID COMMON STOCK AND RESTRICTIONS ON TRANSFER The shares of MacDermid common stock issued in connection with the merger will be listed on the NYSE under the ticker symbol "MRD." See "Merger Agreement -- Conditions to Merger." After the completion of the merger, the sale or other transfer of MacDermid common stock by any PTI affiliate will be subject to several restrictions, some of which will also apply to MacDermid affiliates. Under the Securities Act of 1933, an affiliate is defined generally as a person -- considered to include, but not necessarily be limited to, executive officers, directors and holders of 10% or more of the company's stock -- who controls, is controlled by, or is under common control with a constituent corporation at the time a business combination has been authorized or, after the completion of the business combination, the surviving corporation. SEC guidelines with respect to the qualification of the merger for pooling of interests accounting treatment limit sales of shares of the acquiring and acquired companies by affiliates of either company in a business combination. SEC guidelines indicate further that the pooling of interests method of accounting generally will not be challenged on the basis of sales by affiliates of the acquiring or acquired company if they do not dispose of any of the shares of either the acquiring or acquired company, including shares they receive in connection with a merger, during the period beginning 30 days before the merger and ending when financial results covering at least 30 days of post-merger operations of the combined entity have been published. It is a condition to MacDermid's obligation to complete the merger that it receive from each PTI affiliate an agreement not to sell, transfer or otherwise dispose of, or reduce the risk of ownership with respect to, any shares of PTI stock or any shares of MacDermid common stock held by that affiliate in violation of these guidelines. See "Accounting Treatment." SEC Rule 145 restricts the sale of MacDermid common stock received in the merger by former PTI affiliates and their family members and related interests. Generally speaking, during the first year following the completion of the merger, PTI affiliates may publicly resell the MacDermid common stock received by them in the merger, provided that those sales comply with Rule 145 limitations as to the amount of MacDermid common stock sold in any three-month period and as to the manner of sale. The applicable volume limitations provide that each former PTI affiliate will not be able to sell, during any three-month period, more than the greater of the following: - one percent of the shares of MacDermid common stock outstanding, as most recently reported by MacDermid; or - the average weekly reported volume of trading in MacDermid common stock during a four-calendar week period before the sale, as reported by the NYSE. 37 48 After the one-year period, former PTI affiliates who are not then, and during the preceding three month period have not been, MacDermid affiliates may resell their shares without any restriction. Former PTI affiliates who are MacDermid affiliates after the completion of the merger generally will remain subject to limitations and restrictions under SEC Rule 144 with respect to shares they received in connection with the merger, so long as they continue to be MacDermid affiliates. In addition, PTI affiliates will be permitted to resell MacDermid common stock received in the merger without any restrictions if the sale is covered by an effective registration statement filed with the SEC under the Securities Act or is exempt from the Securities Act registration requirements. This joint proxy statement -- prospectus may not be used, however, to effect any resale of MacDermid common stock received by any person who may be deemed to be an affiliate of MacDermid or PTI. It is a condition to PTI's obligations to complete the merger that MacDermid enter into a registration rights agreement with Citicorp Venture Capital, on behalf of itself and as agent for Citicorp Mezzanine Partners, and other PTI affiliates. The registration rights agreement will entitle Citicorp Venture Capital to cause MacDermid to register under the Securities Act the resale of shares of MacDermid common stock issued in the merger to Citicorp Venture Capital, Citicorp Mezzanine Partners and other PTI affiliates. The registration rights agreement generally will entitle Citicorp Venture Capital to require MacDermid to effect up to three registrations under the Securities Act or to permit Citicorp Venture Capital, Citicorp Mezzanine Partners and the PTI affiliates to include in registrations initiated by MacDermid any or all of their shares of MacDermid common stock received in the merger. MacDermid will also agree in the registration rights agreement not to effect a public sale or distribution of MacDermid common stock during the seven days prior to and the sixty days following the effective date of a registration required by Citicorp Venture Capital. Similarly, each of Citicorp Venture Capital and Citicorp Mezzanine Partners will agree not to effect a public sale or distribution of MacDermid common stock received in the merger during the comparable 67-day period whenever MacDermid effects a registration on its own initiative, other than Citicorp Venture Capital and Citicorp Mezzanine Partners shares permitted to be included in that registration. MacDermid will generally be obligated to bear all fees and expenses incurred by it in connection with any registration effected at Citicorp Venture Capital's request but will not be obligated to pay any fees or expenses of any participating shareholder. MacDermid will also agreed to indemnify the participating shareholders against liabilities, designated in the registration rights agreement, in connection with any registration of MacDermid common stock, including liabilities under the Securities Act. Despite the availability of registration rights, to the extent a PTI shareholder holds PTI stock that is subject to contractual limitations on resale, the shares of MacDermid common stock received in the merger in exchange for those restricted shares will be subject to those same contractual limitations. OWNERSHIP OF MACDERMID AFTER THE MERGER On a pro forma basis, the shares of MacDermid common stock issued in the merger will range from 23.1% of the pro forma MacDermid shares outstanding if no escrowed shares are released to former PTI security holders to 23.4% if all escrowed shares are released. 38 49 On a pro forma basis, the shares of MacDermid common stock issued in the merger to Citicorp Venture Capital will range from 4,077,898 shares of MacDermid common stock outstanding, or 12.5%, if no escrowed shares are released to former PTI security holders to 4,145,594 shares, or 12.6%, if all escrowed shares are released. Citicorp Venture Capital will not beneficially own any of the escrow shares other than those escrow shares held in the subaccount maintained for its benefit. The allocation of shares of MacDermid common stock to Citicorp Venture Capital under the merger agreement will be calculated in the same manner as for any other holder of a PTI equity security. Citicorp Venture Capital will receive approximately 95.5% of its ownership interest in MacDermid as a result of its ownership of PTI non-voting common stock and approximately 4.5% as a result of its ownership of PTI preferred stock. See "Beneficial Ownership of PTI" for information regarding the amount and percentage of each class or series of PTI capital stock held by Citicorp Venture Capital. In calculating the percentages in this section, the following assumptions were made: (a) the MacDermid warrants issued to Citicorp Mezzanine Partners in the merger have been exercised in full; and (b) there is no change in the number of shares of MacDermid common stock outstanding before the merger. For more information on MacDermid common stock and existing and pro forma ownership of MacDermid common stock see "MacDermid Capital Stock" and "Beneficial Ownership of MacDermid." EXECUTIVE OFFICERS AND DIRECTORS OF MACDERMID AFTER THE MERGER The only change in the executive officers and directors of MacDermid as a consequence of the merger is that a designee of Citicorp Venture Capital will become a MacDermid director. The merger agreement provides that Citicorp Venture Capital may continue to designate a director of MacDermid, so long as each of the following conditions is satisfied: - Citicorp Venture Capital owns shares of MacDermid stock constituting 40.0% or more of the total number of shares of MacDermid common stock issued to Citicorp Venture Capital in the merger; and - Citicorp Venture Capital owns shares of MacDermid common stock constituting 2.0% or more of the shares of MacDermid common stock outstanding from time to time. The MacDermid Board of Directors has approved an increase in the size of the Board to seven from six, effective upon the completion of the merger, and has elected Joseph M. Silvestri, an officer of Citicorp Venture Capital, to fill that vacancy. Mr. Silvestri, age 37, has been Vice President of Citicorp Venture Capital for the last five years. Mr. Silvestri is a limited partner in CCT Partners I, L.P., a PTI shareholder, and is a director of Triumph Group, Inc., Euramax, ISG Resources, Inc., Glenoit Corporation and The GNI Group, Inc. On a pro forma basis, the shares of MacDermid stock issued in the merger to Mr. Silvestri, a PTI shareholder, will range from 43,012 shares of MacDermid common stock if no escrowed shares are released to former PTI security holders to 43,750 if all of the escrowed shares are released. In each case, Mr. Silvestri will own beneficially less than 1.0% of the shares of the MacDermid common stock outstanding immediately after the merger. As of August 6, 1999, Mr. Silvestri holds .414 shares (.4%) of PTI voting common stock and 5,746.469 shares (.57%) of PTI non-voting common stock. 39 50 REQUIRED REGULATORY APPROVALS The Hart-Scott Rodino Act prohibits MacDermid and PTI from completing the merger until they have furnished information to the Federal Trade Commission and a required waiting period has expired or been terminated without further action by the Federal Trade Commission. In general, the Federal Trade Commission will examine the impact of the merger on competition in various product and geographic markets in which MacDermid and PTI have sales. Under the merger agreement, MacDermid and PTI have agreed to use all commercially reasonable efforts to make the required filings with the Federal Trade Commission and to seek an early termination of the applicable waiting period. On February 26, 1999, MacDermid and PTI made our initial filings with the Federal Trade Commission, and on March 26, 1999, the Commission requested that we provide additional information. As a result of that request for additional information, we may not complete the merger until each of us complies with the request and a 20-day waiting period has expired without further action by the Federal Trade Commission. We submitted information in response to that request on May 28, 1999 and from time to time thereafter. The Federal Trade Commission has asserted, however, that our initial and subsequent submissions have not satisfied all applicable requirements. Without agreeing with the Federal Trade Commission assertion, MacDermid and PTI have represented to the Commission that we will not complete the merger without giving the Commission at least 35 days prior notice. As of the date of this joint proxy statement -- prospectus, we have not given that notice to the Federal Trade Commission. The Federal Trade Commission may - seek to delay further the completion of the merger by agreement or by requesting additional information, - seek to prevent the merger by initiating a lawsuit alleging the merger will violate federal antitrust laws, - terminate the waiting period or allow the waiting period to expire, either of which would allow the merger to proceed, or - seek to negotiate a settlement with MacDermid, which settlements typically involve a divestiture of a portion of the combined company's assets and liabilities. In particular, you should note that if the Federal Trade Commission commences a lawsuit to challenge the merger on antitrust grounds, we would not be able to proceed with the merger unless the court specifically rules against the Federal Trade Commission's request to delay the merger. Based upon discussions that MacDermid and PTI have had with the staff of the Federal Trade Commission, we believe the Federal Trade Commission is focusing on determining whether or not the merger would have an impermissible anticompetitive effect by increasing the concentration among sellers of materials used for fabricating printing plates, including liquid and solid photopolymer and other flexographic printing plates. Sales of liquid and solid photopolymer and other flexographic printing products represented 34.7% of PTI's 1998 U.S. sales. In contrast, MacDermid and PTI have taken the position with the Federal Trade Commission that the merger would not result in an impermissible anticompetitive effect because of the existence of other substantial existing and potential competitors in the sale of liquid and solid flexographic photopolymer printing plates, as well as other competitive materials used for fabricating printing plates. If the Federal Trade Commission ultimately disagrees with our position, we expect that the Commission will assert that MacDermid and PTI must alleviate the anticompetitive effect of the merger by divesting all or part of PTI's liquid flexographic photopolymer products and by 40 51 taking steps that will be designed to make it more likely that other companies will compete in the sale of solid sheet flexographic photopolymer products. In total, liquid flexographic photoploymer products accounted for 3.7% of PTI's 1998 U.S. sales. We cannot guarantee, however, that we would be able to negotiate a divestiture or other remedy that would be acceptable to us and the Federal Trade Commission. There can be no assurance of when or if the requisite regulatory approvals will be obtained or that, if obtained, such approvals would not include conditions that would be of a type that would relieve MacDermid of its obligation to complete the merger. Specifically, the merger agreement provides that MacDermid may choose not to complete the merger if the Federal Trade Commission's approval of the merger imposes a condition or requirement, such as a mandatory divestiture, that in the reasonable opinion of MacDermid would so materially adversely affect the economic or business benefits to MacDermid of the merger as to render the completion of the merger inadvisable. MacDermid has agreed with PTI, however, that MacDermid would not abandon the merger solely because Federal Trade Commission approval of the merger is conditioned upon PTI's prior divestiture of its U.S. liquid flexographic photopolymer business for commercial packaging applications. The merger agreement also provides that if the merger has not been completed by September 30, 1999 either MacDermid or PTI may terminate the merger agreement subject to the conditions described below. See "-- Closing Date" below and "Merger Agreement." Each of MacDermid and PTI intends to resolicit shareholder approval of the merger as a consequence of a divestiture required by the Federal Trade Commission only if its board of directors is unable to conclude that the divestiture could not reasonably be expected to have a material adverse effect on the pro forma revenue or net income of the combined company. If the Federal Trade Commission requires MacDermid and PTI to divest only PTI's liquid flexographic photopolymer business for commercial packaging applications, MacDermid and PTI will not resolicit shareholder approval because MacDermid and PTI believe that such a divestiture could not reasonably be expected to have a material adverse effect on the pro forma financial information presented in this joint proxy statement -- prospectus. If the board of directors of either MacDermid or PTI decides to resolicit shareholder approval of the merger as a consequence of a material divestiture, MacDermid and PTI will provide shareholders with a supplement to this joint proxy statement -- prospectus describing the proposed divestiture. CLOSING DATE Unless MacDermid and PTI mutually select another date, the closing of the merger will take place on the date that is two business days following the satisfaction or waiver of all conditions to the obligations of the parties to complete the merger. Either party may have the right to terminate the merger agreement at any time after September 30, 1999, even if the shareholders approve the merger. A party seeking to terminate the merger agreement because the closing has not occurred by September 30, 1999 must have observed all of its covenants and agreements contained in the merger agreement. See "Merger Agreement -- Termination of Merger Agreement." INTERESTS OF RELATED PERSONS IN THE MERGER When considering the PTI Board's recommendations that the PTI shareholders vote in favor of the merger agreement, PTI shareholders should be aware that a number of PTI employees have severance agreements and other arrangements that provide them with 41 52 interests in the merger that are different from, or in addition to, the interests of PTI shareholders as a whole. Severance and Change in Control Agreements. Print Tech International, Inc., the predecessor of PTI, has severance and change in control agreements with the following executives: David R. Beckerman, Edward T. Murphy and Thomas C. Weaver. The agreements provide, among other things, that if PTI terminates an executive's employment other than for cause, or if the executive voluntarily resigns from PTI with good reason within six months of a change in control as defined in the agreement, PTI will be obligated to pay the executive one and one-half year's salary, provided that no bonus payments or other related payments will be due to the executive. At present, under the terms of their agreements, Mr. Beckerman would be entitled to a payment of $405,000, Mr. Murphy would be entitled to a payment of $234,000 and Mr. Weaver would be entitled to a payment of $247,500. PTI has a similar severance and change in control agreement with John R. Rastetter, except that, pursuant to his agreement, Mr. Rastetter is entitled to severance for only one year's salary which is presently equal to $125,000. The merger will constitute a change in control within the meaning of these agreements. As of August 6, 1999, Mr. Beckerman holds 51.0% of PTI's voting common stock and 3.0% of PTI's non-voting common stock, and Mr. Weaver owns 1.6% of PTI's non-voting common stock. Mr. Murphy and Mr. Rastetter each hold 1.0% of PTI's non-voting common stock as of that date. As of the date of this joint proxy statement -- prospectus, MacDermid has no reason to believe that Messrs. Beckerman, Weaver, Murphy and Rastetter will not remain employed by the company after the merger is completed. Severance and Stay Bonus Agreements. PTI has stay bonus agreements with six employees with technical training and expertise in the area of SAP systems. None of these employees is a director or executive officer of PTI. The agreements provide for cash payments in the aggregate of no more than $240,000. If the employee stays with PTI at least through January 1, 2002, the minimum payment to any one employee will be $30,000 and the maximum to any one employee will be $50,000. In addition, PTI has stay bonus agreements with thirteen key employees of which one is an officer of PTI. None of these employees is a director or executive officer of PTI. The agreements provide for cash payments in the aggregate of no more than $185,500. The minimum payment to any one employee will be $8,500 and the maximum to any one employee will be $19,000. The payments will be made if the employee stays with PTI for at least one year from the date of the merger or if the employee is severed for any reason. Severance Agreements. PTI has a severance agreement with Kai Wenk-Wolff. A severance payment would be paid should NAPP Systems, Inc. (a wholly owned subsidiary of PTI) or PTI elect to terminate Mr. Wenk-Wolff's employment, other than for cause. In this event, Mr. Wenk-Wolff is entitled to severance for eighteen months of salary (which is equal to $288,000). PTI has severance agreements with two NAPP Systems executives. These agreements provide for severance payments in the aggregate of no more than $236,700. Discretionary Severance Payments. PTI may become obligated to pay to twelve employees with special technical knowledge (none of whom owns PTI stock) up to twelve weeks of severance payment (in addition to any general severance payment), to be determined at the time of termination, if the employee is severed for any reason within the one-year period starting at the date of the merger. 42 53 ACCOUNTING TREATMENT The obligations of MacDermid and PTI to complete the merger are conditioned upon the receipt of the following accountants' letters. PTI must have received a letter in form and substance acceptable to it from its accountants, PricewaterhouseCoopers LLP, dated the date of the merger, substantially to the effect that in that firm's unqualified opinion, PTI is eligible to participate in a transaction accounted for as a pooling of interests under generally accepted accounting principles. MacDermid must have received a letter, in form and substance acceptable to it, from its accountants, KPMG LLP, dated the date of the merger, substantially to the effect that, on the basis of the PricewaterhouseCoopers LLP letter and a review of the merger agreement and the merger contemplated thereby, in KPMG's unqualified opinion, the merger will be accounted for as a pooling of interests under generally accepted accounting principles. MacDermid and PTI do not intend to request these letters until immediately prior to the completion of the merger. Under the pooling of interests method of accounting, the recorded amounts of the assets and liabilities of MacDermid and PTI will be carried forward at their previously recorded amounts and no goodwill will be created. Revenues and expenses will be retroactively presented as if MacDermid and PTI were combined for the entire fiscal period in which the merger occurs and for all periods prior to the merger at previously recorded amounts. MacDermid and PTI have agreed to use their best efforts to cause the merger to qualify for pooling of interests accounting treatment. See "Merger Agreement -- Conditions to Merger." To assure the applicability of pooling of interests accounting treatment, there are certain conditions relating to the exchange of PTI stock for MacDermid common stock by affiliates of PTI. In addition, the transferability of the MacDermid common stock to be received by the affiliates will be restricted. See "Listing of MacDermid Common Stock and Restrictions on Transfer." MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO MACDERMID SHAREHOLDERS The following discussion summarizes the opinion of MacDermid's tax counsel, Nutter, McClennen & Fish, LLP, as of the date of this joint proxy statement -- prospectus, regarding the material U.S. Federal income tax consequences of the merger described in this joint proxy statement -- prospectus to MacDermid and existing MacDermid shareholders. We have filed that opinion with the SEC as an exhibit to the registration statement related to this joint proxy statement -- prospectus. See "Where You Can Find More Information" on page 91. The merger will qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, assuming the merger is completed on substantially the terms described in this joint proxy statement -- prospectus, and therefore: - no gain or loss will be recognized by MacDermid or PTI as a result of the merger; and - there will be no Federal income tax consequences arising from the merger due solely to status as a MacDermid shareholder prior to the merger. This summary is based on the continued accuracy of the representations made by PTI, Citicorp Venture Capital and MacDermid with respect to the merger, including representations regarding the intended actions of PTI, MacDermid and the PTI shareholders following the merger. If any of those representations is inaccurate, the tax consequences of the merger could differ from those described in this summary. 43 54 It is a condition to MacDermid's obligation to complete the merger that MacDermid receive an opinion from its tax counsel, Nutter, McClennen & Fish, LLP, or other counsel acceptable to MacDermid, concluding that the merger qualifies as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code. MacDermid shareholders should be aware that the opinions of tax counsel represent the best judgment of each counsel, but are not binding on the IRS or the courts. If MacDermid is unable to obtain an opinion, dated as of the closing of the merger, from Nutter, McClennen & Fish, LLP or another nationally recognized tax counsel to the effect that the merger qualifies as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code, MacDermid will not complete the merger without first resoliciting MacDermid shareholders. Subject to the assumptions discussed above, there will be no Federal income tax consequences of the merger due solely to ownership of MacDermid stock prior to the merger. MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO PTI SHAREHOLDERS Tax-Free Reorganization. The following discussion summarizes the opinion of PTI's tax counsel, Kirkland & Ellis, as of the date of this joint proxy statement -- prospectus, regarding the material U.S. Federal income tax consequences of the merger described in this joint proxy statement -- prospectus to PTI shareholders. We have filed that opinion with the SEC as an exhibit to the registration statement related to this joint proxy statement -- prospectus. This discussion is intended to provide a summary only. This discussion does not address all aspects of Federal income taxation that may be important to a shareholder in light of the shareholder's particular circumstances. It also does not apply to those shareholders subject to special rules, such as shareholders who are not citizens or residents of the United States, financial institutions, tax-exempt organizations, insurance companies, dealers in securities, shareholders who acquired their common stock pursuant to the exercise of options or similar derivative securities or otherwise as compensation or shareholders who hold their shares as part of a straddle or conversion transaction. This discussion does not address any aspect of state, local or foreign tax laws or any federal tax laws other than those pertaining to income tax. PTI shareholders who are individuals should be aware that the Federal income tax rate on long-term capital gains of individuals is significantly lower than the tax rate that may apply to ordinary income or short-term capital gains of individuals, and that the amount of long-term capital gain, short-term capital gain or ordinary income that may be realized by a particular PTI shareholder as a result of the merger may vary depending on the shareholder's particular circumstances. Each PTI shareholder is advised to consult a tax advisor concerning the specific tax consequences of the merger to that shareholder. For U.S. Federal income tax purposes, the merger will qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code, assuming the merger is completed on substantially the terms described in this joint proxy statement -- prospectus, and therefore: - no gain or loss will be recognized by MacDermid or PTI as a result of the merger; - PTI shareholders will not have taxable gain or loss on the exchange of PTI stock for MacDermid common stock in the merger, except with respect to any cash received instead of a fractional share of MacDermid common stock or as a consequence of the exercise of appraisal rights; 44 55 - the tax basis of MacDermid common stock received by a PTI shareholder in the merger will be the same as the tax basis of the PTI stock exchanged in the merger reduced by an amount allocable to a fractional share interest for which cash is received; and - the holding period of the MacDermid common stock that a PTI shareholder receives in the merger generally will include the holding period of PTI stock exchanged therefor. This summary is based on the continued accuracy of the representations made by PTI, Citicorp Venture Capital and MacDermid with respect to the merger, including representations regarding the intended actions of PTI, MacDermid and the PTI shareholders following the merger and including representations and covenants contained in certificates of officers of PTI and MacDermid. If any of those representations is inaccurate, the tax consequences of the merger could differ from those described in this summary. It is a condition to PTI's obligation to complete the merger that PTI receive an opinion from Kirkland & Ellis, or other tax counsel acceptable to PTI, concluding that the merger qualifies as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code. PTI shareholders should be aware that the opinions of tax counsel represent the best judgment of each counsel, but are not binding on the IRS or the courts. If PTI is unable to obtain an opinion, dated as of the closing of the merger, from Kirkland & Ellis or another nationally recognized tax counsel to the effect that the merger qualifies as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code, PTI will not complete the merger without first resoliciting PTI shareholders. Subject to the assumptions discussed above, the Federal income tax consequences of the merger to a PTI shareholder are as follows: Receipt of MacDermid Common Stock in Exchange for PTI Stock. A PTI shareholder who receives shares of MacDermid common stock in exchange for all that shareholder's shares of PTI stock will recognize no gain or loss as a result of the merger. A shareholder may recognize gain or loss, however, to the extent cash is received instead of a fractional share of MacDermid common stock, as discussed below. The basis of the shares of MacDermid common stock received by that shareholder will be the same as the basis of the shares of PTI stock exchanged therefor, and the holding period of the shares of MacDermid common stock will include the holding period of the shares of PTI stock surrendered in the exchange, provided the PTI stock was held by the shareholder as a capital asset at the completion of the merger. Cash Received Instead of a Fractional Share of MacDermid Common Stock. Cash received instead of a fractional share of MacDermid common stock will generally be treated as received in redemption of a fractional share. Accordingly, a PTI shareholder who receives cash instead of a fractional share will recognize gain or loss equal to the difference between the amount of cash received and the portion of the basis of the shares allocable to the fractional share. If the shares of PTI are held as capital assets, any gain (or loss) generally will constitute capital gain (or loss), and will generally be either long-term or short-term capital gain (or loss) depending on the holding period for the shares. Federal Income Tax Treatment of Shareholders Exercising Appraisal Rights. The receipt of a cash payment in respect of dissenting shares by a dissenting PTI shareholder will be a taxable event for Federal income tax purposes, and any dissenting shareholder should consult with that shareholder's tax advisor with respect to the impact of a cash payment in that shareholder's individual situation. Based on the current ruling position of 45 56 the IRS, any PTI shareholder who effectively exercises appraisal rights and who receives cash for that shareholder's shares will be treated as receiving a distribution in redemption of that shareholder's PTI stock. In general, a distribution in redemption of stock will be treated as a payment in exchange for the shares. Each PTI shareholder who receives cash upon exercise of the shareholder's appraisal rights will recognize gain (or loss) for Federal income tax purposes equal to the difference between the cash received for the shareholder's shares and the shareholder's tax basis for the shares. The amount of that gain (or loss), if any, will be treated as ordinary income (or loss) or long-term or short-term capital gain (or loss) depending on the length of time the shares were held by the dissenter and whether the shares were held as a capital asset. See "-- Appraisal Rights," below. Information Reporting and Back-Up Withholding. Shareholders of PTI will be required to provide their social security numbers or their taxpayer identification numbers or, in some circumstances, other information in order to avoid the "backup withholding" requirements that might otherwise apply under the Internal Revenue Code. If a PTI shareholder is subject to backup withholding, tax will be withheld at the rate of 31% on any cash consideration received by that shareholder in the merger (e.g., payment instead of fractional shares or payment upon exercise of appraisal rights). Provided the required information is furnished to the IRS, any amount paid as backup withholding will be credited against the shareholder's Federal income tax liability. PTI shareholders who receive MacDermid common stock must also comply with the information reporting requirements of the Treasury Regulations under Section 368 of the Internal Revenue Code. The foregoing discussion of the expected U.S. Federal income tax consequences of the merger is based on the Internal Revenue Code, the regulations thereunder, and the related judicial and administrative interpretations, all as in effect on the date of this joint proxy statement -- prospectus. There can be no assurance that subsequent legislative, regulatory, administrative or judicial decisions may not be forthcoming that would significantly change these expected consequences. Any changes may or may not be retroactive with respect to transactions prior to the date of those changes. AS NOTED ABOVE, ANY PTI SHAREHOLDER THAT IS SUBJECT TO SPECIAL RULES -- INCLUDING THOSE SHAREHOLDERS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES, FINANCIAL INSTITUTIONS, TAX-EXEMPT ORGANIZATIONS, INSURANCE COMPANIES, DEALERS IN SECURITIES, SHAREHOLDERS WHO ACQUIRED THEIR COMMON STOCK PURSUANT TO THE EXERCISE OF OPTIONS OR SIMILAR DERIVATIVE SECURITIES OR OTHERWISE AS COMPENSATION OR SHAREHOLDERS WHO HOLD THEIR SHARES AS PART OF A STRADDLE OR CONVERSION TRANSACTION -- SHOULD CONSULT WITH A TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER APPLICABLE TO THAT SHAREHOLDER, INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. HOW TO SURRENDER AND RECEIVE MACDERMID COMMON STOCK IN EXCHANGE FOR PTI STOCK At or before the completion of the merger, MacDermid and PTI will provide for a mechanism for exchanging certificates representing PTI stock for one or more certificates representing shares of MacDermid common stock. Upon the proper surrender of a stock certificate(s), together with a properly completed and duly executed letter of transmittal, the holder of that stock certificate(s) will be entitled to receive, in exchange, a certificate representing that number of shares of MacDermid common stock determined as of the completion of the merger as well as consideration in the form of a check for any fractional 46 57 share interest which the holder possesses. Any PTI stock certificate(s) so surrendered will be canceled. No interest will be paid or accrued on the cash delivered in the place of any fractional share. PTI SHAREHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR STOCK CERTIFICATE(S) FOR EXCHANGE UNTIL THEY HAVE RECEIVED INSTRUCTIONS AND A LETTER OF TRANSMITTAL AND HAVE COMPLETED THAT LETTER OF TRANSMITTAL. In the event of a transfer of ownership of any shares of PTI stock that has not been registered in the transfer records of PTI prior to the completion of the merger, a certificate for MacDermid common stock may be issued to the transferee if the stock certificate(s) representing shares of PTI stock is presented accompanied by documents sufficient, in the reasonable discretion of MacDermid, to evidence and effect the transfer and to evidence that all applicable stock transfer taxes have been paid. From and after the completion of the merger, there will be no transfers on the stock transfer records of PTI of any shares of PTI stock that were outstanding immediately prior to the completion of the merger. If, after the completion of the merger, any stock certificate(s) representing shares is presented, the stock certificate(s) will be canceled and exchanged for the MacDermid common stock deliverable in respect thereof in accordance with the procedures described in the merger agreement. None of MacDermid, PTI or any other person will be liable to any former holder of PTI stock for any amount delivered to a public official pursuant to applicable abandoned property laws. If a certificate representing shares of PTI stock has been lost, stolen or destroyed, the holder of that certificate must make an affidavit of that fact and, if required by MacDermid, an indemnity against any claim that may be made against MacDermid with respect to that certificate(s). The holder will then be issued a certificate representing the number of shares of MacDermid common stock determined as of the completion of the merger and consideration in the form of a check for any fractional share interest. APPRAISAL RIGHTS No MacDermid shareholders will be entitled to have their shares appraised and purchased in accordance with the Connecticut Business Corporation Act, if the merger agreement is approved by the MacDermid shareholders. If the merger is completed, dissenting holders of PTI stock, including holders of PTI Class B common stock and PTI preferred stock, will be entitled to have the "fair value" of their shares at the time the merger is completed judicially determined and paid to them by complying with the provisions of Section 262 of the Delaware General Corporation Law. The fair market value of the dissenting shares will be exclusive of any element of value arising from the accomplishment or expectation of the merger. MacDermid has the right to terminate the merger agreement and not proceed with the merger if more than 385,000 shares of MacDermid common stock that may potentially be issued in the merger are not issued because one or more PTI shareholders have reserved the right to seek appraisal rights. The following is a summary of Section 262, which sets forth the procedures for dissenting from the merger and demanding statutory appraisal rights, the full text of which is attached as Appendix C. Failure to follow the provisions of Section 262 exactly could result in the loss of appraisal rights. See "Material Income Tax Consequences of the 47 58 Merger to PTI Shareholders" for a discussion of the tax consequences of exercising appraisal rights. PTI shareholders who desire to exercise their appraisal rights must satisfy each of the conditions of Section 262. A written demand for appraisal must be filed with PTI before the taking of the vote on the proposal relating to the merger agreement. This written demand for appraisal must be in addition to and separate from any proxy vote abstaining from or voting against the merger agreement. Voting against, abstaining from voting or failing to vote with respect to the merger agreement will not constitute a demand for appraisal for purposes of Section 262. PTI shareholders electing to exercise their appraisal rights under Section 262 must not vote, if entitled to do so, for approval of the proposal relating to the merger agreement. If a shareholder returns a signed proxy but does not specify a vote against approval of the merger agreement or a direction to abstain, the proxy will be voted FOR the merger agreement, which will have the effect of waiving that shareholder's appraisal rights. A demand for appraisal must reasonably inform PTI of the identity of the PTI shareholder and that the PTI shareholder intends to demand the appraisal of his, her or its shares. Accordingly, a demand for appraisal must be executed by or for the PTI shareholder of record, fully and correctly, as that shareholder's name appears on the certificate evidencing the dissenting shares. If the dissenting shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, the demand must be executed by or for the fiduciary. If the dissenting shares are owned of record by or for more than one person, as in a joint tenancy or tenancy in common, the demand must be executed by or for all joint owners. An authorizing agent, including an agent for two or more joint owners, may execute the demand for appraisal for a shareholder of record; however, the agent must identify the record owner and expressly disclose the fact that, in exercising the demand, he or she is acting as agent for the record owner. A PTI shareholder who elects to exercise appraisal rights should deliver his, her or its written demand to Thomas C. Weaver, Corporate Secretary, PTI, Inc., 900 Middlesex Turnpike, Billerica, Massachusetts 01821 no later than one business day before PTI's special meeting. The written demand for appraisal should specify the shareholder's name and mailing address, and that the PTI shareholder is demanding appraisal of his, her or its shares of PTI stock. Within ten days after the completion of the merger, PTI must provide notice of the completion of the merger to all PTI shareholders who have complied with Section 262 and have not voted for the merger agreement. Within 120 days after the completion of the merger, any PTI shareholder who has satisfied the requirements of Section 262 may deliver to PTI a written demand for a statement listing the aggregate number of dissenting shares not voted in favor of the merger agreement and with respect to which demands for appraisal have been received and the aggregate number of holders of those dissenting shares. Within 120 days after the completion of the merger, either PTI or any PTI shareholder who has complied with the required conditions of Section 262 may file a petition in the Delaware Chancery Court demanding a determination of the fair value of the dissenting shares. PTI has no present intention to file this petition if demand for appraisal is made. Upon the filing of an appraisal petition by a PTI shareholder, service of a copy thereof must be made upon PTI. Within 20 days after service, PTI must file in the office of the Register of Chancery in which the petition was filed a duly verified list containing the names and addresses of all PTI shareholders who have demanded payment for their 48 59 dissenting shares and with whom agreements as to the value of their dissenting shares have not been reached. The Register of Chancery, if so ordered by the Chancery Court, will give notice of the time and place fixed for the hearing of the petition by registered or certified mail to PTI and to the PTI shareholders shown upon the list at the address therein stated, and notice will also be given by publishing a notice at least one week before the day of the hearing in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Chancery Court deems advisable. If a petition for an appraisal is filed in a timely fashion, after a hearing on the petition, the Chancery Court will determine which PTI shareholders are entitled to appraisal rights and will appraise the dissenting shares owned by those PTI shareholders, determining the fair value of those dissenting shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest to be paid, if any, upon the amount determined to be the fair value. In determining fair value, the Chancery Court is to take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered, and that "[f]air value price obviously requires consideration of all relevant factors involving the value of a company." The Delaware Supreme Court stated that in making this determination of fair value the Chancery Court must consider "market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts which could be ascertained as of the date of the merger which throw any light on future prospects of the merged corporation." Section 262 provides that fair value is to be determined "exclusive of any element of value arising from the accomplishment or expectation of the merger." In Weinberger, the Delaware Supreme Court held that the "elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered." PTI shareholders considering seeking appraisal of their shares of PTI stock should note that the fair value of their shares determined under Section 262 could be more, the same as, or less than the value of MacDermid common stock that they would receive in the merger if they did not seek appraisal of their shares. The costs of the appraisal proceeding may be determined by the Chancery Court and assessed against the parties as the Chancery Court deems equitable in the circumstances. Upon application of a dissenting shareholder, the Chancery Court may order that all or a portion of the expenses incurred by any dissenting shareholder in connection with the appraisal proceeding including, reasonable attorneys' fees and the fees and expenses of experts, be charged pro rata against the value of all shares entitled to appraisal. In the absence of a determination or assessment, each party bears his, her or its own expenses. Any PTI shareholder who has duly demanded appraisal in compliance with Section 262 will not be entitled after the completion of the merger to vote for any purpose the dissenting shares subject to demand or to receive payment or dividends or other distributions on dissenting shares, except for dividends or distributions payable to PTI shareholders of record at a date prior to the completion of the merger. Dissenting shares will have only the rights afforded by Section 262, including the right to receive the MacDermid common stock upon withdrawal of the demand for appraisal as described below. At any time within 60 days after the completion of the merger, any PTI shareholder will have the right to withdraw that shareholder's demand for appraisal and to accept the terms offered in the merger agreement. After this period, the PTI shareholder may 49 60 withdraw a demand for appraisal and receive payment for his, her or its shares as provided in the merger agreement only with the consent of PTI. If no petition for appraisal is filed with the Chancery Court within 120 days after the completion of the merger, the shareholders' rights to appraisal will cease and holders of dissenting shares will be entitled to receive the shares of MacDermid common stock, as provided for in the merger agreement. Inasmuch as PTI has no obligation to file a petition, any shareholder who desires a petition to be filed is advised to file it on a timely basis. No petition timely filed in the Chancery Court demanding appraisal will be dismissed as to any shareholder without the approval of the Court, and that approval may be conditional upon terms the Chancery Court deems just. 50 61 MERGER AGREEMENT We believe that this summary together with the section of this joint proxy statement -- prospectus titled "Merger Transaction" describes all material terms of the merger agreement and the merger. However, we recommend that you read carefully the complete text of the merger agreement for the precise legal terms of the merger agreement and other information that may be important to you. The merger agreement and the first amendment to the merger agreement are attached to this joint proxy statement -- prospectus as Appendix A and Appendix B and are incorporated by reference into this joint proxy statement -- prospectus. REPRESENTATIONS AND WARRANTIES The merger agreement contains substantially reciprocal representations and warranties made by MacDermid, on the one hand, and PTI and Citicorp Venture Capital, on the other hand, to each other. The most significant of these relate to: - corporate authorization to enter into the contemplated transaction; - the shareholder votes required to approve the contemplated transaction; - governmental approvals required in connection with the contemplated transaction; - absence of any breach of organizational documents, law or material agreements as a result of the contemplated transaction; - capitalization; - ownership of subsidiaries; - filings with the SEC; - information provided by it for inclusion in this joint proxy statement -- prospectus; - financial statements; - absence of material changes since a specified balance sheet date; - absence of undisclosed material liabilities; - litigation; - tax matters; - employee benefits matters; - compliance with laws; - environmental matters; - absence of circumstances inconsistent with the intended accounting treatment of the merger; and - receipt of accountants' letters regarding accounting treatment of the merger. CONDITIONS TO THE MERGER The obligations of MacDermid and PTI to complete the merger are subject to the satisfaction of various conditions. Several of those conditions, such as stockholder and regulatory approval, may not be waived by MacDermid, PTI or Citicorp Venture Capital. Other conditions may be waived jointly by MacDermid, PTI and Citicorp Venture Capital or separately by MacDermid or by PTI and Citicorp Venture Capital. Summarized below are the material terms of those conditions. See the copy of the merger agreement and the first amendment to the merger agreement attached to this joint proxy statement -- prospectus as Appendix A and Appendix B for a complete listing of all closing conditions. 51 62 Joint Conditions to Obligations of MacDermid, PTI and Citicorp Venture Capital. The obligations of MacDermid, PTI and Citicorp Venture Capital to complete the merger are subject to various conditions including the following: - the approval of the merger agreement by the holders of a majority of the outstanding shares of MacDermid common stock; - the approval of the merger agreement by the holders of a majority of the outstanding shares of PTI Class A common stock; - all necessary regulatory and governmental approvals must have been obtained and must remain in full force and effect; all statutory or other required waiting periods in respect thereof must have expired; and no approval of any governmental entity will have imposed any condition or requirement which, in the reasonable opinion of MacDermid, would materially adversely affect the economic or business benefits to MacDermid of the merger so as to render the merger inadvisable; - the MacDermid common stock that will be issued to the PTI shareholders upon the completion of the merger, and the MacDermid common stock that will be issued upon the exercise of the MacDermid warrants, will have been authorized for listing on the NYSE subject to official notice of listing; and - there is no claim, action, suit, investigation or other proceeding pending or overtly threatened before any court or other governmental entity wherein an unfavorable judgment, order, decree, ruling, charge or injunction has been issued, or reasonably could be expected to be issued, which would (a) prevent the completion of any of the transactions contemplated by the merger agreement to be rescinded following the completion of the merger, or (b) present a substantial risk that PTI or MacDermid or their respective officers or directors will be liable for material damages. Conditions to the Obligations of MacDermid. The obligations of MacDermid to complete the merger are subject to additional conditions, including the following: - the representations and warranties of PTI and Citicorp Venture Capital set forth in the merger agreement must be true and correct in all material respects as of the completion of the merger; - PTI must have performed and complied with all of its obligations as set forth in the merger agreement through the completion of the merger; - no event has occurred since the date of the merger agreement that has had or could reasonably be expected to have a material adverse effect on PTI; - MacDermid must have obtained the proceeds from debt financing in an amount not less than the amount required to refinance the financial indebtedness of PTI and its subsidiaries, consisting of a senior credit facility, which totaled $94.8 million as of June 30, 1999, $40.4 million of subordinated debt obligations and PIK promissory notes issued to W.R. Grace & Co., which totaled $29.1 million as of June 30, 1999, and to provide for the ordinary working capital requirements of PTI and its subsidiaries; - the total number of shares of MacDermid common stock that potentially may not be issued in the merger as a consequence of one or more PTI shareholders having the right, on the completion of the merger, to exercise appraisal rights under Delaware law must not exceed 385,000; 52 63 - MacDermid must have received a letter from PricewaterhouseCoopers LLP, dated the date the merger is completed, substantially to the effect that in its unqualified opinion PTI is eligible to participate in a transaction to be accounted for as a pooling of interests under generally accepted accounting principles (see "Merger Transaction -- Accounting Treatment"); - MacDermid must have received a letter from KPMG LLP, dated the date the merger is completed, substantially to the effect that, on the basis of a review of the merger agreement and the proposed merger and relying in part on the opinion of PricewaterhouseCoopers LLP referred to in the immediately preceding paragraph, in KPMG's unqualified opinion the merger may be accounted for as a pooling of interests under generally accepted accounting principles (see "Merger Transaction -- Accounting Treatment"); - MacDermid must have received an opinion, dated the date the merger is completed, from its counsel substantially to the effect that, on the basis of the facts and representations in the merger agreement and on the basis of representations and covenants contained in certificates of officers of PTI and MacDermid for Federal income tax purposes the merger constitutes a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code (see "Merger Transaction -- Material Federal Income Tax Consequences of the Merger to MacDermid Shareholders" and "Merger Transaction -- Material Federal Income Tax Consequences of the Merger to PTI Shareholders."); - Citicorp Venture Capital, all other PTI shareholders, other than PTI shareholders who have perfected their appraisal rights, and Citicorp Mezzanine Partners must have entered into the agency agreement and Citicorp Venture Capital and David R. Beckerman, in their individual capacities and as agents for the holders of PTI stock and Citicorp Mezzanine Partners, must have entered into the escrow agreement with MacDermid and the escrow agent (see "Merger Transaction -- Indemnification"); - each PTI affiliate must have executed and delivered to MacDermid a seller affiliate agreement with reference to the limitations in SEC Rule 145 (see "Merger Transaction -- Listing of MacDermid Common Stock and Restrictions on Transfer"); and - there must not be, as of the completion of the merger, any contract of any character to which PTI or any of its subsidiaries is a party or subject representing an option, warrant, right, call or similar right to receive or acquire any capital stock of PTI or any of its subsidiaries, other than the PTI warrant held by Citicorp Mezzanine Partners, and there must not be, upon the completion of the merger, any pending or threatened claim or demand for, a direct or indirect equity interest in PTI or any subsidiary, including, without limitation, any option, warrant, right or call or any stock appreciation, phantom stock, profit participation or similar rights. Conditions to Obligations of PTI and Citicorp Venture Capital. The obligations of PTI and Citicorp Venture Capital to complete the merger are subject to additional conditions, including: - the representations and warranties of MacDermid in the merger agreement must be true and correct in all material respects as of the date the merger is completed; 53 64 - MacDermid must have performed and complied with all its obligations under the merger agreement through the completion of the merger; - PTI must have received a letter from PricewaterhouseCoopers LLP, dated the date the merger is completed, substantially to the effect that in its unqualified opinion PTI is eligible to participate in a transaction to be accounted for as a pooling of interests under generally accepted accounting principles (see "Merger Transaction -- Accounting Treatment"); - PTI must have received an opinion, dated the date the merger is completed, from its counsel, substantially to the effect that, on the basis of facts and representations in the merger agreement and on the basis of representations and covenants contained in certificates of officers of PTI and MacDermid for Federal income tax purposes the merger constitutes a reorganization within the meaning of Section 368(a) of the Internal Revenue Code (see "Merger Transaction -- Material Federal Income Tax Consequences of the Merger to the MacDermid Shareholders" and "Merger Transaction -- Material Federal Income Tax Consequences of the Merger to the PTI Shareholders"); - MacDermid must have taken all steps necessary to cause to be elected to its Board of Directors, effective not later than the date the merger is completed, the person designated by Citicorp Venture Capital under the merger agreement (see "Merger Transaction -- Executive Officers and Directors of MacDermid After the Merger"); - MacDermid must have obtained the proceeds from debt financing in an amount not less than the amount required to refinance the financial indebtedness of PTI and its subsidiaries, consisting of a senior credit facility, which totaled $94.8 million as of June 30, 1999, $40.4 million of subordinated debt obligations and PIK promissory notes issued to W.R. Grace & Co., which totaled $29.1 million as of June 30, 1999, and to provide for the ordinary working capital requirements of PTI and its subsidiaries; - MacDermid must have executed and delivered to Citicorp Venture Capital and Citicorp Mezzanine Partners the registration rights agreement (see "Merger Transaction -- Listing of MacDermid Common Stock and Restriction on Transfer"). CONDUCT PENDING MERGER The merger agreement obligates PTI and, to a lesser extent, MacDermid and Citicorp Venture Capital to take various actions, and to refrain from taking other actions, prior to the completion of the merger. Summarized below are the material terms of those provisions. See the copy of the merger agreement and the first amendment to that agreement attached to this joint proxy statement -- prospectus as Appendix A and Appendix B for a complete listing of all these undertakings. MacDermid and PTI have agreed, however, that none of those provisions will be deemed to prevent PTI from negotiating and entering into an agreement for the sale of PTI's U.S. liquid flexographic photopolymer business for commercial packaging applications, if PTI is required to divest that business in order to obtain Federal Trade Commission approval of the merger. See "Merger Transaction -- Required Regulatory Approvals." 54 65 Conduct of PTI. Between the date of the merger agreement and the date the merger is completed, PTI has, among other things, agreed to: - not enter into or permit any of its subsidiaries to enter into any contract or take any other action which, if entered into or taken prior to the date of the merger agreement, would cause any representation or warranty of PTI to be untrue in any respect or be required to be disclosed on any schedule to the merger agreement; or take any action that is intended or may reasonably be expected to result in any of the conditions to the merger specified in the merger agreement not being satisfied or in a violation of the merger agreement; or take or omit to take any action which reasonably could be expected to have a material adverse effect on PTI; - except as contemplated by the merger agreement, operate its business only in the ordinary course; - use all commercially reasonable efforts to keep in full force and effect its corporate existence and all material rights, franchises, proprietary rights and goodwill relating to its business; - use reasonable efforts to retain its employees and preserve its present relationships with customers, suppliers, contractors, distributors and employees; - perform in all material respects all of its obligations under all contracts to which it is a party or by which it or its properties or assets may be bound and not enter into, assume, create, renew, amend or terminate, or give notice of a proposed renewal, amendment or termination of any contract, with limited exceptions; - not make any single capital or series of capital expenditures outside the ordinary course of its business without MacDermid's prior written consent, which consent may not be unreasonably withheld, conditioned or delayed; - not enter into any new line of business without MacDermid's consent, which consent may not be unreasonably withheld, conditioned or delayed and will be deemed to be given if MacDermid does not respond to PTI within 10 business days after receiving a written request from PTI; - not enter into, renew or amend any agreement relating to the provision of or payment for personal services; not agree to any payment that would be payable by MacDermid or its affiliates, including PTI, after the completion of the merger; not make any pension or retirement payment not required by plans or agreements existing at the date of the merger agreement, with certain limited exceptions; not pay any bonus or increase any direct or indirect benefits to any officer, director or employee; - deliver to MacDermid, within 15 business days of each month end from the date of the merger agreement through the date of the completion of the merger, PTI's consolidated unaudited balance sheets, income statements and cash flow statements as of and for the immediately preceding month, all consistent with the applicable requirements of the merger agreement; - not declare, set aside or pay any dividends on, or make any other distributions, whether in cash, stock or property, in respect of, any of its outstanding capital stock, except for cash dividends in the ordinary course of business on the PTI preferred stock in accordance with the terms of PTI's Certificate of Incorporation; 55 66 - not issue, sell, grant, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any shares, voting securities or convertible securities, or take any action that would make the representations and warranties specified in the merger agreement as applicable not true and correct in all material respects; - not amend its Certificate of Incorporation or By-laws or other comparable charter or organizational documents; - not acquire by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof, or any interest therein, or form any subsidiary or solicit or negotiate any proposal to acquire PTI with respect to any other person; - not change its accounting policies in any material respect, except as required by generally accepted accounting principles; and - not authorize or enter into any agreement or commitment to take any action inconsistent with any of the foregoing. Conduct of Citicorp Venture Capital. Between the date of the merger agreement and the date the merger is completed, Citicorp Venture Capital has, among other things, agreed to: - not to enter into and not permit any of its affiliates to enter into any contract or take any other action which, if entered into or taken prior to the date of the merger agreement, would have caused any representation or warranty of PTI or Citicorp Venture Capital in the merger agreement to be untrue; or take any action that is intended or may reasonably be expected to result in any of the conditions to the merger not being satisfied or in a violation of the merger agreement; or take or omit to take any action which reasonably could be expected to have a material adverse effect on PTI; - use its best efforts to cause PTI to obtain the approval of the PTI shareholders and to cause the waiver of appraisal rights; vote or cause to be voted all of its shares of PTI Class A common stock for the approval of the merger agreement; and vote, or cause to be voted, all its shares of PTI Class A common stock against the approval of any merger, acquisition, consolidation, sale of a material amount of assets or other business combination of PTI or any of its subsidiaries with any person other than MacDermid; - not sell, assign, transfer or otherwise dispose of, including by the creation of a security interest, or permit to be sold, assigned, transferred or otherwise disposed of, any of its shares of PTI stock, whether the shares are held on the date of the merger agreement or are subsequently acquired, whether pursuant to the exercise of stock options or otherwise, except (a) transfers by operation of law and (b) as MacDermid may otherwise agree in its sole discretion; and - cease and refrain from, and instruct each of its representatives and affiliates to cease and refrain from, any and all activities, discussions, negotiations, providing any information with respect to, or other actions with any person other than MacDermid or any of their respective representatives with respect to any acquisition proposal other than the merger. 56 67 Conduct of MacDermid. Between the date of the merger agreement and the date the merger is completed, MacDermid has, among other things, agreed to: - not to enter into, or permit any of its subsidiaries to enter into, any contract or take any other action which, if entered into or taken prior to the date of the merger agreement, would have caused any representation or warranty of MacDermid to be untrue in any respect or be required to be disclosed on any schedule to the merger agreement, or take any action that is intended or may reasonably be expected to result in any of the conditions to the merger not being satisfied or in a violation of the merger agreement; - not take any action that is intended or may reasonably be expected to result in any of its representations and warranties specified in the merger agreement being or becoming untrue in any material respect, or in any of the conditions to the merger specified in the merger agreement not being satisfied or in a violation of any provision of the merger agreement, except, in every case, as may be required by applicable law; - not take any other action that would materially impede the ability of MacDermid to obtain the requisite regulatory approvals or otherwise materially adversely affect MacDermid's ability to complete the transactions contemplated by the merger agreement; - not declare or pay any dividend on, or make any other distributions in respect of MacDermid common stock, except for cash dividends in the ordinary course and dividends or distributions in MacDermid common stock; - not issue any shares of MacDermid common stock in connection with MacDermid acquiring directly or indirectly the stock or assets of any other person, except with the prior consent of PTI, which consent may not be unreasonably withheld, conditioned or delayed; - not consolidate with or merge into any other person or convey, transfer or lease its properties and assets substantially as an entirety to any person unless that person shall expressly assume the obligations of MacDermid hereunder; and - not authorize or enter into any agreement or commitment to take any action inconsistent with any of the foregoing. AMENDMENT AND WAIVER Either MacDermid or PTI may waive compliance with any provision of the merger agreement at any time prior to the completion of the merger. In addition, MacDermid and PTI may mutually amend any provision of the merger agreement at any time prior to the completion of the merger with the prior authorization of their boards of directors, except that under Delaware law PTI may not amend the merger agreement subsequent to the adoption of the agreement by the PTI shareholders if the amendment would alter or change the amount or kind of shares of MacDermid common stock to be received by a PTI shareholder in exchange for shares of PTI capital stock. Except with respect to the failure to obtain an opinion of tax counsel discussed above (see "Merger Transaction -- Material Federal Income Tax Consequences of the Merger"), neither MacDermid nor PTI intends to resolicit shareholder approval of the merger as a consequence of a waiver or amendment of any provision of the merger agreement if its board of directors (a) receives an opinion of counsel that shareholder approval of the 57 68 waiver or amendment is not specifically required by the Connecticut Business Corporation Act or by the Delaware General Corporation Law, as applicable, and (b) determines that the waiver or amendment could not reasonably be expected to have a material adverse effect on the combined company or the shareholders of either MacDermid or PTI or to otherwise require resolicitation of shareholder approval under applicable law. TERMINATION OF THE MERGER AGREEMENT MacDermid and PTI may terminate the merger agreement by mutual written consent at any time prior to the date the merger is completed. Either MacDermid or PTI may terminate the merger agreement by giving written notice to the other party prior to the date the merger is completed: - if the merger has not occurred on or before September 30, 1999 by reason of the failure of any condition to the completion of the merger unless the failure to complete the merger by September 30, 1999 is due to the failure of the party seeking to terminate the merger agreement to perform its obligations under the merger agreement; - if any other party has breached any material representation, warranty or covenant contained in the merger agreement and has not cured the breach, if capable of cure, within ten business days of receiving notice thereof from the other party, provided that the party seeking to terminate the merger agreement on this basis is not then in breach of any material representation, warranty or covenant contained in the merger agreement. Upon a termination of the merger agreement, all prospective obligations of the parties will terminate without any liability of any party to any other party, except with respect to a breach of the covenant regarding confidential information, and for PTI's liability to pay a termination fee, as defined in the following paragraph. If MacDermid terminates the merger agreement because of PTI's failure to obtain the requisite shareholder approval, PTI must, within three business days after notice of the termination is given, pay to MacDermid a termination fee of $5.0 million. If PTI terminates the merger agreement because of its failure to obtain the requisite shareholder approval, PTI must, prior to and as a precondition of the effectiveness of the termination, pay to MacDermid a termination fee of $5.0 million. EXPENSES Each of MacDermid and PTI is responsible for its own costs and expenses incurred in connection with the merger, and PTI is responsible for Citicorp Venture Capital's costs and expenses incurred in connection with the merger. Through July 31, 1999, merger related expenses totaled approximately $800,000 for MacDermid and approximately $740,000 for PTI. 58 69 MACDERMID, INCORPORATED W. CANNING PLC PTI, INC. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION On December 2, 1998, MacDermid closed a cash tender offer whereby it acquired approximately 95% of the outstanding stock of W. Canning plc. MacDermid acquired the remaining shares through a statutory compulsory procedure completed on February 5, 1999. The total purchase price, including related costs, was $164.4 million. The Canning acquisition has been accounted for using the purchase method of accounting for business combinations. As of February 18, 1999, MacDermid, PTI, Citicorp Venture Capital and MCD Acquisition Corp. entered into the merger agreement summarized below and described in more detail in this joint proxy statement -- prospectus. MacDermid will account for the transaction using the pooling of interests method of accounting for business combinations. The following Unaudited Pro Forma Combined Condensed Financial Information combines the historical Consolidated Condensed Financial Statements of MacDermid, Canning and PTI giving effect to the Canning acquisition and the merger as if each had been effective as of June 30, 1999 with respect to the Pro Forma Condensed Combined Balance Sheet. The Unaudited Pro Forma Condensed Combined Statements of Earnings for the years ended March 31, 1999, 1998 and 1997, and the three months ended June 30, 1999, combine the historical Condensed Consolidated Statements of Earnings for MacDermid and PTI as if the merger had been completed on April 1, 1996 and MacDermid's acquisition of Canning had been completed as of April 1, 1998. Canning historical financial statements are stated on the basis of accounting principles generally accepted in the UK (UK GAAP). Pro forma adjustments have been included to adjust these statements to U.S. GAAP. The Canning historical column represents eight months of activity for Canning prior to its acquisition by MacDermid. Activity of Canning is included in the MacDermid historical statement of earnings since the date of acquisition. This information should be read in conjunction with the historical Consolidated Financial Statements of MacDermid, Canning and PTI, including their applicable notes, and in conjunction with the condensed historical selected financial data of MacDermid and PTI and other pro forma combined condensed financial information, including the applicable notes, appearing elsewhere or incorporated by reference in this joint proxy statement -- prospectus. The historical Consolidated Financial Statements of MacDermid and Canning are incorporated by reference in this joint proxy statement -- prospectus. See "Where You Can Find More Information." Expenses related to the merger are anticipated to aggregate approximately $11.7 million, of which $600,000 is included for expected stay bonuses and the remaining $11.1 million consists primarily of anticipated debt refinancing costs and professional fees. Since merger and reorganization costs are nonrecurring, they have not been reflected in the Unaudited Pro Forma Combined Condensed Statement of Earnings. The Unaudited Pro Forma Combined Condensed Financial Information does not give effect to any anticipated operating efficiencies of the Canning acquisition or the merger. The Unaudited Pro Forma Combined Condensed Statements of Earnings are not necessarily indicative of the results that would have occurred had the Canning acquisition or the merger been completed as of the assumed dates or that may be achieved in the future. Future results of operations will differ, perhaps significantly, from the pro forma amounts reflected herein because of a variety of factors. For information regarding the uncertainty of assumptions, estimates and 59 70 expectations reflected herein, see "Summary -- Cautionary Statement Regarding Forward-looking Information" and "Risk Factors." The merger agreement between MacDermid and PTI provides that MacDermid will acquire PTI and all of the outstanding PTI capital securities consisting of common stock, preferred stock and a common stock warrant in exchange for shares of MacDermid common stock and warrants to purchase shares of MacDermid common stock. If the merger is completed, each holder of those PTI securities will receive at a minimum a portion of 7,573,000 shares of MacDermid common stock. The 7,573,000 shares of MacDermid common stock delivered upon the completion of the merger will be allocated first to the holders of PTI preferred stock to satisfy the liquidation preference of that stock. Each share of PTI preferred stock will be exchanged for a number of MacDermid shares having an aggregate value equal to the liquidation preference of that PTI share ($1,000) plus dividends owed on that share. For purposes of that allocation, the MacDermid stock will be valued at the "Current Market Price" which is defined in the merger agreement to mean the average of the daily closing price for MacDermid stock on the NYSE for the 30 consecutive trading days preceding the completion of the merger, ignoring the highest and lowest closing prices during that period. After the PTI preferred stock liquidation preference is satisfied, the balance of the 7,573,000 MacDermid shares will be allocated among the holders of PTI common stock in proportion to their ownership of PTI common stock. For the purposes of that allocation, the PTI warrant held by Citicorp Mezzanine Partners, which has an exercise price of $.01 per share, will be treated as if it had been exercised in full. MacDermid will issue a substitute common stock warrant to Citicorp Mezzanine Partners on equivalent terms. The accompanying pro forma financial statements, however, treat the PTI warrant as if exercised in full for purposes of presenting diluted earnings per share and unexercised for purposes of presenting basic earnings per share and shares outstanding as of the end of each period presented. THE ALLOCATION OF SHARES AMONG THE HOLDERS OF PTI PREFERRED STOCK, ON THE ONE HAND, AND THE HOLDERS OF PTI COMMON STOCK AND THE PTI WARRANT, ON THE OTHER HAND, WILL NOT HAVE ANY EFFECT ON MACDERMID'S PRO FORMA DILUTED PER SHARE FINANCIAL DATA. The holders of PTI common stock and the PTI warrant will also receive in the merger an ownership interest in an escrow fund that will be established as of the completion of the merger. The escrow fund will be used to satisfy any indemnification claim MacDermid is entitled to bring under the merger agreement. Upon completion of the merger, the escrow fund will consist of shares of MacDermid common stock and a MacDermid warrant for Citicorp Mezzanine Partners. If that warrant were exercised in full immediately after the merger, a total of 127,000 shares of MacDermid common stock would comprise the escrow fund at that time. If MacDermid is entitled to indemnification, MacDermid's sole source of recourse will be to the assets contained in the escrow. MacDermid's claims against the escrow will be payable first in MacDermid shares and second in other assets, if any, held in escrow. In no event will the former holders of PTI common stock or the PTI warrant be liable for damages in excess of the value of the escrowed shares. The value of the escrowed shares will be the "Current Market Price" of MacDermid stock at the time the merger is completed. Claims against the escrow must be asserted within 12 months after the merger is completed. MacDermid will be entitled to indemnification only if its damages exceed $2 million and then only to the extent of the excess. The escrow will terminate and the remaining escrow assets, if any, will be distributed to the former holders of PTI common stock and Citicorp Mezzanine Partners upon the later of (a) 12 months after the completion of the merger or (b) the resolution of all MacDermid indemnification claims. 60 71 MACDERMID, INCORPORATED PTI, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF JUNE 30, 1999
HISTORICAL -------------------- PRO FORMA PRO FORMA MACDERMID PTI ADJUSTMENTS(E) COMBINED --------- -------- -------------- --------- (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents............... $ 9,153 $ 2,148 $ -- $ 11,301 Available for sale securities........... 1,122 -- -- 1,122 Accounts and notes Receivable (net of allowance for doubtful receivables of $5,996, $3,690 and $9,686)................... 121,672 54,046 -- 175,718 Inventories.................................. 59,628 56,935 -- 116,563 Prepaid expenses and other current assets.... 4,645 6,724 -- 11,369 Deferred income tax.......................... 6,038 2,613 -- 8,651 -------- -------- -------- Total current assets......................... 202,258 122,466 -- 324,724 Property, plant and equipment (net of accumulated depreciation and amortization of $51,576, $45,965 and $97,541)........... 62,229 90,126 -- 152,355 Goodwill (net of accumulated amortization of $16,646, $1,577 and $18,223)............... 179,038 16,906 -- 195,944 Patents, trademarks and other intangibles, net of accumulated amortization of $7,041, $15,535 and $22,576........................ 52,648 6,796 -- 59,444 Other assets, net............................ 33,819 9,033 -- 42,852 -------- -------- -------- Total assets................................. $529,992 $245,327 $ -- $775,319 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable and current installments of long-term obligations...................... $ 28,724 $ 11,834 $ -- $ 40,558 Accounts and dividends payable............... 48,606 21,053 -- 69,659 Accrued expenses............................. 40,545 17,306 -- 57,851 Income taxes................................. 15,439 9,689 -- 25,128 -------- -------- ------- -------- Total current liabilities.................... 133,314 59,882 -- 193,196 Long-term obligations........................ 236,599 148,825 -- 385,424 Accrued postretirement and postemployment benefits................................... 4,453 2,493 -- 6,946 Deferred income taxes........................ 614 10,111 -- 10,725 Minority interest in subsidiaries............ 101 -- -- 101 Preferred stock.............................. -- 9,751 (9,751) -- Shareholders' equity Common stock stated $1 per share............. 39,413 9 6,479 45,901 Additional paid-in capital................... 5,483 879 3,272 9,634
61 72 MACDERMID, INCORPORATED PTI, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF JUNE 30, 1999 -- (CONTINUED)
HISTORICAL -------------------- PRO FORMA PRO FORMA MACDERMID PTI ADJUSTMENTS(E) COMBINED --------- -------- -------------- --------- (DOLLARS IN THOUSANDS) Retained earnings............................ 167,811 20,137 -- 187,948 Accumulated other comprehensive income Cumulative foreign currency translation...... 393 (6,760) -- (6,367) Available for sale securities holding loss... (78) -- -- (78) Less cost of 14,267,816 common shares in treasury................................... (58,111) (58,111) -------- -------- ------- -------- Total shareholders' equity................... 154,911 14,265 9,751 178,927 -------- -------- ------- -------- Total liabilities and shareholders' equity... $529,992 $245,327 $ -- $775,319 ======== ======== ======= ========
See accompanying notes to unaudited pro forma condensed financial information. 62 73 MACDERMID, INCORPORATED PTI, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED JUNE 30, 1999
HISTORICAL AGGREGATE ------------------------ PRO FORMA PRO FORMA MACDERMID PTI ADJUSTMENTS COMBINED ----------- --------- ----------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net sales................ $ 119,067 $ 63,091 (92)(D) $ 182,066 Cost of sales, ST&A expenses and amortization........... 98,911 52,889 (92)(D) 151,708 Interest expense......... 5,497 3,664 -- 9,161 Other (income) expenses (net).................. (606) (340) -- (946) ----------- --------- --------- ----------- Earnings before income taxes.................. 15,265 6,878 -- 22,143 Income taxes............. 5,266 2,617 7,883 ----------- --------- --------- ----------- Net earnings before extraordinary item..... 9,999 4,261 -- 14,260 Preferred dividends...... -- (373) 373(E) -- ----------- --------- --------- ----------- Net earnings -- available for common shareholders........... 9,999 3,888 373 14,260 =========== ========= ========= =========== Average common shares outstanding: Basic.................... 25,145,343 855,000 6,488,107(F) 31,633,450 Diluted.................. 25,430,215 1,005,000 7,573,000(F) 33,003,215 Net Earnings per common share: Basic.................... 0.40 4.55 0.45 Diluted.................. 0.39 3.87 0.43 Cash dividends per common share.................. 0.02 -- .0159
See accompanying notes to unaudited pro forma condensed financial information. 63 74 MACDERMID, INCORPORATED W. CANNING PLC PTI, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS FOR THE YEAR ENDED MARCH 31, 1999 FOR MACDERMID (INCLUDES 4 MONTHS CANNING SINCE ACQUISITION IN DECEMBER 1998) FOR THE EIGHT MONTHS ENDED NOVEMBER 30, 1998 FOR CANNING FOR THE YEAR ENDED DECEMBER 31, 1998 FOR PTI
HISTORICAL AGGREGATE ----------------------- PRO FORMA HISTORICAL PRO FORMA PRO FORMA MACDERMID CANNING(5) ADJUSTMENT SUBTOTAL PTI ADJUSTMENT COMBINED ---------- ---------- ----------- -------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net sales............. $ 382,648 $92,332 -- $474,980 $ 227,956 (429)(D) $ 702,507 Cost of sales, ST&A expenses and amortization........ 318,697 82,868 2,706(A) 404,271 185,489 (429)(D) 589,331 Interest expense...... 13,721 43 6,500(B) 20,264 14,139 -- 34,403 Other expenses (net)............... (3,833) (404) -- (4,237) (1,076) -- (5,313) ---------- ------- --------- -------- ---------- ---------- ---------- Earnings before income taxes............... 54,063 9,825 (9,206) 54,682 29,404 -- 84,086 Income taxes.......... 17,780 3,077 (2,867)(C) 17,990 10,061 -- 28,051 ---------- ------- --------- -------- ---------- ---------- ---------- Net earnings.......... 36,283 6,748 (6,339) 36,692 19,343 56,035 Preferred dividends... -- -- -- -- 1,431 (1,431)(E) -- ---------- ------- --------- -------- ---------- ---------- ---------- Net earnings -- available for common shareholders........ 36,283 6,748 (6,339) 36,692 17,912 1,431 56,035 ========== ======= ========= ======== ========== ========== ========== Average common shares outstanding: Basic................. 25,136,712 855,000 6,488,107(F) 31,624,819 Diluted............... 25,427,288 1,005,000 7,573,000(F) 33,000,288 Net earnings per common share: Basic................. 1.44 20.95 1.77 Diluted............... 1.43 17.82 1.70 Cash dividends per common share........ .08 -- .0636
See accompanying notes to unaudited pro forma condensed financial information. 64 75 MACDERMID, INCORPORATED W. CANNING PLC PTI, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS FOR THE YEAR ENDED MARCH 31, 1998 FOR MACDERMID FOR THE YEAR ENDED DECEMBER 31, 1997 FOR PTI
HISTORICAL AGGREGATE ------------------------ PRO FORMA PRO FORMA MACDERMID PTI ADJUSTMENTS COMBINED ----------- --------- ----------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net sales................ $ 314,058 $ 214,509 (503)(D) $ 528,064 Cost of sales, ST&A expenses and amortization........... 258,453 187,829 (503)(D) 445,779 Interest expense......... 7,758 15,134 -- 22,892 Other (income) expenses (net).................. (259) 343 -- 84 ----------- --------- --------- ----------- Earnings before income taxes.................. 48,106 11,203 -- 59,309 Income taxes............. 17,309 10,611 -- 27,920 ----------- --------- --------- ----------- Net earnings before extraordinary item..... 30,797 592 -- 31,389 Preferred dividends...... (309) (1,372) 1,372(E) (309) ----------- --------- --------- ----------- Net earnings -- available for common shareholders........... 30,488 (780) 1,372 31,080 =========== ========= ========= =========== Average common shares outstanding: Basic.................... 24,976,931 851,250 6,488,107(F) 31,465,038 Diluted.................. 25,483,844 1,001,250 7,573,000(F) 33,056,844 Net Earnings per common share: Basic.................... 1.22 (.92) 0.99 Diluted.................. 1.20 (.92) 0.94 Cash dividends per common share.................. 0.07 -- .0555
See accompanying notes to unaudited pro forma condensed financial information. 65 76 MACDERMID, INCORPORATED PTI, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS FOR THE YEAR ENDED MARCH 31, 1997 FOR MACDERMID FOR THE YEAR ENDED DECEMBER 31, 1996 FOR PTI
HISTORICAL ------------------------ PRO FORMA PRO FORMA MACDERMID PTI ADJUSTMENTS COMBINED ----------- --------- ----------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net Sales................ $ 293,720 $ 146,577 -- $ 440,297 Cost of sales, ST&A expenses and amortization........... 247,009 128,060 -- 375,069 Interest expense......... 7,277 11,425 -- 18,702 Other expenses (net)..... 717 (1,108) -- (391) ----------- --------- ----------- Earnings before income taxes.................. 38,717 8,200 -- 46,917 Income taxes............. 14,871 3,448 -- 18,319 ----------- --------- ----------- Net earnings............. 23,846 4,752 -- 28,598 Preferred dividends...... (1,836) (1,450) 1,450(E) (1,836) ----------- --------- --------- ----------- Net earnings -- available for common shareholders........... 22,010 3,302 1,450 26,762 =========== ========= ========= =========== Average common shares outstanding: Basic.................... 24,735,191 850,000 6,488,107(F) 31,223,298 Diluted.................. 25,912,677 1,000,000 7,573,000(F) 33,485,677 Net Earnings per common share: Basic.................... .89 3.88 0.86 Diluted.................. .85 3.30 0.80 Cash dividends per common share.................. .0667 -- .0529
See accompanying notes to unaudited pro forma condensed financial information. 66 77 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION (1) The Canning acquisition has been accounted for in accordance with the purchase method of accounting for business combinations. Under the purchase method of accounting, the purchase cost is allocated to acquired assets and liabilities based on their relative fair values as of the closing date with the excess of the purchase cost over fair value allocated to goodwill. The actual results of Canning's business has been consolidated with MacDermid's operations since the date of acquisition (December 2, 1998). (2) The PTI merger will be accounted for using the pooling of interests method of accounting for business combinations. Under generally accepted accounting principles, the assets and liabilities of PTI will be combined with those of MacDermid at book value. In addition, PTI's statements of earnings will be combined with MacDermid's statements of earnings as of the earliest period presented. (3) In the ordinary course of business, MacDermid has not sold products to or purchased products from Canning or PTI. Amounts that have been eliminated from the pro forma combined condensed financial information are a result of a temporary toll manufacturing agreement between PTI and MacDermid. (4) Canning is organized under the laws of the United Kingdom. For purposes of combining Canning's historical Condensed Consolidated Financial Statements with those of MacDermid, the foreign currency rate of exchange of Pounds 1.6713 : $1.00 was applied to effect the pro formas. (5) The accounts of Canning have historically been kept on the basis of UK GAAP. The reconciliation of UK GAAP to US GAAP is as follows:
CANNING US GAAP CANNING UK GAAP ADJUSTMENT HISTORICAL ------- ---------- ---------- Net sales......................... $92,332 $92,332 Cost of sales, ST&A expenses and amortization...................... 83,233 (20)(a) 82,868 (345)(b) Interest expense.................. 43 43 Other expenses (net).............. (404) (404) ------- ----- ------- Earnings before income taxes...... 9,460 365 9,825 Income taxes...................... 3,077 3,077 ------- ----- ------- Net earnings...................... 6,383 365 6,748 ======= ===== =======
YEAR ENDED MARCH 31, 1999 -------------- (IN THOUSANDS) (a) Depreciation Expense................................ $ (20)
To reverse the periodic revaluation of certain property allowed for UK GAAP and to reflect the historical cost depreciation of fixed assets under US GAAP. 67 78
YEAR ENDED MARCH 31, 1999 -------------- (IN THOUSANDS) (b) Pension Expense..................................... $ (345)
To adjust Canning pension expense to U.S. GAAP. (6) MacDermid operates on a March 31 fiscal year. Canning had historically operated on a December 31 fiscal year. The unaudited pro forma combined condensed statements of earnings for the year ended March 31, 1999 assume MacDermid completed the Canning acquisition as of April 1, 1998 and the merger as of April 1, 1996. The pro forma adjustments to the historical financial statements for the Canning acquisition (Notes(A) through (C)) and for the merger (Notes (D) through (F)) are as follows:
YEAR ENDED MARCH 31, 1999 -------------- (IN THOUSANDS) (A) Amortization Expense................................ $ 2,706
To record the amortization of goodwill allocated from the purchase price over 40 years.
YEAR ENDED MARCH 31, 1999 -------------- (IN THOUSANDS) (B) Interest Expense.................................... $ 6,500
To record additional interest expense at the present interest rate of 6.59% for the term loan borrowings. The long-term debt repayment schedule under the credit facility was applied as if the borrowings began on April 1, 1998.
YEAR ENDED MARCH 31, 1999 -------------- (IN THOUSANDS) (C) Income Tax Provision................................ $(2,867)
To provide for Federal and state income taxes on the above adjustments and adjust at MacDermid's prevailing effective tax rate arising from the combination of the operating results in each of the periods.
YEAR ENDED MARCH 31, THREE MONTHS ENDED -------------------- JUNE 30, 1999 1999 1998 ------------------ ------ ------ (IN THOUSANDS) (D) Sales....................... $ 92 $ 429 $ 503 Cost of Sales............... (92) (429) (503)
To eliminate activity related to the toll manufacturing agreement between MacDermid and PTI. (E) To eliminate effect of dividends on PTI preferred stock and to reclassify as common stock the shares of PTI preferred stock redeemed to effect the merger. 68 79 (F) To adjust the historical average common shares outstanding for 6,488,107 shares of MacDermid capital stock (7,573,000 shares for diluted) which will be issued to effect the merger. Net earnings per common share is calculated based on the resulting pro forma total amount for all columns presented. A total of 254,000 additional shares of MacDermid common stock may be issued to PTI security holders if all of the 127,000 escrow shares are released to PTI security holders and if MacDermid is liable to indemnify PTI security holders to the maximum extent provided in the merger agreement by issuing an additional 127,000 shares of MacDermid common stock. If only 127,000 additional shares are issued, those shares would represent 0.3% of the diluted shares presented. If all 254,000 additional shares are issued those shares would represent 0.6% of the diluted shares presented. The effect to EPS, in either instance, is immaterial as the same EPS figure as presented would result from the calculation using these additional shares. 69 80 TRADING PRICE OF MACDERMID COMMON STOCK Shares of MacDermid common stock are currently traded on the NYSE under the Symbol "MRD". As of August 6, 1999, the record date for the MacDermid special meeting, there were approximately 1,420 MacDermid shareholders. PTI common stock has never been listed on any exchange or traded on the Nasdaq Market System or the OTC Market. There are 40 holders of record of PTI Class A and Class B common stock. PTI has never paid a dividend on its common stock. The following table provides the last reported sales prices per share of MacDermid common stock traded on the NYSE on February 18, 1999, the last trading day before announcement of the merger agreement, and on August 27, 1999, the latest practicable date before the printing of this joint proxy statement -- prospectus: February 18, 1999........................................... $38.88 August 27, 1999............................................. $34.38
The following table provides the high and low sales prices for MacDermid common stock as quoted by NYSE and dividends declared for the periods indicated, as adjusted for a three-for-one stock split on February 6, 1998.
DIVIDEND YEAR LOW HIGH DECLARED ---- ------ ------ -------- Fiscal year ended March 31, 1998: First quarter.................................... $11.58 $14.83 $ 0.017 Second quarter................................... 15.33 34.00 0.017 Third quarter.................................... 20.67 29.21 0.017 Fourth quarter................................... 23.33 37.00 0.02 Fiscal year ended March 31, 1999: First quarter.................................... $28.25 $42.38 $ 0.02 Second quarter................................... 23.38 40.50 0.02 Third quarter.................................... 29.88 39.13 0.02 Fourth quarter................................... 32.75 41.94 0.02 Fiscal year ending March 31, 2000: First quarter.................................... $32.00 $46.50 $ 0.02 Second quarter (through August 27, 1999)......... 33.00 46.75 $ 0.02
Shareholders are advised to obtain current market quotations of MacDermid common stock. We cannot predict what the market price of MacDermid common stock will be at or after the completion of the merger. The market price of MacDermid common stock will fluctuate between the date of this joint proxy statement -- prospectus, the date of the MacDermid and PTI special meetings and the date in which the merger is completed and afterwards. MacDermid common stock traded at the following highs and lows during the past several months, as reported by the NYSE.
AUGUST MARCH APRIL MAY JUNE JULY (THROUGH AUGUST 27, 1999) ------ ------ ------ ------ ------ ------------------------- High..... $38.00 $43.25 $46.50 $46.50 $46.75 $38.00 Low...... $32.81 $32.00 $39.31 $40.13 $35.00 $33.00
70 81 BENEFICIAL OWNERSHIP OF MACDERMID The following table shows information as of August 6, 1999 (except as otherwise noted), with respect to ownership of common stock by (a) any person known to MacDermid to be a beneficial owner of more than 5% of its common stock, (b) MacDermid's directors, (c) MacDermid's CEO and four other most highly compensated executive officers, and (d) all MacDermid directors and executive officers as a group. Unless otherwise noted, each person has sole voting and disposition power with respect to that person's shares. The total of shares of common stock beneficially owned by the officers includes the right to acquire ownership through exercise of stock options that are exercisable within 60 days. The pro forma presentation assumes only 7,573,000 shares of MacDermid common stock are issued in the merger, with none of the 127,000 escrowed shares being released to former holders of PTI common stock and the PTI warrant. The pro forma percentages also assume the full exercise of the MacDermid warrant issued to Citicorp Mezzanine Partners upon completion of the merger. The MacDermid warrant will have a nominal exercise price per share. See "Merger Transaction."
PERCENT OF CLASS --------------------------- COMMON STOCK PRO FORMA BENEFICIALLY AS OF FOR OWNED AUGUST 6, 1999 THE MERGER ------------ -------------- ---------- PRINCIPAL SHAREHOLDERS MacDermid, Incorporated Employees Profit Sharing and Employee Stock Ownership Plan and MacDermid, Incorporated Employees' Pension Plan................................ 3,639,055 14.5% 11.1% 245 Freight Street Waterbury, CT 06702(1) Daniel H. Leever............................ 2,578,541 9.9% 7.7% 133 Railtree Hill Road Woodbury, CT 06798(2) BankBoston Corporation...................... 2,112,426 8.4% 6.5% 100 Federal Street Boston, Massachusetts 02110(3) Thomas W. Smith and Prescott Investors...... 1,655,980 6.6% 5.1% 323 Railroad Avenue Greenwich, Connecticut 06830(4) Harold Leever............................... 1,687,836 6.7% 5.2% 366 Guilds Hollow Road Bethlehem, Connecticut(5) Vanguard/PRIMECAP Fund, Inc................. 1,701,000 6.8% 5.2% P.O. Box 2600 Valley Forge, PA 19482(6) FMR Corp.................................... 1,608,700 6.4% 4.9% 82 Devonshire Street Boston, MA 02109-3614(7) Thomas M. Leever............................ 1,329,325 5.3% 4.1% R.R. Box 230 Perkinsville, VT 05151(8)
71 82
PERCENT OF CLASS --------------------------- COMMON STOCK PRO FORMA BENEFICIALLY AS OF FOR OWNED AUGUST 6, 1999 THE MERGER ------------ -------------- ---------- DIRECTORS R. Nelson Griebel(9)........................ 122,060 * * Daniel H. Leever(2)......................... 2,578,541 9.9% 7.7% Harold Leever(5)............................ 1,687,836 6.7% 5.2% Donald G. Ogilvie........................... 8,767 * * James C. Smith.............................. 11,395 * * Thomas W. Smith(4).......................... 1,655,980 6.6 5.1% NAMED EXECUTIVE OFFICERS Daniel H. Leever, Chairman and 2,578,541 9.9% 7.7% Chief Executive Officer(2).................. R. Nelson Griebel, President and Chief 122,060 * * Operating Officer(9)........................ Stephen Largan, Vice President 41,430 * * Finance(10)................................. Gregory M. Bolingbroke, Controller(11)...... 38,598 * * John L. Cordani, Corporate Secretary and 35,018 * * General Counsel(12)......................... ALL DIRECTORS AND EXECUTIVE OFFICERS AS A 6,179,625 24.6% 18.9% GROUP (9 PERSONS). (2),(4), (5), (9)-(12)...
- ------------------------- * Less than 1% of shares outstanding (1) 3,245,800 shares in the MacDermid, Incorporated Profit Sharing and Employee Stock Ownership Plan (the "Defined Contribution Plan") are beneficially owned by the Trustee of the Defined Contribution Plan, Fleet Bank, One Federal Street, Boston, MA 02211, and 393,255 shares in the MacDermid, Incorporated Employee Pension Plan (the "Pension Plan") are beneficially owned by the Trustee of the Pension Plan, Investors Bank & Trust Company, 24 Federal Street, Boston, MA 02110. Under the terms of the Defined Contribution Plan, participants have the right to vote the shares credited to their accounts; however, the Trustee may, in its discretion, vote any shares, including unallocated shares, not voted by the participants. The trustee of the Pension Plan may vote all the shares beneficially owned thereunder. (2) Includes 90,813 shares held by the Defined Contribution Plan (as of March 31, 1999), 90,000 shares which are subject to restrictions on transfer until June 14, 2000 and 67,000 shares which are subject to restrictions on transfer until April 19, 2002, under the terms of the MacDermid Special Stock Purchase Plan and 462,065 shares which may be acquired upon exercise of options granted under the Special Stock Purchase Plan. Includes an option to purchase 500,000 shares of MacDermid common stock that was granted to Mr. Leever on July 6, 1998 in accordance with the terms of the MacDermid, Incorporated Stock Option Plan, dated July 6, 1998. Also includes 39,582, 29,583, 40,488 and 10,202 shares which are subject to restrictions on transfer until August 1, 1999, May 14, 2000, May 14, 2001 and May 14, 2002, respectively, under the terms of the MacDermid 1995 Equity Incentive Plan. Includes 74,703 shares held in trust by Mr. Leever for his sons and 3,390 shares owned by his spouse, as to all of which Mr. Leever disclaims beneficial 72 83 interest. Also includes 1,114,401 shares held by trusts established by Mr. Harold Leever, of which Mr. Daniel Leever is co-trustee. (3) The information for BankBoston Corporation N.A. is derived from its Schedule 13G dated February 14, 1997. Through its subsidiary, BankBoston, N.A., BankBoston has sole voting power with respect to 826,290 shares, shared voting power with respect to 1,286,136 shares and sole dispositive power with respect to 1,488,417. Amounts have been revised to reflect for the three-for-one split which occurred on February 6, 1998. (4) Includes 1,574,108 shares held by partnerships of which Mr. Smith is a general partner and 30,000 shares held by Prescott Investors' Employee Profit Sharing Plan, as to all of which Mr. Smith shares voting and investment power and 51,872 shares held by Mr. Smith personally. A portion of the information for Prescott Investors is taken from its amended Schedule 13G dated February 12, 1999. (5) Includes 265,089 shares owned by his wife, Ruth Ann Leever, as to all of which shares Mr. Leever disclaims any beneficial interest, and 44,286 shares held by the Defined Contribution Plan. BankBoston, N.A., Mr. Daniel Leever and Mr. Thomas Leever, as co-trustees of various trusts, may have or succeed to the rights to vote 1,114,401 shares. A portion of the information for Mr. Leever was obtained from his amended Schedule 13G dated January 12, 1998. MacDermid has entered into an agreement with Mr. Leever that up to the greater of $522,988 or the then face amount of a life insurance policy held by MacDermid on Mr. Leever's life will be used to purchase a portion of his MacDermid shares upon his death. The total purchases to be made are not to exceed the total of the state and Federal estate taxes and funeral and administration expenses of Mr. Leever's estate. The price per share of this purchase is to be the market price at the time of death. (6) The information for Vanguard PRIMECAP Fund, Inc. is taken solely from its Schedule 13G dated February 10, 1999. (7) The information for FMR Corp. is taken solely from its Schedule 13G dated February 10, 1999. Fidelity Management & Research Company, a wholly owned subsidiary of FMR and a registered investment adviser, is the beneficial owner of 1,298,400 shares or approximately 5.2% of MacDermid common stock. FMR, through control of Fidelity, has sole power to dispose of those 1,298,400 shares of MacDermid common stock. Neither FMR nor Edward C. Johnson 3rd, the Chairman of FMR, has the sole power to vote or direct the voting of the shares owned directly by the Fidelity funds, which power resides with the funds' Board of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the funds' Boards of Trustees. Fidelity Management Trust Company, a wholly owned subsidiary of FMR and a bank as defined under the Securities Exchange Act of 1934 is the beneficial owner of 308,400 shares of MacDermid common stock or approximately 1.3% of the MacDermid common stock outstanding as a result of its serving as investment manager of the institutional account(s). Each of Mr. Johnson and FMR, through control of Fidelity Management Trust, has sole dispositive power over those 308,400 shares and sole power to vote or to direct the voting of 302,100 shares and no power to vote or to direct the voting of 6,300 shares of MacDermid common stock owned by institutional account(s). The Johnson family, through their ownership of voting stock and a stockholders agreement, are a control group with respect to FMR. Fidelity International Limited is the beneficial owner of 1,900 shares of MacDermid common stock or less than 1.0% of the MacDermid common stock outstanding. Fidelity International has sole power to vote and the sole power to dispose of 1,900 shares of MacDermid common stock. A 73 84 partnership controlled by Mr. Johnson and members of his family control 39.89% of the total votes which may be cast by all holders of Fidelity International voting stock. FMR and Fidelity International are of the view that they are not acting as a "group" for the purposes of Section 13(d) under the Securities Exchange Act. (8) Includes 1,114,401 shares held by trusts established by Mr. Harold Leever, of which Mr. Thomas Leever is co-trustee. (9) Includes 60 shares held in the Defined Contribution Plan (as of March 31, 1999), as well as 15,000 shares which are subject to restrictions under the terms of the MacDermid, Incorporated 1995 Equity Incentive Plan. Includes an option to purchase 100,000 shares of MacDermid common stock that was granted to Mr. Griebel on February 1, 1999 in accordance with the terms of the MacDermid, Incorporated Stock Option Plan, dated July 6, 1998. (10) Includes 230 shares held in the Defined Contribution Plan (as of March 31, 1999). Includes an option to purchase 40,000 shares of MacDermid common stock that was granted to Mr. Largan on February 1, 1999 in accordance with the terms of the MacDermid, Incorporated Stock Option Plan, dated July 6, 1998. (11) Includes 9,950 shares held in the Defined Contribution Plan (as of March 31, 1999), as well as 7,868 shares which are subject to restrictions under the terms of the MacDermid, Incorporated 1995 Equity Incentive Plan. Includes an option to purchase 17,200 shares of MacDermid common stock that was granted to Mr. Bolingbroke on February 1, 1999 in accordance with the terms of the MacDermid, Incorporated Stock Option Plan, dated July 6, 1998. (12) Includes 9,950 shares held in the Defined Contribution Plan (as of March 31, 1999), as well as 7,868 shares which are subject to restrictions under the terms of the MacDermid, Incorporated 1995 Equity Incentive Plan. Includes an option to purchase 17,200 shares of MacDermid common stock that was granted to Mr. Cordani on February 1, 1999 in accordance with the terms of the MacDermid, Incorporated Stock Option Plan, dated July 6, 1998. 74 85 DESCRIPTION OF MACDERMID CAPITAL STOCK MacDermid has authorized 75,000,000 shares of common stock, no par value, and 2,000,000 shares of preferred stock, no par value per share. As of August 6, 1999, the record date for the MacDermid meeting, 25,157,299 shares of MacDermid common stock were issued and outstanding and no shares of MacDermid preferred stock were issued and outstanding. The MacDermid Board of Directors has the authority, without further action by MacDermid shareholders, to determine the principal rights, preferences and privileges of the unissued MacDermid preferred stock. Subject to the preferential rights of any series of MacDermid preferred stock that may be outstanding, all shares of MacDermid common stock participate equally in any dividends declared by the Board of Directors and in the net assets of MacDermid on liquidation. Holders of shares of MacDermid common stock are entitled to one vote for each share held of record and have no conversion, exchange, preemptive or cumulative voting rights. All outstanding shares of MacDermid common stock are fully paid and nonassessable. In connection with the merger, MacDermid will issue MacDermid warrants to Citicorp Mezzanine Partners with an exercise price of approximately $.01 per share. The common stock warrants will expire December 29, 2004. The exercise price and the number of shares obtainable under the warrant agreement will be subject to adjustment in the event MacDermid sells, or is deemed to have sold, additional shares of MacDermid common stock in the future, other than in connection with a permitted issuance, as defined in the warrant instrument. The transfer agent and registrar for the MacDermid common stock is Harris Trust Company of New York. See "Merger Transaction" for further description of securities issued in connection with the merger. 75 86 COMPARISON OF THE RIGHTS OF HOLDERS OF MACDERMID COMMON STOCK AND HOLDERS OF PTI STOCK INTRODUCTION MacDermid is a business corporation incorporated under the laws of the State of Connecticut in accordance with the provisions of the Connecticut Business Corporation Act. PTI is a business corporation organized under Delaware General Corporation Law. Upon completion of the merger, those PTI shareholders receiving MacDermid common stock will become shareholders of an issuer (MacDermid) organized under Connecticut law. Differences between Connecticut law and Delaware law, and between the charters and bylaws of PTI and MacDermid, will result in several changes in the rights of the PTI shareholders if the merger is completed. The following summary describes all the material differences between the rights of shareholders under Connecticut law and MacDermid's charter and bylaws as compared with the rights of the shareholders of PTI under Delaware law and PTI's charter and bylaws. The summary is qualified in its entirety by reference to Delaware law and Connecticut law and the governing corporate instruments of MacDermid and PTI, to which PTI and MacDermid shareholders are referred. Copies of the charter and bylaws of PTI and MacDermid may be obtained from PTI and MacDermid upon request. FILLING VACANCIES ON THE BOARD OF DIRECTORS Under Connecticut law, unless otherwise provided in the charter, vacancies on the board of directors may be filled by approval of the shareholders or the Board. The MacDermid charter contains no provision to the contrary. In addition, if the directors remaining in office constitute fewer than a quorum of the Board, they may fill the vacancy by the affirmative vote of a majority of the directors remaining in office. Under Delaware law, vacancies and newly-created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office. PTI's bylaws provide that vacancies and newly created directorships resulting from an increase in the authorized number of directors may be filled by a majority vote of the holders of the outstanding stock entitled to vote. In addition, the bylaws provide that in the event any of the PTI shareholders have entered into an agreement which provides for the manner in which directors are elected, a director so elected may be removed from the Board only in accordance with that agreement. PTI has entered into a stockholders agreement with Citicorp Venture Capital, Citicorp Mezzanine Partners, the executives and directors of PTI who hold shares of PTI stock and other individual shareholders which provides that they will vote their shares so as to maintain the structure of the PTI Board as of December 29, 1994. The shares must be voted so that: - the authorized number of directors remains at seven; - two members of the Board are Citicorp Venture Capital delegates; - one member is a Citicorp Mezzanine Partners delegate; - one member is PTI's president; and 76 87 - three members are designated by the holders of a majority of the shares of PTI Class A voting common stock. The merger agreement provides that the stockholders agreement will be terminated prior to the merger. SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN CONSENT Under Connecticut law, a special meeting of shareholders may be called by the Board, the persons authorized to do so by the charter or the bylaws or the holders of shares entitled to cast not less than 10% of the votes at the meeting. MacDermid's bylaws permit its president to call a special meeting. Under Delaware law, a special meeting may be called by the Board or any other persons as may be authorized by the charter or bylaws. The PTI bylaws provide that a special meeting may also be called by two or more members of the Board, the president, or the holders of shares entitled to cast a majority of the votes at the special meeting or the holders of 50% or more of the outstanding shares of any series or class of PTI's capital stock entitled to vote. Under Connecticut law, any action which may be taken at a meeting of shareholders may also be taken by unanimous written consent or, if the charter so provides, the written consent of the holders of at least the same proportion of outstanding shares as would be necessary to take that action at a meeting at which all shares entitled to vote were present and voted, except that the election of directors by written consent requires the unanimous consent of all shares entitled to vote. MacDermid's charter provides that any action may be taken with the written consent of the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting, if the minimum number of votes also constitutes a majority of the shares. Under Delaware law, unless otherwise provided in the charter, any action which is required to be taken or may be taken at a meeting of shareholders, including the election of directors, may be taken by a written consent signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to take that action at a meeting. PTI's charter contains no provision to the contrary. AMENDMENT OF BYLAWS Under Connecticut law, the bylaws may be amended or repealed by the Board, unless the charter reserves the power exclusively to shareholders, or the shareholders in amending a bylaw provide expressly that the Board may not amend or repeal that bylaw. Neither MacDermid's charter nor bylaws reserves these powers for the shareholders. Under Delaware law, the power to adopt, amend or repeal bylaws is vested in the shareholders unless the charter confers the power to adopt, amend or repeal bylaws upon the Board as well. PTI's charter and bylaws confer these powers on the Board. DISSENTERS' RIGHTS Under Connecticut law, a shareholder is entitled to dissent from, and obtain payment of the fair value of that shareholder's shares, in the event of any of the following corporate actions: - completion of a plan of merger to which the corporation is a party if shareholder approval is required for the merger under Connecticut law or the certificate of 77 88 incorporation and the shareholder is entitled to vote on the merger or if the corporation is a subsidiary that is merged with its parent; - completion of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan; - completion of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange; - amendment to the certificate of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it (a) alters or abolishes a preferential right of the shares, (b) creates, alters or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares, (c) alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities, (d) excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights, or (e) reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash; or - any corporate action taken pursuant to a shareholder vote to the extent the certificate of incorporation, bylaws or a resolution of the Board provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares (as of the date of this joint proxy statement -- prospectus, neither MacDermid's charter nor bylaws contained any provisions of this nature). Under Delaware law, appraisal rights are generally available for the shares of any class or series of stock of a corporation in a merger or consolidation, except that no appraisal rights are available for the shares of any class or series of stock which, at the record date for the meeting held to approve those transactions, were either: - listed on a national securities exchange; or - held of record by more than 2,000 shareholders. Furthermore, no appraisal rights are available to shareholders of the surviving corporation or, in limited circumstances, to shareholders of the non-surviving corporation if the merger is between a parent and its subsidiary if the merger did not require shareholder approval. Notwithstanding the foregoing, appraisal rights are available, for any class or series if the holders thereof receive in the merger or consolidation anything except: - shares of stock of the corporation surviving or resulting from a merger or consolidation; - shares of stock of any other corporation which at the effective date of the merger or consolidation is either listed on a national securities exchange or held of record by more than 2,000 shareholders; - cash in lieu of fractional shares; or - any combination of the foregoing. BUSINESS COMBINATIONS AND REORGANIZATIONS Under Connecticut law, a corporation may not engage in any business combination, as defined under Connecticut law, with any interested shareholder (defined below) for a period of five years following that interested shareholder's stock acquisition date unless the business combination or the purchase of stock made by the interested shareholder or the 78 89 interested shareholder's stock acquisition date is approved by the Board and by a majority of the nonemployee directors of which there must be at least two, prior to that interested shareholder's stock acquisition date. An interested shareholder is defined as a person beneficially owning 10% or more of the voting power of the outstanding shares of voting stock, or an affiliate who, within a two-year period immediately prior to the date in question, owned 10% or more of the voting power of the outstanding shares of voting stock. MacDermid's charter requires, for the approval of any merger or consolidation or other business reorganization or combination of MacDermid with or into a person who is a significant stockholder (as defined below), an affirmative vote of at least 80% of the number of votes at the time entitled to be cast by shareholders of MacDermid generally in the election of directors, including at least 66 2/3% of the number of votes at the time so entitled to be cast by shareholders of MacDermid other than by a significant stockholder to or with whom the business transaction is proposed to be effected. The voting requirements set forth above do not apply to any business transaction with a significant stockholder if that transaction is approved by a majority of the Board of Directors, but only if a majority of the members of the Board of Directors acting on the matter were directors prior to the date on which that person became a significant stockholder. A "significant stockholder" means any person owning beneficially, directly or indirectly, 15% or more of the shares of capital stock of MacDermid entitled to be cast generally in the election of directors by all of the outstanding shares of all classes of capital stock, voting as one class. PTI's charter provides that PTI will not be governed by the provisions of Delaware law which would prevent an interested stockholder (as defined below) from engaging in a business combination, as defined under Delaware law, with a corporation for three years following the date that person became an interested stockholder unless: - before that person became an interested stockholder, the Board of the corporation approved the transaction in which the interested stockholder became an interested stockholder; - upon completion of the transaction which resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced excluding stock held by directors who are also officers and employee stock ownership plans that do not provide for confidential voting by plan participants; or - following the transaction in which the person became an interested stockholder, the business combination is both approved by the board of directors of that corporation and authorized at a meeting of shareholders by the affirmative vote of the holders of at least two-thirds of the outstanding voting stock of that corporation not owned by the interested stockholder. For the purpose of these provisions an interested stockholder is defined as a person beneficially owning 15% or more of a corporation's common stock. 79 90 PTI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion and analysis of PTI's consolidated financial condition and consolidated results of operations should be read in conjunction with "PTI Selected Financial Data," "PTI's Audited Consolidated Financial Statements" and related notes for the year ended December 31, 1998 and PTI's Unaudited Consolidated Financial Statements for the six months ended June 30, 1999, each included elsewhere in this joint proxy statement -- prospectus. This discussion contains forward-looking statements which involve risks and uncertainties. PTI's actual results could differ materially from the results expressed in, or implied by, these financial statements. See "Summary -- Cautionary Statement Concerning Forward-looking Information." NET SALES AND OPERATING PROFITS For the six months ended June 30, 1999, PTI's worldwide sales increased to $120.2 million, a 6% increase over the same period in 1998. Excluding businesses acquired since June 30, 1998, PTI's worldwide sales declined 4% in the first half of 1999 versus 1998. This decline reflects weakness in end-user demand for printing plates as well as reduced sales to advertising printers. After giving effect to preferred stock dividend requirements of $746,000, net earnings for the six-month period ended June 30, 1999 of $6.8 million or $6.74 per common share were down from the $8.2 million or $8.15 per common share recorded in the same period last year. Excluding an after-tax gain on sale of assets of $0.9 million, net earnings for the six months ended June 30, 1999 were $5.9 million. This decline reflects: (1) unusually low sales volume due to distributor inventory reductions; (2) a decline in sales to advertising publishing customers; and (3) higher than normal expenses in Europe. The year ended December 31, 1998 was the third consecutive record year for net sales. PTI worldwide net sales in 1998 were $228 million, a 6% increase compared to 1997. This continued growth is reflective of new business in all geographic regions except Asia/ Pacific, where the recent economic turmoil and a stronger U.S. dollar led to an 8% decline in sales. Sales increased by 1% for the year in Asia/Pacific excluding the negative of the stronger U.S. dollar on translated sales. After giving effect to preferred stock dividend requirements, fiscal year 1998 net earnings were $17.9 million, or $17.82 per common share, as compared to a loss recorded in fiscal year 1997. The loss in 1997 is attributable to purchase accounting associated with the acquisition of NAPP Systems in January 1997. See "Acquisitions." SALES SIX MONTHS ENDED JUNE 30, 1999 VERSUS SIX MONTHS ENDED JUNE 30, 1998 In North America, net sales decreased 7% in the six months ended June 30, 1999 versus the same period in 1998. This decline reflects a decrease in sales to advertising printers as well as the consequences of PTI's two largest distributors building inventory during the first half of 1998 and conversely reducing inventory during the first half of 1999. In Europe, excluding companies acquired in 1998, net sales increased 1%. Foreign currency translation changes had virtually no impact on Europe's first half 1999 sales versus the same period in 1998. In the rest of the world, net sales increased 12% in the first half of 80 91 1999, reflecting continued gains in Latin America and a somewhat improved business climate in Asia. 1998 VERSUS 1997 In North America, net sales increased 4% in fiscal year 1998 compared to fiscal year 1997 and in Latin America net sales increased 34% due to increased business resulting from a stronger economic climate. Additionally, some of PTI's newer image transfer products experienced growing market acceptance. In Europe, sales increased 14%, reflecting the strong economic climate and the continued success of several new image transfer products. 1997 VERSUS 1996 Worldwide sales increased $67.9 million or 46% in fiscal year 1997 compared to fiscal year 1996, principally as a result of the NAPP Systems acquisition in January 1997. Excluding the effect of the NAPP Systems acquisition, net sales increased 5% worldwide. Foreign currencies devalued versus the U.S. dollar, which caused an $8.3 million unfavorable variance in fiscal year 1997 versus fiscal year 1996. On a constant U.S. dollar basis, worldwide net sales, excluding NAPP Systems, increased by 10% in 1997 compared to 1996. In North America, net sales increased $67.6 million, principally as a result of the NAPP Systems acquisition. Excluding NAPP Systems, North America sales increased 9%. In Europe, sales declined 4%, including a $7.0 million unfavorable exchange variance. On a constant U.S. dollar basis, Europe net sales increased 9% in fiscal 1997 versus 1996. COSTS AND EXPENSES SIX MONTHS ENDED JUNE 30, 1999 VERSUS SIX MONTHS ENDED JUNE 30, 1998 Cost of sales increased as a percentage of sales in the first half of 1999 versus the same period in 1998 primarily due to increased factory expenses as well as expenses associated with acquired companies without a commensurate increase in sales. Similarly, selling, technical and administrative expenses increased as a percentage of sales. In percentage terms, the overall sales increase of 6% was not sufficient to offset the addition of acquired companies' expenses, even though operating expenses declined 2% excluding the impact of acquisitions. The pretax gain on the sale of assets in 1999 reflects two items: (1) a pretax gain on the sale of EEC assets in the first quarter of $854,000; and (2) a pretax gain on the sale of textile equipment in the second quarter of $572,000. 1998 VERSUS 1997 Cost of sales decreased as a percentage of sales for the third consecutive year in fiscal year 1998. PTI's capital investments continued to improve manufacturing efficiencies. Selling, technical and administrative expenses declined as a percentage of sales for the third consecutive year. Excluding the one-time write-off of $10.5 million, actual costs increased 3%, primarily reflecting PTI's ongoing cost awareness philosophy, which allows for additional costs only as necessary to support sales growth and for research programs which increased 5%. 81 92 1997 VERSUS 1996 Cost of sales, excluding the effect of the flow-through of a non-recurring purchased inventory write-up associated with the NAPP Systems acquisition of $1.7 million, decreased as a percentage of sales, reflecting worldwide cost savings in factory expenses, particularly evident in Europe where a cost reduction effort was implemented. During 1996, PTI streamlined many of its overhead functions in Europe and consequently reduced its fixed overhead by approximately $1.0 million annually. This streamlining involved reducing personnel by approximately 20 persons with termination benefit costs totaling approximately $633,000 which were paid as incurred. Excluding a one-time write-off of $10.5 million associated with the NAPP Systems acquisition, selling, technical and administrative expenses decreased from 28% of sales in fiscal year 1996 to 25% of sales in fiscal year 1997. This decrease is principally a reflection of the acquisition of NAPP Systems in fiscal year 1997 which carries historically lower selling, technical and administration expenses as a percent of sales and the reorganization in Europe which reduced expenses. Interest expense increased significantly in fiscal year 1997 versus fiscal year 1996 as a result of borrowing to finance the NAPP Systems acquisition in January 1997. ACQUISITIONS PTI actively pursues acquisitions to complement its existing graphic arts business. The following table summarizes PTI's acquisitions, all of which were stock acquisitions for cash accounted for under the purchase method of accounting:
DATE ACQUISITION CASH PAID ---- ----------- --------- January 1997 NAPP Systems (California) $56,777,000 April 1998 Axcyl S.A. (France) $ 1,000,000 December 1998 Jager Jeune S.A. (France) $11,258,000 February 1999 Supratech, Inc. (North Carolina) $ 5,600,000 March 1999 International Composites Corporation $ 6,000,000 (Washington)
In March 1999, PTI acquired all of the outstanding stock of International Composites Corporation, Inc., located in Vancouver, Washington. International Composites Corporation has been renamed Axcyl, Inc. Axcyl manufactures sleeve systems which are complementary to the products manufactured by Axcyl S.A. in France. In February 1999, PTI acquired all of the outstanding stock of Supratech, Inc., a Delaware corporation, from Nippon Paint (USA) Inc. and Nippon Paint Co., Ltd for $5.6 million. Supratech, Inc. produces and markets waterwash, flexographic plate material. In January 1999, PTI sold EEC, a business owned by its French subsidiary. PTI received $1.6 million for a portion of the net assets of EEC and recorded an after-tax gain on the sale of $0.5 million. In June 1999, PTI sold textile blanket splicing equipment and recorded an after-tax gain on the sale of $0.3 million. Neither the sale of the EEC business nor the textile equipment is expected to have a material impact on PTI's future operations. In April 1998, PTI acquired all of the outstanding stock of Axcyl Composite, S.A., a French company, which manufactures sleeve systems made of advanced composite materials for use in flexographic printing applications. In December 1998, PTI acquired all 82 93 of the outstanding stock of Jager Jeune, S.A., a French company, engaged in the conversion and distribution of offset printing blankets. On a combined basis, the acquisitions were less than 10% of PTI's consolidated total assets and pretax earnings in 1998. In January 1997, PTI acquired all of the outstanding stock of NAPP Systems, a leading supplier of relief printing plates to the advertising printing industry. Total assets acquired of $75.5 million were allocated to: accounts receivable $9.6 million; inventories $12.9 million; other current assets $2.7 million; net fixed assets $22.7 million; goodwill $12.4 million; in-process research and development $10.5 million; and other long term assets $4.7 million. Total liabilities assumed of $18.8 million were allocated to: accounts payable and other current liabilities $8.3 million; deferred income taxes $9.0 million; and other long term liabilities $1.5 million. The acquisition, which was accounted for using the purchase method of accounting, resulted in the following one time charges in 1997:
DOLLARS IN THOUSANDS ---------- $ 2,128 write-off deferred financing fees 10,495 write-off in process R&D Expenses ------- $12,623 Total =======
To accomplish the acquisition, PTI negotiated a new credit agreement and paid off amounts due under the original 1994 agreement. Consequently, the remainder of deferred financing fees of $2,128,000 pretax ($1,322,000 after tax) associated with the original credit agreement were written off as an after tax extraordinary item. The fees associated with the new credit agreement were capitalized. The $10,495,000 in-process research and development expense write-off represents the following three purchased projects:
$ IN THOUSANDS ------------------------------------------------------------------ ESTIMATE OF FAIR VALUE ON 17-JAN-97 PROJECTED SIGNIFICANT USING % OF ESTIMATED R & D $ MANAGEMENT TOTAL REVENUE ASSUMED COMPLETION COMPLETION SPENT THRU ESTIMATE DEVELOPMENT % COMPLETE COMMENCEMENT DISCOUNT METHOD DATE 17-JAN-97 TO COMPLETE COST ON 17-JAN-97 DATE RATE ------------ ---------- ---------- ----------- ----------- ------------ ------------ -------- Laser Direct......... 9,261 Jun-99 900 518 1,418 63% Late 1999 20% High-Speed Plate..... 958 Jun-97 60 86 146 41% Mid 1998 25% Water-based Polymer.. 276 Jun-99 380 932 1,362 28% Late 1999 30% ------- ------ ------ ------ Total................ $10,495 $1,340 $1,536 $2,926 ======= ====== ====== ======
- The development of Laser Direct technology, used to etch images directly on the printing plate was started in November 1993 and was 63% complete with costs incurred to the date of acquisition of $900,000. The $9,261,000 valuation of this technology is based on the Income Forecast Method by analyzing the discounted present values of the estimated cash flow to be generated and adjusting for the specific stage of completion of the project. The estimated cost to complete the development of a commercially acceptable product between January 17, 1997 and June 1999 is $518,000. The $9.3 million valuation of the laser direct technology was based on a forecast of net cash inflows starting in late 1998 and continuing through 2005. Since the laser direct project envisions an entirely new plate processor and printing plate system, there is no historical data on which to base a revenue and cost of sales forecast. Consequently, management estimated sales volume, selling prices and margins based on its knowledge of the market and potential 83 94 customers. Management estimated selling and general and administrative operating expenses for the laser direct products at approximately 13% of sales, which is slightly lower than NAPP's existing expense structure of approximately 14% of sales. Management anticipates that, as a percentage of sales, selling expenses associated with laser direct products will be somewhat lower than NAPP's existing business. On average, laser direct plate customers will be the larger, higher volume users. Compared to NAPP's existing business, the laser direct business is expected to generate higher revenues per customer. Thus, the same selling effort will result in larger average order sizes and a slightly lower selling cost as a percentage of revenues. - The development of a High Speed Printing Plate that will expose faster, provide better print quality, and be more durable than the existing NAPPflex technology, started in June, 1996, was 41% complete with costs incurred to the date of acquisition of $60,000. The $958,000 valuation of this technology is based on the Income Forecast Method by analyzing the discounted present values of the estimated cash flow to be generated and adjusting for the specific stage of completion of the project. The estimated costs to complete this development between January 17, 1997 and June 1997 was $86,000. - The development of the Water Based Polymer technology, targeted at reducing NAPP System's cost of raw materials, was 28% complete with costs incurred to the date of acquisition of $380,000. The $276,000 valuation of this technology is based on the Income Forecast Method by analyzing the estimated discounted present values of the cash flow to be generated from cost savings and adjusting for the specific stage of completion of the project. The estimated costs to complete this development between January 17, 1997 and June 1999 is $982,000. An adjustment to the valuation of the projects listed has been applied based on the stage of completion method. The stage of completion percentage was calculated using the costs incurred to date at the time of the acquisition as a percent of total estimated costs of completion at the time of the valuation. In addition, a core technology charge of 33% of cash flows was allocated to capitalized technology thus reducing the purchased research and development charge. Management is primarily responsible for estimating the fair value of purchased in-process research and development. The estimated completion dates for both the laser direct and water based polymer projects have been delayed by approximately three months. These delays are expected to cause an increase in total development costs of no more than $100,000. The high-speed plate project was completed in June 1997 and significant progress has been made in completing both the laser direct and water based polymer technology; however, no assurance can be given that the remaining two projects can be completed successfully. If not successful, the ongoing charges to income associated with these projects will not have any future benefit to profitability. In connection with the NAPP acquisition, PTI wrote-up acquired inventory by $1.7 million in accordance with generally accepted accounting principles. PTI then charged this amount to the Statement of Income through cost of goods sold as the inventory was sold to customers during the remainder of 1997. Excluding the $10.5 million write off of in-process research and development expense, pretax income in fiscal year 1997 would have been $21.7 million. 84 95 INCOME TAXES For the year ended December 31, 1998, PTI's effective tax rate was 34.2% This reflects a determination that tax benefits including research and experimental and foreign tax credits of $1.4 million are available to PTI. Until the fourth quarter of 1998, the value of these tax benefits had not been confirmed and therefore, PTI had accrued taxes based on historical rates. The increase in the effective tax rate in 1997 is primarily attributable to permanent items deducted in the financial statements in 1997 including in-process research and development costs, non-creditable foreign taxes, an increase in tax reserves, and the amortization of goodwill. These items were not deductible for tax purposes and, therefore, caused an increase in the effective tax rate. LIQUIDITY AND CAPITAL SPENDING Cash flows from operations are used to fund preferred stock dividends, which were $1 million cash dividends in each of fiscal years 1998, 1997 and 1996, other working capital requirements and capital projects. PTI has never paid a cash dividend on common stock. From time to time, PTI utilizes its existing revolving credit facility to fund overall needs. For the year ended December 31, 1998, cash flows provided by operations were $26.9 million an increase of $6.6 million over 1997 primarily reflecting an increase in net income after adjusting for non-cash purchase accounting entries. New capital spending during 1998 of approximately $14.6 million as compared to $5.8 million in fiscal year 1997 included a significant expansion of PTI's printing plate manufacturing facilities in Morristown, Tennessee. Other than satisfaction of existing debt obligations, all of which will be refinanced upon completion of the merger, PTI has no long-range commitments which would have a significant impact upon results of operations, financial condition or liquidity. At December 31, 1998, PTI had a committed revolving credit line of $35 million against which $13.5 million was borrowed. PTI is in compliance with all covenants related to its bank financing, Senior Subordinated Debt Agreement and all classes of preferred stock. YEAR 2000 READINESS Introduction: Computer programs which recognize only two digits, rather than four digits, to define the applicable year will be at risk for possible miscalculations, classifications, errors or system failures. This risk is often referred to as the "Year 2000" issue. PTI considers the Year 2000 issue a critical business issue. PTI has implemented a worldwide plan for evaluating and minimizing the risks associated with the Year 2000 issue. The program includes investigation, remediation and follow-up under the direction of the Director of Administration working through plant management, engineering and information technology personnel. The objective is to identify specific issues and implement corrective action in each specific case while instituting a series of management processes that coordinate and manage this overall process across business boundaries. The process includes corporate oversight with periodic reports to our directors. The program involves investigation and remediation when necessary in three distinct areas: (1) business computer systems and software; (2) manufacturing and operational systems that utilize micro processors, including manufacturing and testing equipment, utilities and communication systems; and (3) suppliers and customers. The objective is to become Year 2000 compliant, but more importantly, to use the resources applied to this 85 96 project to achieve better service and value to our customers through improved communications and information. Business Computer Systems and Software: PTI has completed the installation of a leading Year 2000 compliant integrated business software system and related hardware in most major worldwide locations. The effort to convert information systems for Year 2000 compliance was started in October 1997 and, with the exceptions discussed below, completed as planned in December 1998. It is our intention that all locations will be Year 2000 compliance prior to the end of 1999. The principal U.S. manufacturing and office locations in Morristown, Tennessee, Atlanta, Georgia, and Adams, Massachusetts, and the corporate office in Billerica, Massachusetts are fully operational on the new system. The NAPP Systems business in San Marcos, California is now converting to the new system, which conversion is expected to be completed in November 1999. Internationally, Rollin, SA, PTI's principal European subsidiary performing manufacturing and administrative functions for Europe is also operational on the same Year 2000 compliant business software system as the U.S. The PTI operations in Japan, Hong Kong and Australia are using recently acquired Year 2000 compliant PC based systems for light manufacturing and sale/marketing activities. Three recently acquired businesses are operating on a combination of manual, spreadsheet and self developed/purchased software. Corporate information technology personnel along with local management are currently addressing corrections. The cost of bringing all currently noncomplying locations into compliance during 1999 is estimated at $250,000. Manufacturing and Facilities: Engineering departments and location management worldwide are reviewing machinery and equipment, including production equipment, phone systems and utility equipment at all PTI manufacturing locations for Year 2000 compliance. Investigation efforts include making calls to manufacturers of equipment and reviewing operating documentation. In some cases, outside technical consultants have been engaged. This portion of the project is nearing completion and all reports so far indicate most equipment does not use date dependent information that would expose PTI to a significant Year 2000 risk. In the few cases where equipment is not Year 2000 complaint, replacement equipment is on order or the existing equipment will be modified. Suppliers and Customers: Starting in August 1998, suppliers and vendors were contacted to determine their Year 2000 compliance status and their ability to continue to supply PTI operations without disruption. Third parties who responded to requests for information took the requests seriously and in most cases had programs in place to address their internal business critical systems as well as their external suppliers. PTI is working to qualify alternative suppliers for materials for the less than 10% of suppliers whose responses revealed that a potential for supply disruption exists. Seventy-three percent of third parties contacted have responded to our inquiry. Those who have yet to respond represent less than 10% of our suppliers by value. Those not responding to our Y2K inquiry have been sent second requests and if no answer is received personal calls will be made. PTI hopes to complete the confirmation process by September 1999. Reasonably likely worst-case Year 2000 scenario: The most reasonably likely worst-case Year 2000 scenario would involve a failure of PTI's mission critical computer systems together with the contemporaneous failure of one or more of PTI's suppliers. With respect to a PTI systems failure, PTI is in the process of formulating a contingency plan with the 86 97 input of operating managers. The plan includes PTI's ISO 9002 certification as the outline for manufacturing controls and will be completed by October 1999. PTI is conducting ongoing planning and testing in order to reduce the need for, and the incremental cost of, contingency arrangements. With respect to supplier failure, PTI is single sourced as to very few materials. As a result, alternate suppliers are generally available. While PTI believes its actions for Year 2000 modification and remediation will allow it to continue normal operations, there can be no guarantee or assurance that PTI will not be adversely affected by Year 2000 problems. 87 98 BENEFICIAL OWNERSHIP OF PTI The following table provides information as of August 6, 1999, regarding the ownership of PTI Class A voting common stock by (a) each person known by PTI to be a beneficial owner of more than 5% of its voting stock, (b) PTI's directors, (c) its CEO and four other most highly compensated executive officers and (d) its directors and executive officers as a group. PTI Class A common stock is PTI's only class of voting securities. The footnotes to the table provide information regarding the number and percentage of shares of PTI non-voting common stock and preferred stock owned by the named shareholders. Unless otherwise noted, each person has sole voting and disposition power with respect to that person's shares. The table also presents the pro forma shares of MacDermid common stock that the named shareholders will receive in the merger assuming the exchange ratio is equal to 7.233 . THE ACTUAL EXCHANGE RATIO AND, THEREFORE, THE PERCENTAGE OF MACDERMID COMMON STOCK RECEIVED BY THE NAMED SHAREHOLDERS WILL LIKELY BE DIFFERENT. See "Exchange Ratio Assumptions." The pro forma percentages also assume that the warrant to purchase shares of MacDermid common stock that will be issued to Citicorp Mezzanine Partners upon the completion of the merger has been exercised in full. The MacDermid warrant will have a nominal exercise price per share. See "Merger Transaction."
PRO FORMA PTI VOTING OWNERSHIP OF COMMON STOCK MACDERMID STOCK(1) ----------------- --------------------- SHARES % SHARES % ------ - ------ - PRINCIPAL SHAREHOLDERS David R. Beckerman(1)(2).............. 51.000 51.0 224,690 * Citicorp Venture Capital, Ltd.(3)(4).......................... 39.180 39.2 4,083,724 12.5 DIRECTORS David R. Beckerman(1)................. 51.000 51.0 224,690 * David L. Kolb(5)...................... -- * 23,462 * Richard E. Mayberry, Jr.(6)........... .104 * 10,965 * Robert N. Pokelwaldt(7)............... -- * 1,764 * Joseph M. Silvestri(8)................ .414 * 43,799 * James W. Stevens(9)................... -- * 23,462 * NAMED EXECUTIVE OFFICERS David R. Beckerman, President and CEO(1).............................. 51.000 51.0 224,690 * Gerald Loeb(10)....................... -- * 150,083 * Thomas C. Weaver, Secretary(11)....... -- * 118,002 * Thomas O. Gavin(12)................... -- * 74,268 * Kai Wenk-Wolff(13).................... -- * 36,162 * All Directors and Officers as a Group (10 persons)(14).................... 51.518 51.5 706,657 2.2
- ------------------------- * Less than 1%. (1) Pro forma presentation also includes shares of MacDermid common stock received in exchange for (a) 149.101 shares of Series 3 preferred stock, which represent 19.7% of the shares of Series 3 preferred stock outstanding and (b) 29,949 shares of non-voting PTI Class B common stock, which represent 3.0% of the shares of Class B common stock outstanding. 88 99 (2) Mr. Beckerman's business address is 900 Middlesex Turnpike, Billerica, MA 01821-3946. (3) Pro forma presentation also includes shares of MacDermid common stock received in exchange for (a) 3,875.554 shares of Series 2 preferred stock, which represent 78.8% of the shares of Series 2 preferred stock outstanding, (b) 17.831 shares of Series 3 preferred stock, which represent 2.4% of the shares of Series 3 preferred stock outstanding, (c) 2,757.279 shares of Series 4 preferred stock, which represent 78.8% of the shares of Series 4 preferred stock outstanding and (d) 535,659.920 shares of non-voting PTI Class B common stock, which represent 53.3% of the shares of Class B common stock outstanding. (4) Citicorp Venture Capital's address is 399 Park Avenue, New York, NY 10022. (5) Pro forma presentation also includes shares of MacDermid common stock received in exchange for (a) 21.700 shares of Series 2 preferred stock, which represent less than 1% of the shares of Series 2 preferred stock outstanding, (b) 15.440 shares of Series 4 preferred stock, which represent less than 1% of the shares of Series 4 preferred stock outstanding and (c) 3,000.000 of non-voting PTI Class B common stock, which represent less than 1% of the shares of Class B common stock outstanding. (6) Pro forma presentation also includes shares of MacDermid common stock received in exchange for (a) 10.409 shares of Series 2 preferred stock, which represent less than 1% of the shares of Series 2 preferred stock outstanding, (b) 7.405 shares of Series 4 preferred stock, which represent less than 1% of the shares of Series 4 preferred stock outstanding and (c) 1,438.629 of non-voting PTI Class B common stock, which represent less than 1% of the shares of Class B common stock outstanding. (7) Pro forma presentation also includes shares of MacDermid common stock received in exchange for (a) 21.700 shares of Series 2 preferred stock, which represent less than 1% of the shares of Series 2 preferred stock outstanding and (b) 15.440 shares of Series 4 preferred stock, which represent less than 1% of the shares of Series 4 preferred stock outstanding. (8) Pro forma presentation also includes shares of MacDermid common stock received in exchange for (a) 41.576 shares of Series 2 preferred stock, which represent less than 1% of the shares of Series 2 preferred stock outstanding, (b) 29.580 shares of Series 4 preferred stock, which represent less than 1% of the shares of Series 4 preferred stock outstanding and (c) 5,746.469 of non-voting PTI Class B common stock, which represent less than 1% of the shares of Class B common stock outstanding. (9) Pro forma presentation also includes shares of MacDermid common stock received in exchange for (a) 21.7000 shares of Series 2 preferred stock, which represent less than 1% of the shares of Series 2 preferred stock outstanding, (b) 15.440 shares of Series 4 preferred stock, which represent less than 1% of the shares of Series 4 preferred stock outstanding and (c) 3,000.000 shares of non-voting PTI Class B common stock, which represent less than 1% of the shares of Class B common stock outstanding. (10) Pro forma presentation also includes shares of MacDermid common stock received in exchange for (a) 105.000 shares of Series 3 preferred stock, which represent 13.9% of the shares of Series 3 preferred stock outstanding and (b) 20,000.000 of non-voting PTI Class B common stock, which represent 2.0% of the shares of Class B common stock outstanding. 89 100 (11) Pro forma presentation also includes shares of MacDermid common stock received in exchange for (a) 44.101 shares of Series 3 preferred stock, which represent 5.8% of the shares of Series 3 preferred stock outstanding and (b) 16,000.000 of non-voting PTI Class B common stock, which represent 1.6% of the shares of Class B common stock outstanding. (12) Pro forma presentation also includes shares of MacDermid common stock received in exchange for (a) 52.500 shares of Series 3 preferred stock, which represent 6.9% of the shares of Series 3 preferred stock outstanding and (b) 10,000.000 of non-voting PTI Class B common stock, which represent 1.0% of the shares of Class B common stock outstanding. (13) Pro forma presentation also includes shares of MacDermid common stock received in exchange for 5,000 shares of non-voting PTI Class B common stock, which represent less than 1% of the shares of Class B common stock outstanding. (14) Pro forma presentation also includes shares of MacDermid common stock received in exchange of (a) 117.085 shares of Series 2 preferred stock, which represent 2.4% of the shares of Series 2 preferred stock outstanding, (b) 350.702 shares of Series 3 preferred stock, which represent 46.4% of the shares of Series 3 preferred stock outstanding, (c) 83.305 shares of Series 4 preferred stock, which represent 2.4% of the shares of Series 4 preferred stock outstanding and (d) 94,134.098 shares of non-voting PTI Class B common stock, which represent 9.4% of the shares of Class B common stock outstanding. 90 101 LEGAL MATTERS The validity of the shares of MacDermid common stock to be issued in connection with the merger has been passed upon by Nutter, McClennen & Fish, LLP, of Boston, Massachusetts. Tax matters have been passed on for MacDermid by Nutter, McClennen & Fish, LLP and for PTI by Kirkland & Ellis of New York, New York. EXPERTS The Consolidated Financial Statements of MacDermid, incorporated by reference in this joint proxy statement -- prospectus, have been audited by KPMG LLP, independent auditors, for the periods indicated in their report included therein. A representative of KPMG LLP will be at the MacDermid special meeting to answer questions from MacDermid shareholders and will be given an opportunity to make a statement, if so desired. The Consolidated Financial Statements of W. Canning plc, incorporated by reference in this joint proxy statement -- prospectus, have been audited by PricewaterhouseCoopers, independent auditors, for the periods indicated in their reports included therein. The Consolidated Financial Statements of PTI included in this proxy statement -- prospectus have been audited by PricewaterhouseCoopers LLP, independent auditors, for the periods indicated in their report included in this joint proxy statement -- prospectus. A representative of PricewaterhouseCoopers will be at the PTI special meeting to answer questions from PTI shareholders and will be given an opportunity to make a statement, if so desired. OTHER MATTERS The MacDermid Board is not aware of any other matters to be presented at the MacDermid special meeting. If any additional matters are properly presented, the persons named in the proxy will have discretion to vote in accordance with their own judgment on these matters. The PTI Board is not aware of any other matters to be presented at the PTI Special Meeting. If any additional matters are properly presented, the persons named in the proxy will have discretion to vote in accordance with their own judgment on these matters. PROPOSALS FOR NEXT ANNUAL MACDERMID MEETING Any shareholder of MacDermid who intends to submit a proposal for inclusion in the proxy materials for the 2000 annual meeting of shareholders of MacDermid must submit that proposal to the Secretary of MacDermid, to which that proposal relates by March 21, 2000. The rules of the SEC include standards as to what shareholder proposals are required to be included in a proxy statement for an annual meeting. WHERE YOU CAN FIND MORE INFORMATION MacDermid files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information we file at the SEC's public reference rooms in Washington, D.C., New York, 91 102 New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at "http://www.sec.gov." In addition, MacDermid common stock is listed on the NYSE and similar information concerning MacDermid can be inspected and copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, NY 10005. MacDermid has filed a registration statement on Form S-4 to register with the SEC the MacDermid common stock to be issued to the PTI shareholders in the merger. This joint proxy statement -- prospectus is a part of that registration statement and constitutes a prospectus of MacDermid in addition to being a proxy statement of MacDermid and PTI for the shareholder meetings. As allowed by SEC rules, this joint proxy statement -- prospectus does not contain all the information you can find in the registration statement or the exhibits to the registration statement. The SEC allows us to "incorporate by reference" information into this joint proxy statement -- prospectus, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this joint proxy statement -- prospectus, except for any information superseded by information in this joint proxy statement -- prospectus. This joint proxy statement -- prospectus incorporates by reference the documents named below that we have previously filed with the SEC. These documents contain important information about MacDermid's business, financial condition and operating results.
MACDERMID SEC FILINGS PERIOD - --------------------- ------------------------------- Annual Report on Form 10-K..................... Filed on June 22, 1999, as amended by Form 10-K/A filed on August 12, 1999 Quarterly Report on Form 10-Q.................. Filed on August 16, 1999, as amended by Form 10-Q/A filed on August 30, 1999 Proxy Statement................................ Filed on June 21, 1999 Current Report on Form 8-K..................... Filed on December 18, 1998, as amended by Form 8-K/A filed on February 16, 1999, by Form 8-K/A filed on March 19, 1999 and by Form 8-K/A filed on June 9, 1999 Current Report on Form 8-K..................... Filed on February 24, 1999 Registration Statement on Form S-3............. Filed on December 8, 1998
We are also incorporating by reference additional documents that we file with the SEC between the date of this Proxy Statement and the dates of the meetings of our shareholders. MacDermid has supplied all information contained or incorporated by reference in this joint proxy statement -- prospectus relating to MacDermid, and PTI has supplied all information contained in this joint proxy statement -- prospectus relating to PTI. If you are a MacDermid shareholder, we may have sent you some of the documents incorporated by reference, but you can obtain any of them through us or the SEC. Documents incorporated by reference are available from us without charge, excluding all exhibits unless we have specifically incorporated by reference an exhibit in this joint proxy 92 103 statement -- prospectus. Shareholders may obtain documents incorporated by reference in this joint proxy statement -- prospectus by requesting them in writing or by telephone from MacDermid as follows: MacDermid, Incorporated 245 Freight Street Waterbury, CT 06702-0671 Attention: John L. Cordani, Corporate Secretary Telephone: (203) 575-5646 If you would like to request documents from us, please do so by September 16, 1999 to receive them before the shareholder meetings. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT -- PROSPECTUS TO VOTE ON THE PROPOSAL TO APPROVE THE MERGER AGREEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT -- PROSPECTUS. THIS JOINT PROXY STATEMENT -- PROSPECTUS IS DATED AUGUST 30, 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT -- PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THIS DATE, AND NEITHER THE MAILING OF THIS JOINT PROXY STATEMENT -- PROSPECTUS TO SHAREHOLDERS NOR THE ISSUANCE OF MACDERMID COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY. 93 104 INDEX TO FINANCIAL STATEMENTS PTI INC. AND SUBSIDIARIES
PAGE ----------- AUDITED CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Accountants........................... F-2 Consolidated Balance Sheets as of December 31, 1998 and 1997...................................................... F-3 Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 1998, 1997 and 1996...... F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997 and 1996.............. F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996.......................... F-6 Notes to Financial Statements............................... F-7 - F-25 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998.................................................. F-26 Consolidated Statements of Income and Comprehensive Income for the Six Months Ended June 30, 1999 and 1998........... F-27 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998.............................. F-28 Notes to Unaudited Financial Statements..................... F-29 - F-32
F-1 105 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of PTI, Inc.: In our opinion, the accompanying consolidated balance sheets and related consolidated statements of income and comprehensive income, stockholders' equity and cash flows present fairly, in all material respects, the financial position of PTI, Inc. and its subsidiaries (the "Company") at December 31, 1998 and 1997, and the results of their operations, changes in stockholders' equity and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. 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 of the financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion expressed above. /s/ PricewaterhouseCoopers LLP Boston, MA March 19, 1999 F-2 106 PTI, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT SHARE DATA)
1998 1997 -------- -------- ASSETS Cash and cash equivalents................................ $ 3,950 $ 1,244 Accounts receivable, net of allowance for doubtful accounts of $3,806 and $3,158 at December 31, 1998 and 1997 respectively...................................... 51,379 42,409 Inventories.............................................. 48,403 39,751 Deferred income taxes.................................... 2,734 2,891 Other current assets..................................... 7,378 4,339 -------- -------- Total current assets........................... 113,844 90,634 Property, plant and equipment, net....................... 87,234 75,046 Intangible assets, net................................... 21,586 23,658 Other assets............................................. 8,347 8,597 -------- -------- Total assets................................... $231,011 $197,935 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt........................ 10,620 5,417 Accounts payable......................................... 23,774 15,446 Salaries and related benefits............................ 7,578 7,205 Income taxes payable..................................... 8,641 4,807 Accrued liabilities...................................... 8,836 9,474 -------- -------- Total current liabilities...................... 59,449 42,349 Long-term debt........................................... 137,094 141,725 Deferred income taxes.................................... 10,523 12,171 Other liabilities........................................ 2,634 1,457 -------- -------- Total liabilities.............................. 209,700 197,702 -------- -------- Commitments and contingencies (see Note 9) Redeemable preferred stock at liquidation value: 14% Series 2 junior exchangeable preferred stock....... 4,986 4,973 14% Series 3 junior exchangeable preferred stock....... 1,264 1,104 14% Series 4 junior exchangeable preferred stock, net of unamortized discount of $1,642 and $1,750 at December 31, 1998 and 1997, respectively............ 2,694 2,329 -------- -------- Total redeemable preferred stock............... 8,944 8,406 -------- -------- Stockholders' equity: Class A common stock, $.01 par value, 1,005,000 shares authorized, 100 shares issued and outstanding Class B common stock, $.01 par value, 1,004,900 shares authorized, 854,900 shares issued and outstanding....................................... 9 9 Capital in excess of par value......................... 879 879 Retained earnings (deficit).............................. 13,425 (4,379) Accumulated other comprehensive income: Cumulative translation adjustment...................... (1,946) (4,682) -------- -------- Total stockholders' equity..................... 12,367 (8,173) -------- -------- Total liabilities and stockholders' equity..... $231,011 $197,935 ======== ========
The accompanying notes are an integral part of the financial statements. F-3 107 PTI, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (IN THOUSANDS)
1998 1997 1996 -------- -------- -------- Net sales.............................................. $227,956 $214,509 $146,577 Less: Cost of goods sold (Note 1).......................... 124,707 118,417 83,069 -------- -------- -------- Gross profit........................................... 103,249 96,092 63,508 Selling expenses....................................... 25,953 25,505 19,882 General and administrative expenses.................... 17,346 17,139 12,172 Research and development expenses...................... 8,977 8,590 5,887 Purchased research and development (see Note 1)........ -- 10,495 -- Amortization expense................................... 4,825 4,589 3,990 Customer support and technical services expenses....... 3,681 3,094 3,060 -------- -------- -------- Total operating expenses..................... 60,782 69,412 44,991 -------- -------- -------- Income from operations................................. 42,467 26,680 18,517 -------- -------- -------- Other (income) expenses: Interest expense..................................... 14,139 15,134 11,425 Other (income) expenses, net......................... (1,076) 343 (1,108) -------- -------- -------- Total other expenses......................... 13,063 15,477 10,317 -------- -------- -------- Income before income taxes and extraordinary item...... 29,404 11,203 8,200 Provision for income taxes............................. 10,061 10,611 3,448 -------- -------- -------- Net income before extraordinary item................... 19,343 592 4,752 Extraordinary charge for early retirement of debt, net of tax benefit of $806............................... -- (1,322) -- -------- -------- -------- Net income (loss)...................................... 19,343 (730) 4,752 Other comprehensive income (loss): Foreign currency translation adjustment, net of tax............................................... 1,834 (3,323) (1,979) -------- -------- -------- Comprehensive income (loss)............................ $ 21,177 $ (4,053) $ 2,773 ======== ======== ======== Earnings per share: Basic: Earnings (loss) per share before extraordinary item.............................................. $ 20.95 $ (.92) $ 3.88 Extraordinary item per share......................... -- (1.55) -- Basic earnings (loss) per share...................... $ 20.95 $ (2.47) $ 3.88 Diluted: Earnings (loss) per share before extraordinary item.............................................. $ 17.82 $ (.92) $ 3.30 Extraordinary item per share......................... -- (1.55) -- Diluted earnings (loss) per share.................... $ 17.82 $ (2.47) $ 3.30
The accompanying notes are an integral part of the financial statements. F-4 108 PTI, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (AMOUNTS IN THOUSANDS, EXCEPT SHARES)
CAPITAL IN COMMON STOCK EXCESS OF RETAINED CUMULATIVE TOTAL -------------------- PAR EARNINGS TRANSLATION STOCKHOLDERS' SHARES PAR VALUE VALUE (DEFICIT) ADJUSTMENT EQUITY ------ --------- ---------- --------- ----------- ------------- Balance at December 31, 1995........... 850,000 $ 9 $ 815 $(3,246) $ 3,474 $ 1,052 Other comprehensive income, net........ (3,044) (3,044) Conversion of Series 1 senior exchangeable preferred stock to a 10% PIK subordinated note................ (1,931) (1,931) Redeemable preferred stock dividends paid................................. (1,000) (1,000) Redeemable preferred stock dividends accrued but not paid and other (Note 7)................................... (759) (759) Net income............................. 4,752 4,752 ------- ------- ------- ------- ------- -------- Balance at December 31, 1996........... 850,000 9 815 (2,184) 430 (930) Other comprehensive income, net........ (5,112) (5,112) Issuance of common stock............... 5,000 64 64 Redeemable preferred stock dividends paid................................. (1,023) (1,023) Redeemable preferred stock dividends accrued but not paid and other (Note 7)................................... (442) (442) Net loss............................... (730) (730) ------- ------- ------- ------- ------- -------- Balance at December 31, 1997........... 855,000 9 879 (4,379) (4,682) (8,173) Other comprehensive income, net........ 2,736 2,736 Redeemable preferred stock dividends paid................................. (1,000) (1,000) Redeemable preferred stock dividends accrued but not paid and other (Note 7)................................... (539) (539) Net income............................. 19,343 19,343 ------- ------- ------- ------- ------- -------- Balance at December 31, 1998........... 855,000 $ 9 $ 879 $13,425 $(1,946) $ 12,367 ======= ======= ======= ======= ======= ========
The accompanying notes are an integral part of the financial statements. F-5 109 PTI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income (loss).................................... $19,343 $ (730) $ 4,752 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization..................... 12,258 11,649 9,488 Deferred income taxes............................. 470 (1,350) (115) Write-off of purchased research and development... -- 10,495 -- Write-off of inventory step-up.................... -- 1,707 -- Write-off of deferred financing fees.............. -- 2,138 -- Provision for doubtful accounts receivable........ 124 148 598 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable...... (3,716) (5,291) 919 (Increase) decrease in inventories.............. (3,074) (6,055) 1,735 (Increase) in other current assets.............. (4,414) (1,347) (224) (Increase) decrease in other long-term assets... (282) 754 (868) (Decrease) increase in other long-term liabilities.................................. 125 1,940 (1,754) (Decrease) increase in accounts payable and other current liabilities.................... 6,082 6,217 (2,881) ------- -------- -------- Net cash provided by operating activities.............. 26,916 20,275 11,650 ------- -------- -------- Cash flows from investing activities: Cash paid for acquisitions, net of cash acquired..... (10,087) (55,658) -- Investments in long-term assets...................... (14,594) (5,816) (4,755) ------- -------- -------- Net cash used in investing activities.................. (24,681) (61,474) (4,755) ------- -------- -------- Cash flows from financing activities: Repayments of debt................................... (96,011) (55,348) (45,083) Borrowings from line of credit....................... 93,024 96,777 36,403 Bank overdraft and other............................. 3,104 2,826 1,287 ------- -------- -------- Net cash (used in) provided by financing activities.... 117 44,255 (7,393) ------- -------- -------- Net effect of exchange rate changes on cash and cash equivalents.......................................... 354 (3,059) (1,041) ------- -------- -------- Net increase (decrease) in cash and cash equivalents... 2,706 (3) (1,539) Cash and cash equivalents, beginning of year........... 1,244 1,247 2,786 ------- -------- -------- Cash and cash equivalents, end of year................. $ 3,950 $ 1,244 $ 1,247 ======= ======== ======== Supplemental disclosure of cash flow information: Interest paid........................................ $11,251 $ 12,524 $ 11,425 Income taxes paid.................................... $ 8,771 $ 9,337 $ 4,103 See Note 7 for disclosure of noncash transactions
The accompanying notes are an integral part of the financial statements. F-6 110 PTI, INC. NOTES TO FINANCIAL STATEMENTS 1. NATURE OF BUSINESS, FORMATION AND ACQUISITIONS: NATURE OF BUSINESS The Company is a designer, manufacturer and supplier of offset blankets, printing plates, textile blankets and rubber-based covers for industrial rollers used in the printing industry. The Company has manufacturing facilities in Morristown, Tennessee; Atlanta, Georgia; Adams, Massachusetts; Cernay, France and Steinbach, France. The Company also maintains other operations, primarily sales offices, in the Asia/Pacific, European, and Latin America regions. The Company's corporate headquarters and certain research and development facilities are located in Billerica, Massachusetts. The Cernay and Steinbach manufacturing facilities comprise Rollin S.A. NAPP Systems, Inc. and subsidiaries ("NAPP") was acquired by Polyfibron Technologies, Inc. ("Polyfibron"), a wholly-owned subsidiary of the Company, on January 17, 1997 (see "NAPP Acquisition"). NAPP is engaged in the development, manufacture, and marketing of proprietary expendable products and processing equipment for imaging systems primarily for use in the newspaper industry and distributes expendable products and processing equipment to the commercial printing industry. NAPP's manufacturing facility is located in San Marcos, California. NAPP also maintains a warehouse in Davenport, Iowa, and a sales office in Oberursel, Germany. FORMATION On October 14, 1994, the Company and Polyfibron entered into a Worldwide Purchase and Sale Agreement with W.R. Grace & Co. ("WRG"); W.R. Grace & Co.- Conn. ("Grace"), a wholly-owned subsidiary of WRG; Grace S.A. ("Grace France"), a subsidiary of Grace, and certain other subsidiaries of Grace pursuant to which, on December 29, 1994, Polyfibron agreed to purchase certain assets and liabilities (the "Grace Acquisition") related to Grace's Printing Products Business and the capital stock of Rollin S.A. ("Rollin"), a subsidiary of Grace France. NAPP ACQUISITION On January 17, 1997, Polyfibron acquired all of the outstanding common stock (the "NAPP Acquisition") of NAPP for $56,777,000. The acquisition has been accounted for using the purchase method of accounting, and accordingly, the purchase price has been allocated to the assets purchased and the liabilities assumed based on the fair values at the date of acquisition. Total assets acquired of $75.5 million were allocated to: accounts receivable $9.6 million; inventories $12.9 million; other current assets $2.7 million; net fixed assets $22.7 million; goodwill $12.4 million; in-process research and development $10.5 million; and other long term assets $4.7 million. Total liabilities assumed of $18.8 million were allocated to: accounts payable and other current liabilities $8.3 million; deferred income taxes $9.0 million; and other long term liabilities $1.5 million. In connection with the NAPP acquisition, PTI wrote-up acquired inventory by $1,707,000 in accordance with the requirements of APB No. 16. PTI then charged this amount to the Statement of Income through cost of goods sold as the inventory was sold to customers during the remainder of 1997. The purchase price exceeded the fair value of the identifiable net assets acquired by $12,449,000 and was recorded as goodwill. The goodwill is being amortized over 20 years. F-7 111 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Included in the assets acquired was $10,495,000 of purchased research and development costs which were charged to operations during the year ended December 31, 1997. Management is primarily responsible for estimating the fair value of purchased in-process research and development. An adjustment to the valuation of the projects listed has been applied based on the stage of completion method. The stage of completion percentage was calculated using the costs incurred to date at the time of the acquisition as a percent of total estimated costs of completion at the time of the valuation. In addition, a core technology charge of 33% ($5,169,000) of cash flows was allocated to capitalized technology thus reducing the purchased research and development charge. This amount is included in goodwill and is being amortized over 20 years. The $10,495,000 represents three purchased projects. 1. The development of Laser Direct technology, started in November 1993, used to etch images directly on the printing plate was sixty-three percent complete with costs incurred to the date of acquisition of $900,000. The $9,261,000 valuation of this technology is based on the Income Forecast Method by analyzing the discounted present values of the cash flow generated. The estimated cost to complete the development of a commercially acceptable product between January 17, 1997 and June 1999 is $518,000. The $9.3 million valuation of the laser direct technology was based on a forecast of net cash inflows starting in late 1998 and continuing through 2005. Since the laser direct project envisions an entirely new plate processor and printing plate system, there is no historical data on which to base a revenue and cost of sales forecast. Consequently, management estimated sales volume, selling prices and margins based on its knowledge of the market and potential customers. Management estimated selling and general and administrative operating expenses for the laser direct products at approximately 13% of sales, which is slightly lower than NAPP's existing expense structure of approximately 14% of sales. Management anticipates that, as a percentage of sales, selling expenses associated with laser direct products will be somewhat lower than NAPP's existing business. On average, laser direct plate customers will be the larger, higher volume users. Compared to NAPP's existing business, the laser direct business is expected to generate higher revenues per customer. Thus, the same selling effort will result in larger average order sizes and a slightly lower selling cost as a percentage of revenues. 2. The development of a High Speed Printing Plate that will expose faster, provide better print quality, and be more durable than the existing NAPPflex technology, started in June, 1996, was forty-one percent complete with costs incurred to the date of acquisition of $60,000. The $958,000 valuation of this technology is based on the Income Forecast Method by analyzing the discounted present values of the cash flow generated. The estimated costs to complete this development between January 17, 1997 and June 1997 was $86,000. 3. The development of the Water Based Polymer technology, targeted at reducing NAPP's cost of raw materials, was twenty-eight percent complete with costs incurred to the date of acquisition of $380,000. The $276,000 F-8 112 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) valuation of this technology is based on the Income Forecast Method by analyzing the discounted present values of the cash flow generated from cost savings. The estimated costs to complete this development between January 17, 1997 and June 1999 is $982,000. The period in which material net cash inflows from significant projects were expected to commence varied from 1998 to late 1999. With regard to the high-speed plate and waterbased polymer projects, there are no material changes from historical pricing, margins and incremental expense levels as they directly relate to the future profitability of each project. For the laser direct project, which envisions an entirely new plate processor and printing plate system, there is no historical data. Therefore, for laser direct, management estimated selling prices and margins based on its knowledge of the market and potential customers as well as NAPP's existing expense structure as a basis for estimating incremental operating expenses. The discount rate applied to the various projects was based upon the relative risks of the product lines that incorporate the acquired technologies. Based on analysis, the weighted average cost of capital for Polyfibron and NAPP was estimated to be approximately 15%. In estimating the appropriate discount rate for the in-process research and development projects, it is assumed that their cash flows are more risky than the company's overall cost of capital. Accordingly, a risk premium was added to the weighted average cost capital to estimate the appropriate discount rate for the in-process research and development based upon the relative stage of completion for each project. The application of a discount rate involved considerations such as stage of completion, remaining development milestones, technological uncertainties, and projected costs to complete. AXCYL ACQUISITION During 1998, Polyfibron acquired all of the outstanding common stock of Axcyl Composite for $1,000,000. The acquisition has been accounted for using the purchase method of accounting, based on the fair values at the date of acquisition. Goodwill of $697,000 has been recognized from this transaction, and will be amortized over 20 years. Axcyl, based in Mirambeau, France, manufactures sleeve systems made of advanced composite materials for use in flexographic printing applications. JAGER JEUNE ACQUISITION On December 24, 1998, Polyfibron acquired all of the outstanding common stock of Jager Jeune S.A. for $11,258,000. The acquisition has been accounted for using the purchase method of accounting, based on the fair values at the date of acquisition. Goodwill of $1,470,000 has been recognized from this transaction, and will be amortized over 20 years. Polyfibron may have to pay certain contingent amounts to the previous owner based on future results of operations. The maximum amount may be $1,800,000 ultimately due in August 2000. These amounts will be recorded as goodwill in the year known. The operating results of the 1998 acquisitions have been included in the consolidated statements of operations from the date of acquisition. The following unaudited proforma F-9 113 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) information has been prepared assuming the acquisition occurred at the beginning of the respective periods:
(UNAUDITED) 1998 1997 - ----------- -------- -------- Net sales.................... $246,871 $231,999 Cost of goods sold........... 138,856 130,746 Net income before extraordinary item......... 19,393 1,799 Net income................... 19,393 477 Earnings per share: Basic...................... $ 21.00 $ (1.05) Diluted.................... $ 17.87 $ (1.05)
The pro forma information is not necessarily indicative of the operating results that would have occurred had the 1998 acquisitions been consummated as of the above dates, nor are they necessarily indicative of future operating results. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions have been eliminated. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist primarily of cash and investments in highly liquid debt instruments with maturities at acquisition of three months or less. Under the Company's cash management system, checks issued but not presented to banks occasionally result in overdraft balances for accounting purposes and are included in accounts payable. The overdraft balance amounted to $2,481,011 and $1,261,000 at December 31, 1998 and 1997, respectively. FINANCIAL INSTRUMENTS At December 31, 1998 and 1997, the carrying value of financial instruments, such as cash, trade accounts receivable and accounts payable approximate fair value, based on the short-term maturities of those instruments. The fair value of the Company's debt, which approximates its carrying value, is based upon interest rates that are currently available to the Company for debt with similar terms and remaining maturities. REVENUE RECOGNITION Sales and the related cost of sales are recognized upon shipment of products. CONCENTRATION OF CREDIT RISK Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable. To minimize this risk, ongoing credit evaluations of customers' financial condition are performed, although collateral is not required. In addition, the Company maintains allowances for potential credit losses. F-10 114 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) INVENTORIES Inventories are stated at the lower of cost or market, using the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment acquired in the normal course of business is stated at cost. Betterments and major renewals which extend the useful lives of the respective assets are capitalized. Maintenance, repairs and renewals which do not extend the useful lives of the respective assets are charged to expense in the period incurred. Fully depreciated assets are retained in property, plant and equipment and the related accumulated depreciation accounts until they are removed from service. Depreciation is computed using the straight-line method based on the following estimated useful lives:
USEFUL LIVES CATEGORY (YEARS) - -------- ------------ Buildings............................................... 30 Machinery and equipment................................. 3-10
In accordance with Statement of Position 98-1, "Accounting for Costs of Computer Software Developed or Obtained for Internal Use," costs associated with the application development stage are capitalized, such as, direct external costs, directly related internal payroll and payroll related costs and interest costs. Interest costs for the construction of certain long-term assets are capitalized and amortized over the related assets' estimated useful lives. The Company did not capitalize any interest costs in 1998, 1997 or 1996. INTANGIBLE ASSETS In accordance with APB No. 16, intangible assets acquired as part of acquisitions are recorded at fair market value. Intangible assets acquired in the normal course of business are stated at cost. Intangible assets consist primarily of goodwill, deferred financing costs, trademarks, licenses and proprietary technology. Amortization of intangible assets is computed using the straight-line method based on their estimated useful lives, which range from 3 to 20 years. The Company continually monitors the useful lives of its long-lived assets to ensure that no change is warranted. The Company reviews its intangible and other long-lived assets whenever adverse events occur or circumstances indicate that the carrying amount of an asset may be impaired. The Company performs this review on an asset by asset basis whenever prudent. In performing the review, the Company estimates the future net cash flows (undiscounted and without interest) expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the asset, an impairment is recognized. The amount of the impairment is determined based on the extent to which the sum of estimated future undiscounted cash flows of the long-lived asset is not sufficient to recover the carrying value of that asset, so that the carrying value of that long-lived asset is adjusted to its then fair value. F-11 115 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) FOREIGN CURRENCY TRANSLATION Assets and liabilities of the Company's foreign operations were translated into U.S. dollars using year-end exchange rates, and the related statements of operations were translated at average exchange rates for the year. The Company recorded approximately $(424,000), $(525,000), and $107,000 of net pretax foreign currency transaction gains/(losses) for the years ended December 31, 1998, 1997 and 1996, respectively. The three most significant exchange rates are as follows as of:
DECEMBER 31, ----------------------------- 1998 1997 1996 ------- ------- ------- French franc......................... 5.598 6.014 5.190 Japanese yen......................... 113.450 130.570 115.850 Australian dollar.................... 1.633 1.538 1.258
INCOME TAXES The Company uses the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for differences in the bases of assets and liabilities recognized in the Company's financial statements compared to tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than future enactments of changes in the tax law or rates. Deferred tax assets are recognized, net of any valuation allowance, for deductible temporary differences and operating loss and credit carryforwards. Tax credits are deducted from the provision using the flow-through method. Deferred tax expense represents the change in the deferred tax assets and liabilities. NET INCOME PER COMMON SHARE Net Income per basic common share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Net income per diluted common shares is computed based on the weighted-average number of common and dilutive common equivalent shares outstanding during each period. Common equivalent shares consist of stock options calculated in accordance with SFAS No. 128, "Earnings per Share." ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts in the prior year financial statements have been reclassified to conform to current year presentation. F-12 116 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NEW ACCOUNTING PRONOUNCEMENTS The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," in 1998. This Statement establishes standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This Statement requires the classification of items of comprehensive income by their nature in a financial statement and the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. In June, 1997, the Financial Accounting Standards Board issued Statement No. 131 ("SFAS" 131), "Disclosures about Segments of an Enterprise and Related Information." SFAS 131, which supersedes Statement No. 14, "Financial Reporting for Segments of a Business Enterprise," changes the way public companies report information about segments. SFAS 131, which is based on the management approach to segment reporting, includes requirements to report segment information quarterly and entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenues. SFAS 131 is effective for fiscal years beginning after December 15, 1997. Restatement for earlier years is required for comparative purposes unless impracticable. In addition, SFAS 131 need not be applied to interim periods in the initial year; however, in subsequent years, interim period information must be presented on a comparative basis. The Company adopted SFAS 131 for fiscal year ended December 31, 1998. 3. INVENTORIES: Inventories by major classification consisted of the following at:
(IN THOUSANDS) ------------------------------ DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ Raw and packaging materials.............................. $16,317 $12,472 Work in process.......................................... 7,014 5,081 Finished goods........................................... 25,072 22,198 ------- ------- $48,403 $39,751 ======= =======
4. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consisted of the following at:
(IN THOUSANDS) ------------------------------ DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ Land..................................................... $ 5,705 $ 4,378 Buildings................................................ 39,731 34,709 Machinery and equipment.................................. 76,433 67,989 Construction in progress................................. 12,756 4,224 -------- -------- 134,625 111,300 Accumulated depreciation................................. 47,391 36,254 -------- -------- $ 87,234 $ 75,046 ======== ========
F-13 117 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Included in machinery and equipment are capitalized software costs of $767,660 and $566,088 for the years ended December 31, 1998 and 1997, respectively. Related accumulated depreciation amounted to $305,100 and $66,000, respectively. Amounts included in construction in progress that relate to software were $1,373,000 and $261,000 as of December 31, 1998 and 1997, respectively. Depreciation expense for the years ended December 31, 1998, 1997 and 1996 was $7,433,000, $7,060,000, $5,498,000 respectively. Depreciation expense for capitalized software costs, included in these amounts for the respective period was $239,100, $66,000 and $0. 5. INTANGIBLE ASSETS: Intangible assets consisted of the following at:
(IN THOUSANDS) ------------------------------ DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ Trademarks............................................... $ 9,337 $ 9,337 Licenses................................................. 1,436 1,436 Goodwill................................................. 14,616 12,449 Other.................................................... 11,068 11,426 -------- -------- 36,457 34,648 Accumulated amortization................................. (14,871) (10,990) -------- -------- $ 21,586 $ 23,658 ======== ========
Amortization expense for the years ended December 31, 1998, 1997 and 1996 was $4,825,000, $4,589,000 and $3,990,000 respectively, not including $1,000,000, $719,000 and $439,000 for the same periods, related to depreciable machines included as a component of other assets in the consolidated financial statements. Depreciable machines are amortized over their useful lives of three to five years. 6. LONG-TERM DEBT: Long-term debt consisted of the following at:
(IN THOUSANDS) ------------------------------ DECEMBER 31, DECEMBER 31, 1998 1997 ------------ -------------- Credit agreement: Tranche A Term Loan.................................... $ 23,143 $ 25,952 French Franc Term Loan................................. 7,410 7,748 Yen Term Loan.......................................... 3,719 3,630 -------- -------- 34,272 37,330 Tranche B Term Loan.................................... 34,591 38,191 Revolving Credit Note.................................. 13,469 9,123 Capitalized Lease Obligation............................. 1,367 1,280 Senior Subordinated Credit Note.......................... 40,000 40,000 10% PIK Subordinated Notes (net of unamortized discounts of $4,714 and $5,027 at December 31,1998 and 1997 respectively).......................................... 22,981 20,095 Accrued interest......................................... 1,034 1,123 -------- -------- Total.......................................... 147,714 147,142 Less: current portion.................................... 10,620 5,417 -------- -------- $137,094 $141,725 ======== ========
F-14 118 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) CREDIT AGREEMENT In connection with the Grace Acquisition, the Company entered into an agreement (the "Credit Agreement") with Banque Paribas and several other lenders on December 29, 1994 which provided for revolving credit advances of up to $25,000,000 at any one time and term loans of $70,000,000. The term loans consist of a Tranche A term loan, a Tranche B term loan, a French Franc term loan, and a Yen term loan. On January 17, 1997, in connection with the NAPP Acquisition, the Company amended and restated the Credit Agreement and provided for revolving credit advances of up to $35,000,000 at any one time and term loans of $90,000,000. On December 31, 1997, the Company amended and restated the Credit Agreement to provide for lower interest rates in future periods. The Credit Agreement extends through December 28, 2003. In connection with the new credit agreement the Company capitalized the fees paid in 1997 and wrote off $2,128,000 related to the old agreement. The financial statements have been reclassified to disclose this amount as an extraordinary item. This amount was previously disclosed as other expense. The interest rates under the Credit Agreement are determined, at the election of the Company, at either (a) a base rate (the higher of (i) the rate of interest announced publicly by the Chase Manhattan Bank as its prime commercial lending rate or (ii) the federal funds rate plus 0.5%) plus a variable margin based on the Company's debt to EBITDA ratio which ranges from .25% to 1.25% in the case of the Tranche A term loan, the French Franc term loan, the Yen term loan, and the Revolving Credit Note, and 1% to 1.75% in the case of the Tranche B term loan or (b) LIBOR, as adjusted by the terms of the Credit Agreement, plus a variable margin based on the Company's debt to EBITDA ratio which ranges from 1.25% to 2.25% in the case of the Tranche A term loan, the French Franc term loan, and the Yen term loan, and 2% to 2.75% in the case of the Tranche B term loan. At December 31, 1998 the weighted-average interest rates on the Tranche A term loan, Tranche B term loan, French Franc term loan, Yen term loan, and the Revolving Credit Note were 7.0%, 7.5%, 5.1%, 2.2%, and 8.8%, respectively. Borrowings under the Credit Agreement are guaranteed by the Company and each of its direct and indirect wholly-owned subsidiaries, and such borrowings are collateralized by security interests in (a) all the common stock of the Company and each of its U.S. subsidiaries and 65% of the common stock of each foreign subsidiary and (b) all assets (subject to certain limitations) owned by the Company and its subsidiaries. The Credit Agreement contains certain covenants which limit the Company with respect to certain matters including, among other things, the ability to incur additional debt, pay dividends, make acquisitions, merge, grant or incur liens, guarantee obligations, make investments or loans, make capital expenditures, create subsidiaries or change its line of business. The Company is also required to satisfy certain financial covenants which require the Company to maintain specified financial ratios and comply with certain financial tests including a maximum leverage ratio; a minimum fixed charge coverage ratio; a minimum interest coverage ratio; and minimum levels of earnings before interest, taxes, depreciation and amortization. Prepayments of debt under the Credit Agreement may be made by the Company at any time provided certain conditions are met with respect to proper notice to the Lenders and minimum prepayment amounts. F-15 119 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) On January 17, 1997, in connection with the NAPP Acquisition, the Company borrowed $31,800,000 under the Tranche A term loan, $42,500,000 under the Tranche B term loan, $10,700,000 under the French Franc term loan, and $5,000,000 under the Yen term loan. The Tranche A term loan, the French Franc term loan and the Yen term loan are payable in quarterly installments commencing March 31, 1997 with the last installment payable on December 29, 2001. The Tranche B term loan is payable in quarterly installments commencing March 31, 1997 with the last installment payable on December 28, 2003. All principal payments under each of the term loans are accompanied by the accrued interest on the principal being repaid to the date of payment. The Company is required to prepay the term loan obligations (a) in the event the Company receives asset sale proceeds, as defined, in excess of levels set forth in the Credit Agreement, (b) within 100 days after the end of the fiscal year in an amount equal to 50% of excess cash flow, as defined, for the preceding fiscal year, and (c) in the event the Company receives proceeds from the termination of any defined benefit plan. Under the Revolving Credit Note, the Company has a borrowing limit equal to the lesser of $35,000,000 or the Borrowing Base (the sum of 85% of eligible receivables plus 50% of eligible inventory, as defined in the Credit Agreement), which amounted to $35,000,000 at December 31, 1998. The Company pays a commitment fee on the average daily unused portion of the Revolving Credit Note at the rate of 0.5% per annum. SENIOR SUBORDINATED CREDIT NOTE In connection with the Grace Acquisition, the Company, through its wholly-owned subsidiary, Polyfibron, entered into a Senior Subordinated Credit Agreement (the "Subordinated Credit Agreement") with Citicorp Mezzanine Partners, L.P. ("CMP") whereby the Company issued to CMP a $40,000,000 note bearing interest at a rate of 13%, payable semiannually. The entire outstanding note amount is due in full on December 31, 2004. The Company may prepay the note in whole or in part any time after the first anniversary date, subject to minimum prepayment amounts at premiums which range from 105% of principal through December 31, 1996 to 101% of principal through December 31, 2000. No prepayments may be made against the note, however, unless (i) there are no amounts outstanding under the Credit Agreement discussed above and all commitments under the Credit Agreement have been terminated or (ii) the Credit Agreement expressly permits such payments or the required Banks thereunder have consented to such payment. Mandatory prepayments are required to be made, to the extent not used to prepay amounts under the Credit Agreement, in the event (a) the Company receives asset sale proceeds, as defined, in excess of levels set forth in the Subordinated Credit Agreement; (b) of a public offering of the Company's stock; or (c) the Company receives proceeds from the termination of any defined benefit pension plan. The payment of the principal and interest on the Senior Subordinate Note are subordinate and subject in right of payment to the prior payment in full of all obligations under the Credit Agreement. Borrowings under the Senior Subordinated Credit Note are guaranteed by the Company and each of its direct and indirect wholly-owned subsidiaries, and such borrowings are collateralized by security interests in (a) all common stock of the Company and each of its U.S. subsidiaries and 65% of the common stock of each foreign subsidiary F-16 120 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) and (b) all assets (subject to certain limitations) owned by the Company and its subsidiaries, after satisfaction of the Credit Agreement discussed above. The Subordinated Credit Agreement contains certain covenants which limit the Company with respect to certain matters including, among other things, the ability to incur additional debt, pay dividends, make acquisitions, merge, grant or incur liens, guarantee obligations, make investments or loans, make capital expenditures, create subsidiaries or change its line of business. The Company is also required to satisfy certain financial covenants which require the Company to maintain specified financial ratios and comply with certain financial tests including a minimum fixed charge coverage ratio and minimum levels of earnings before interest, taxes, depreciation and amortization. On December 29, 1994, the Company also entered into a Stock Purchase Warrant Agreement (the "Warrant Agreement") with CMP which grants to CMP, or its transferees or assigns, the right to purchase from the Company up to 150,000 shares of its Class B common stock at a price of $.01 per share. These warrants are exercisable from the date of the Warrant Agreement through December 29, 2004. The exercise price and the number of shares obtainable under the Warrant Agreement are subject to adjustment in the event the Company sells, or is deemed to have sold, additional shares of its common stock in the future, other than in connection with a permitted issuance, as defined in the Warrant Agreement. 10% PIK SUBORDINATED NOTES In connection with the Grace Acquisition, the Company issued to Grace a $9,500,000 PIK Subordinated Note bearing interest at a rate of 10%, payable semiannually. The Note may be prepaid at any time at the option of the Company (subject to the subordination provisions contained in the Note Agreement) through its maturity date on December 29, 2006, at which time the entire principal becomes due. On March 15, 1996, the Company elected to exchange all of its 7.5% Series 1 Senior Preferred Stock held by Grace for a 10% PIK Subordinated Note in the aggregate principal amount of $10,390,400. Both PIK Notes are uncollateralized, subordinated obligations of the Company and rank (a) junior in right of payment to all existing and future Senior Debt (as defined for purposes of the Note), including obligations of the Company under the Credit Agreement and (b) senior in right of payment to or equal in right of payment with all existing and future subordinated indebtedness. Beginning June 15, 2000, these PIK notes require cash payment of interest. CAPITALIZED LEASE OBLIGATION The capitalized lease obligation represents the present value due in future years for a warehouse under a noncancelable lease agreement. The Company has discontinued the use of the warehouse and the related asset was written off. The liability is payable in quarterly installments through December 2009. The net present value of future lease payments was $1,367,000 at December 31, 1998, of which $159,000 will be due within the next twelve months. F-17 121 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) LONG-TERM DEBT Aggregate principal payments of long-term debt for the next five years and thereafter subsequent to December 31, 1998 are as follows (in thousands): 1999..................................................... $ 10,620 2000..................................................... 11,548 2001..................................................... 12,931 2002..................................................... 13,341 2003..................................................... 21,250 Thereafter............................................... 78,024 -------- 147,714 Less amounts representing accrued interest............... 1,034 -------- $146,680 ========
7. CAPITAL TRANSACTIONS: COMMON STOCK The holder or holders of a majority of the outstanding shares of Class B common stock shall be entitled at any time to convert any or all of the Class B to Class A common stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Class A common stock, solely for the purpose of issuance upon the conversion of the Class B common stock, such number of shares of Class A common stock issuable upon conversion of all outstanding shares of Class B common stock. The Company has authorized the issue and sale of up to 150,000 warrants with an exercise price of $.01 per share, each of which may be exercised immediately for one share of Class B common stock at a purchase price of $.01 per share. The warrants expire December 29, 2004. The Company shall at all times reserve and keep available out of its authorized but unissued shares, solely for the purpose of issuance upon exercise of these warrants, the maximum number of shares issuable upon the exercise of these warrants. In addition, on December 29, 1994, the Company entered into a Registration Rights Agreement with a majority of its Class A and Class B shareholders whereby at any time the holders of a majority of the Investor Registrable Securities, as defined in the Registration Rights Agreement, and at any time after the fifth anniversary of the Registration Rights Agreement, the holders of the majority of the CMP Registrable Securities, as defined, may request registration, under the Securities Act of 1933 (the "Securities Act"), of all or part of their Registrable Securities, subject to certain conditions. The Registration Rights Agreement also grants to the parties certain rights in the event the Company proposes to register any of its stock under the Securities Act. REDEEMABLE PREFERRED STOCK Also pursuant to the above-mentioned agreements, the Company authorized the issue and sale of up to 9,500 shares of its 7.5% Series 1 Senior Exchangeable Preferred Stock ("Senior Preferred Stock"), $1.00 par value, for a purchase price of $1,000 per share; up to 4,920 shares of its 14% Series 2 Junior Exchangeable Preferred Stock ("Series 2 Junior Preferred Stock"), $1.00 par value, for a purchase price of $1,000 per share; up to 756 shares of its 14% Series 3 Junior Exchangeable Preferred Stock ("Series 3 Junior F-18 122 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Preferred Stock"), $1.00 par value, for a purchase price of $1,000 per share; and up to 3,500 shares of its 14% Series 4 Junior Exchangeable Preferred Stock ("Series 4 Junior Preferred Stock"), $1.00 par value, for a purchase price of $428.57 per share. Each share of the Senior Preferred Stock entitles its holder to receive an annual dividend of 7.5% of the liquidation value ($1,000 per share plus any and all accumulated and unpaid dividends), compounded semiannually. Each share of the Series 2, Series 3, and Series 4 Junior Preferred Stock entitles the holder to receive an annual dividend of 14% of the liquidation value, compounded semiannually. Such dividends accrue whether or not they have been declared and whether or not there are profits, surpluses, or other funds of the Company legally available for the payment of dividends. At the time the Company elects to pay dividends in cash, the payments will be distributed first among the holders of the Senior Preferred Stock based on the aggregate accrued but unpaid dividends on the shares, except that the Company may pay cash dividends of up to $1,000,000 per year on the Series 2 and Series 4 Junior Preferred Stock before paying cash dividends on any other stock. If the Company pays the full amount of dividends accrued with the respect to the Senior Preferred Stock, then the Company may elect to pay all or any portion of the dividends accrued with respect to the Series 2 Junior Preferred Stock. If the Company pays the full amount of dividends accrued with respect to the Series 2 Junior Preferred Stock, then the Company may elect to pay all or any portion of the dividends accrued with respect to the Series 3 Junior Preferred Stock. If the Company pays the full amount o dividends accrued with respect to the Series 3 Junior Preferred Stock then the Company may elect to pay all or any portion of the dividends accrued with respect to Series 4 Junior Preferred Stock. Upon any liquidation, dissolution, or winding up of the Company, the order of payments in cash equal to the aggregate liquidation value of each series of preferred stock is as follows: Series 1 Senior Preferred Stock, then Series 2 Junior Preferred Stock, then Series 3 Junior Preferred Stock, then Series 4 Junior Preferred Stock, and then the Company's other equity securities. On December 29, 2006, the Company must redeem all issued and outstanding shares of its Preferred Stock, if any, at a price per share equal to the liquidation value. Also, subject to certain conditions contained within the debt agreements entered into in connection with the Acquisition, the Company may at any time redeem (i) first, all or any portion of the Senior Preferred Stock outstanding, (ii) second, all or any portion of the Series 2 Junior Preferred Stock outstanding, (iii) third, all or any portion of the Series 3 Junior Preferred Stock outstanding, and (iv) fourth, all or any portion of the Series 4 Junior Preferred Stock outstanding, each at a price per share equal to the liquidation value thereof. Also, if a Change of Control has occurred at the Company, the holders of a majority of each Series of Preferred Stock may require the Company to redeem all or any portion of such series of Preferred Stock at a price per share equal to the liquidation value thereof. On March 15, 1996, the Company elected to exchange all of its 7.5% Series 1 Senior Preferred Stock held by Grace for a 10% PIK Subordinated Note in the aggregate principal amount of $10,390,400. At any time after the exchange of all Senior Preferred Stock into PIK Subordinated Notes, the Series 2 Junior Preferred Stock, the Series 3 Junior Preferred Stock, and the Series 4 Junior Preferred Stock are exchangeable, F-19 123 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) respectively, into Series 2 Junior Notes, Series 3 Junior Notes, and Series 4 Junior Notes, at the option of the Company. Also, at any time after December 29, 1999, each holder of the Senior Preferred Stock, Series 2 Junior Preferred Stock, Series 3 Junior Preferred Stock, or Series 4 Junior Preferred Stock may elect to exchange all such holder's Preferred Stock for a PIK Subordinated Note of the same value. Net proceeds from the sales of preferred stock under the above-mentioned agreements yielded $16,675,500, in exchange for the issuance of 9,500 shares of Senior Preferred Stock, 4,919.5 shares of Series 2 Junior Preferred Stock, 756 shares of Series 3 Junior Preferred Stock, and 3,500 shares of Series 4 Junior Preferred Stock. In 1998, dividends of $1,431,000 accumulated on the Preferred Stock, of which $1,000,000 were paid in 1998. Components of Preferred Stock are as follows:
SERIES 1 SERIES 2 SERIES 3 SERIES 4 TOTAL -------- -------- -------- -------- -------- 12/31/95 balance................... $ 5,430 $4,978 $ 866 $1,507 $12,781 Accrue Dividends................... 160 663 126 501 1,450 Cash Dividends Paid................ -- (680) -- (320) (1,000) Amortize Discount.................. -- -- -- 323 323 Convert to PIK Note................ (5,590)(a) -- -- -- (5,590) ------- ------ ------ ------ ------- 12/31/96 balance................... -- 4,961 992 2,011 7,964 Accrue Dividends................... -- 692 136 544 1,372 Cash Dividends Paid................ -- (680) (24) (319) (1,023) Amortize Discount.................. -- -- -- 93 93 ------- ------ ------ ------ ------- 12/31/97 balance................... -- 4,973 1,104 2,329 8,406 Accrue Dividends................... -- 693 160 578 1,431 Cash Dividends Paid................ -- (680) -- (320) (1,000) Amortize Discount.................. -- -- -- 107 107 ------- ------ ------ ------ ------- 12/31/98 balance................... $ -- $4,986 $1,264 $2,694 $ 8,944 ======= ====== ====== ====== =======
- --------------- (a) Series 1 converted to PIK note on March 31, 1996. Net Income Per Common Share In accordance with SFAS No. 128, "Earnings per Share," the Company presents basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. A reconciliation of basic EPS to diluted EPS and dual presentation on the face of the statement of income are also required. F-20 124 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Calculation of per share earnings is as follows:
1998 1997 1996 ----------- ----------- ----------- (IN THOUSANDS EXCEPT PER SHARE FIGURES) BASIC: Net income (loss)................................ $ 19,343 $ (730) $ 4,752 Less: preferred stock dividends.................. 1,431 1,372 1,450 ---------- ---------- ---------- Income (loss) available to common shareholders... 17,912 (2,102) 3,302 Weighted average common shares outstanding....... 855,000 851,250 850,000 Net income (loss) per share before extraordinary item, basic.................................... $ 20.95 $ (.92) $ 3.88 Extraordinary item............................... -- (1.55) -- Net income (loss) per share, basic............... 20.95 (2.47) 3.88 DILUTED: Net income (loss)................................ $ 19,343 $ (730) $ (4,752) Less: preferred stock dividends.................. 1,431 1,372 1,450 ---------- ---------- ---------- Income (loss) available to common shareholders... 17,912 (2,102) 3,302 Weighted average common shares outstanding....... 855,000 851,250 850,000 Common stock equivalents......................... 150,000 150,000 ---------- ---------- ---------- Total weighted average shares.................... 1,005,000 851,250 1,000,000 Net income (loss) per share before extraordinary item, diluted.................................. $ 17.82 $ (.92) $ 3.30 ---------- ---------- ---------- Extraordinary item............................... -- (1.55) -- Net income (loss) per share, diluted............. $ 17.82 $ (2.47) $ 3.30
In 1997, common share equivalents are not included in the calculation of diluted earnings per share as they are anti-dilutive. 8. INCOME TAXES: The income tax provision for the years ended December 31, 1998, 1997 and 1996 consists of the following (in thousands):
1998 1997 1996 ---- ---- ---- Current income taxes: Federal..................................... $ 7,800 $10,031 $2,380 State....................................... 1,628 1,174 420 Foreign..................................... 2,211 1,039 850 ------- ------- ------ 11,639 12,244 3,650 ------- ------- ------ Deferred income taxes: Federal..................................... (2,313) (1,587) 187 State....................................... (415) (181) 5 Foreign..................................... 1,150 135 (394) ------- ------- ------ (1,578) (1,633) (202) ------- ------- ------ $10,061 $10,611 $3,448 ======= ======= ======
The domestic and foreign components of income before income tax expense are as follows:
1998 1997 1996 ---- ---- ---- Domestic....................................... $23,764 $7,830 $6,585 Foreign........................................ 5,640 3,373 1,615 ------- ------ ------ Total.......................................... 29,404 11,203 8,200
F-21 125 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The components of deferred taxes included in the balance sheet as of December 31, 1998 and 1997 are as follows (in thousands):
1998 1997 ---- ---- Deferred tax assets: Accounts receivable................................ $ 447 $ 310 Accrued pension and other benefits................. 824 716 Miscellaneous accruals............................. 1,509 2,210 Assets held for sale reserve....................... 696 783 Intercompany and inventory-related transactions.... 2,634 1,266 Intangible assets.................................. 4,413 3,322 Net operating loss and credit carryforwards........ -- 261 Foreign tax credit................................. -- 853 ------- ------- 10,523 9,721 ------- ------- Valuation allowance................................ -- (853) ------- ------- Tax assets......................................... 10,523 8,868 ------- ------- Deferred tax liabilities: Fixed assets....................................... $(8,573) (7,642) Other.............................................. (2,052) (1,248) Discount on notes.................................. (1,746) (1,922) Purchase accounting reserves and tax basis differences..................................... (5,941) (7,336) ------- ------- (18,312) (18,148) ------- ------- Net deferred tax liabilities....................... $(7,789) $(9,280) ======= =======
The United States federal corporate tax rate reconciles to the effective tax rate as follows for the years ended December 31, 1998, 1997 and 1996 (in thousands):
1998 1997 1996 ---- ---- ---- Federal tax at statutory rate................... $10,193 $ 4,061 $2,692 State taxes, net of federal benefit............. 788 791 281 Foreign taxes................................... 769 (120) 257 Research and development write-off.............. -- 3,976 -- Reduction of valuation allowance and increased tax credits.................................. (1,107) -- -- Research and experimental tax credits........... (259) -- -- Other........................................... (323) 1,903 218 ------- ------- ------ $10,061 $10,611 $3,448 ======= ======= ======
9. COMMITMENTS AND CONTINGENCIES: The Company leases a variety of assets for use in its operations, including its corporate offices. Minimum rental payments under operating leases that have noncancelable lease terms in excess of twelve months are as follows (in thousands): 1999....................................................... $1,521 2000....................................................... 924 2001....................................................... 789 2002....................................................... 601 2003....................................................... 601 ------ Minimum lease payments..................................... $4,436 ======
F-22 126 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Rental expense under operating leases was $1,962,000, $1,101,000, and $1,080,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The Company is subjected to lawsuits and claims arising out of the conduct of its business. Management and its counsel believe that these matters are without merit or will not have a material impact on the financial position or results of operations of the Company. 10. RETIREMENT BENEFIT PLANS: The Company maintains three retirement benefit plans covering substantially all United States employees as follows: CONTRIBUTORY BENEFIT PLAN The Company sponsors a qualified defined contribution plan covering substantially all full-time employees. The Company matches 50% of a participant's voluntary contributions up to a maximum of 3% of a participant's annual compensation. The Company can also make an additional contribution to the plan at the discretion of the Board of Directors. The Company's contribution expense for the years ended December 31, 1998, 1997 and 1996 was $722,600, $649,020, and $760,900, respectively. NONCONTRIBUTORY BENEFIT PLAN Retirement benefits for all nonunion employees are also provided through a noncontributory defined contribution plan. Under the terms of the Plan, the Company contributes 5% of each covered employee's salary. For the years ended December 31, 1997, 1996 and 1995 the cost of the plan charged to operations was $1,567,860, $1,041,720, and $803,070, respectively. DEFINED BENEFIT PLAN The Company maintains a pension plan designed to provide guaranteed minimum retirement benefits to all union employees at the Adams plant. It is the Company's policy to fund retirement costs to meet the minimum funding requirements as outlined by ERISA. Plan benefits are calculated using a combination of years of service, final average earnings and age. The minimum funding requirement for the year ended December 31, 1998 was $93,972. Due to the immaterial nature of this plan and the few number of employees covered, disclosures required by SFAS No. 132 have been omitted. In addition, at December 31, 1998 unfunded indemnity obligations of $1,040,600 have been recorded to accrue the present value of future indemnity obligations for eligible, active Rollin employees. SEGMENT REPORTING In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards for reporting information regarding operating segments and related disclosures about products and services, geographic areas and major customers. The Company is active in one business segment: designing, manufacturing and marketing products for the printing industry. The Company maintains sales and marketing operations in North America, Europe, Asia/Pacific and Latin America. F-23 127 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) GEOGRAPHIC SEGMENT DATA Geographic information as of and for the years ended December 31, 1998, 1997 and 1996 is presented as follows:
1998 1997 1996 ------- ------- ------- Net Sales: North America...................................... 142,784 137,820 70,197 Europe............................................. 56,911 49,951 52,139 Asia/Pacific....................................... 16,858 18,242 17,915 Latin America...................................... 11,403 8,496 6,326 ------- ------- ------- 227,956 214,509 146,577 ======= ======= ======= Net Income (Loss): North America...................................... 14,428 (4,074) 2,686 Europe............................................. 3,189 1,711 397 Asia/Pacific....................................... (456) (6) 405 Latin America...................................... 2,182 1,639 1,264 ------- ------- ------- 19,343 (730) 4,752 ======= ======= ======= Total Assets: North America...................................... 130,870 124,774 62,090 Europe............................................. 81,635 59,864 64,958 Asia/Pacific....................................... 14,713 11,227 10,370 Latin America...................................... 3,793 2,070 1,727 ------- ------- ------- 231,011 197,935 139,145 ======= ======= =======
12. SUBSEQUENT EVENTS: The Company announced on January 22, 1999 that it signed a Definitive Agreement with Nippon Paint (USA), Inc. to acquire the stock of Supratech Systems, Inc. (SSI), a producer and marketer of waterwash flexographic plate material, located in Charlotte, North Carolina. On January 27, 1999, Polyfibron sold EEC, a business owned by the Company's French subsidiary. The Company received $1,569,000 for a portion of the net assets of EEC. The Company announced on February 19, 1999 that it signed a definitive agreement to be acquired by MacDermid Incorporated, headquartered in Waterbury, Connecticut. MacDermid is a company that supplies specialty chemicals and systems for the chemical treatment, surface preparation and electroplating of metal, plastic and other materials. This transaction is expected to be accounted for by a pooling of interests. The definitive agreement provides for MacDermid to issue a minimum of 7,573,000 and a maximum of 7,827,000 shares of common stock. F-24 128 PTI, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) PTI, INC. SELECTED QUARTERLY FINANCIAL DATA
1998 BY QUARTERS ($ IN THOUSANDS EXCEPT PER SHARE DATA) -------------------------------------------------------- MARCH JUNE SEPTEMBER DECEMBER TOTAL -------- -------- ---------- --------- --------- Net sales......................... $56,258 $57,236 $54,692 $59,770 $227,956 Gross profit...................... 25,572 26,696 24,172 26,809 103,249 Net earnings available to common shareholders.................... 4,145 4,048 3,065 6,654 17,912 Diluted earnings per share........ 4.12 4.03 3.05 6.62 17.82
1997 BY QUARTERS ($ IN THOUSANDS EXCEPT PER SHARE DATA) -------------------------------------------------------- MARCH JUNE SEPTEMBER DECEMBER TOTAL -------- -------- ---------- --------- --------- Net sales......................... $49,732 $55,330 $51,933 $57,514 $214,509 Gross profit...................... 21,058 23,809 23,480 27,745 96,092 Net income/(loss) before extraordinary item.............. (7,900) 1,585 2,847 4,060 592 Net earnings/(loss) available to common shareholders............. (9,560) 1,246 2,500 3,712 (2,102) Earnings/(loss) per share before extraordinary item.............. (9.69) 1.25 2.50 3.69 (.92) Diluted earnings/(loss) per share........................... (11.25) 1.25 2.50 3.69 (2.47)
F-25 129 PTI, INC. CONSOLIDATED BALANCE SHEETS UNAUDITED JUNE 30, 1999 AND DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
JUNE 30, DEC. 31, 1999 1998 -------- -------- Cash and cash equivalents................................... $ 2,148 $ 3,950 Accounts receivable, net of allowance for doubtful accounts of $3,690 and $3,806 at June 30, 1999 and December 31, 1998, respectively........................................ 54,046 51,379 Inventories (Note 2)........................................ 56,935 48,403 Deferred income taxes....................................... 2,613 2,734 Other current assets........................................ 6,724 7,378 -------- -------- Total current assets.............................. 122,466 113,844 Property, plant and equipment, net (Note 2)................. 90,126 87,234 Goodwill (net of accumulated amortization of $1,577 and $1,192 at June 30, 1999 and December 31, 1998, respectively)............................................. 16,906 13,424 Intangible assets (net of accumulated amortization of $15,690 and $13,679 at June 30, 1999 and December 31, 1998, respectively)....................................... 6,796 8,162 Other assets................................................ 9,033 8,347 -------- -------- Total assets...................................... $245,327 $231,011 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt........................... $ 11,834 $ 10,620 Accounts payable............................................ 21,053 23,774 Salaries and related benefits............................... 6,419 7,578 Income taxes payable........................................ 9,689 8,641 Accrued liabilities......................................... 10,887 8,836 -------- -------- Total current liabilities......................... 59,882 59,449 Long-term debt.............................................. 148,825 137,094 Deferred income taxes....................................... 10,111 10,523 Other liabilities........................................... 2,493 2,634 -------- -------- Total liabilities................................. 221,311 209,700 Commitments and Contingencies (Note 5) Redeemable preferred stock at liquidation value: 14% Series 2 junior exchangeable preferred stock....... 5,333 4,986 14% Series 3 junior exchangeable preferred stock....... 1,355 1,264 14% Series 4 junior exchangeable preferred stock, net of unamortized discount of $1,581 and $1,642 at June 30, 1999 and December 31, 1998, respectively.......... 3,063 2,694 -------- -------- Total redeemable preferred stock.................. 9,751 8,944 Stockholders' equity: Class A common stock, $.01 par value, 1,005,000 shares authorized, 100 shares issued and outstanding......... -- -- Class B common stock, $.01 par value, 1,004,900 shares authorized, 854,900 shares issued and outstanding..... 9 9 Capital in excess of par value......................... 879 879 Retained earnings/(deficit)............................ 20,137 13,425 Accumulated other comprehensive income: Cumulative translation adjustment................. (6,760) (1,946) -------- -------- Total stockholders' equity........................ 14,265 12,367 -------- -------- Total liabilities and stockholders' equity........ $245,327 $231,011 ======== ========
The accompanying notes are an integral part of the financial statements. F-26 130 PTI, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME UNAUDITED FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
1999 1998 ---------- ---------- Net sales............................................. $ 120,177 $ 113,494 Cost of goods sold.................................... 68,953 61,226 ---------- ---------- Gross profit.......................................... 51,224 52,268 Selling and customer technical support expenses....... 17,537 14,681 General and administrative expenses................... 9,311 9,336 Research and development expenses..................... 3,807 4,500 Amortization expense.................................. 2,498 2,410 ---------- ---------- Total operating expenses.................... 33,153 30,927 Income from operations................................ 18,071 21,341 Other (income)/expense, net: Interest expense................................. 6,955 6,997 (Gain) on sale of assets (Note 4)................ (1,426) -- Other (income)/expense, net...................... 414 (397) ---------- ---------- Total other (income)/expense................ 5,943 6,600 Income before taxes................................... 12,128 14,741 Provision for income taxes............................ 4,609 5,861 ---------- ---------- Net income............................................ 7,519 8,880 Other comprehensive income/(loss): Foreign currency translation, net of tax......... (3,130) 424 ---------- ---------- Comprehensive income.................................. 4,389 9,304 Preferred stock dividends............................. 746 687 ---------- ---------- Net income available to common shareholders........... 6,773 8,193 ========== ========== Weighted average outstanding common shares: Basic............................................ 855,000 855,000 Diluted.......................................... 1,005,000 1,005,000 Net earnings per common share: Basic............................................ 7.92 9.58 Diluted.......................................... $ 6.74 $ 8.15 ========== ==========
The accompanying notes are an integral part of the financial statements. F-27 131 PTI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (IN THOUSANDS)
1999 1998 -------- -------- Cash flows from operating activities: Net income............................................. $ 7,519 $ 8,880 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 6,825 6,161 (Gain) on sale of assets............................... (855) -- Deferred income taxes.................................. (196) (401) Provision for doubtful accounts receivable............. 128 17 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable........ (4,492) (3,405) (Increase) decrease in inventories................ (9,716) (3,248) (Increase) decrease in other current assets....... 665 (2,355) (Increase) decrease in other long-term assets..... (253) (1,709) Increase (decrease) in other long-term liabilities.................................... (55) (468) Increase (decrease) in accounts payable and other current liabilities............................ 24 39 -------- -------- Net cash provided by (used in) operating activities......... (406) 3,511 Cash flows from investing activities: Net investment in acquisitions......................... (11,667) -- Proceeds from sale of assets........................... 2,141 -- Investment in long-term assets......................... (6,068) (3,984) -------- -------- Net cash used in investing activities....................... (15,594) (3,984) Cash flows from financing activities: Repayments of debt..................................... (28,368) (33,667) Borrowings from line of credit......................... 44,920 33,563 Bank overdraft and other............................... (1,475) (243) -------- -------- Net cash provided by (used in) financing activities......... 15,077 (347) Net effect of exchange rate changes on cash and cash equivalents............................................... (879) 936 -------- -------- Net increase (decrease) in cash and cash equivalents........ (1,802) 116 Cash and cash equivalents, beginning of year................ 3,950 1,244 -------- -------- Cash and cash equivalents, end of year...................... $ 2,148 $ 1,360 ======== ======== Supplemental disclosure of cash flow information: Interest paid.......................................... $ 5,357 $ 5,553 Income taxes paid...................................... $ 3,985 $ 6,741
The accompanying notes are an integral part of the financial statements. F-28 132 PTI, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS 1. The information furnished has been prepared from the accounts without audit. In the opinion of the Company, the accompanying consolidated financial statements contain all adjustments necessary, consisting only of those of a normal recurring nature, to present fairly its consolidated financial position as of June 30, 1999 and the consolidated results of its operations and cash flows for the six months ended June 30, 1999 and 1998. While the Company believes that the disclosures presented are adequate to make the information not misleading, these statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company's financial statements, included elsewhere herein, for the year ended December 31, 1998. The results of operations for the six-month period ended June 30, 1999 are not necessarily indicative of the results expected for the full year. 2. Details of certain balance sheet captions are as follows (in thousands):
JUNE 30, DEC. 31, 1999 1998 -------- -------- Inventories: Raw and packaging materials..................... 15,707 16,317 Work in process................................. 8,072 7,014 Finished goods.................................. 33,156 25,072 -------- -------- $ 56,935 $ 48,403 ======== ======== Property and equipment: Land............................................ 5,756 5,705 Buildings....................................... 41,237 39,731 Machinery and equipment......................... 80,731 76,433 Construction in progress........................ 9,411 12,756 -------- -------- 137,135 134,625 Accumulated depreciation........................ (46,455) (47,391) -------- -------- $ 90,680 $ 87,234 ======== ========
F-29 133 NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED) 3. The calculation of per share earnings is as follows (amounts in thousands except per share):
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, JUNE 30, JUNE 30, ----------------------- ----------------------- ----------------------- 1999 1998 1999 1998 1999 1998 ---------- ---------- ---------- ---------- ---------- ---------- BASIC: Net income............. $ 3,258 $ 4,488 $ 4,261 $ 4,392 $ 7,519 $ 8,880 Less: preferred stock dividends............ 373 343 373 344 746 687 ---------- ---------- ---------- ---------- ---------- ---------- Net income available to common shareholders......... 2,885 4,145 3,888 4,048 6,773 8,193 Weighted average common shares outstanding... 855,000 855,000 855,000 855,000 855,000 855,000 Net income per share, basic................ $ 3.37 $ 4.85 $ 4.55 $ 4.73 $ 7.92 $ 9.58 ========== ========== ========== ========== ========== ========== DILUTED: Net income............. $ 3,258 $ 4,488 $ 4,261 $ 4,392 $ 7,519 $ 8,880 Less: preferred stock dividends............ 373 343 373 344 746 687 ---------- ---------- ---------- ---------- ---------- ---------- Net income available to common shareholders......... 2,885 4,145 3,888 4,048 6,773 8,193 Weighted average common shares outstanding... 855,000 855,000 855,000 855,000 855,000 855,000 Common stock equivalents.......... 150,000 150,000 150,000 150,000 150,000 150,000 ---------- ---------- ---------- ---------- ---------- ---------- Total weighted average shares............... 1,005,000 1,005,000 1,005,000 1,005,000 1,005,000 1,005,000 Net income per share, diluted.............. $ 2.87 $ 4.12 $ 3.87 $ 4.03 $ 6.74 $ 8.15 ========== ========== ========== ========== ========== ==========
4. Acquisitions and Dispositions: In March 1999, PTI acquired all of the outstanding stock of International Composites Corporation, Inc., located in Vancouver, Washington for $6.0 million. This transaction is being accounted for as a purchase business combination. The excess of the purchase price over the fair value of identifiable net assets amounted to $3.6 million. PTI will amortize this goodwill using the straight line method over its estimated useful life of twenty years. International Composites Corporation has been renamed Axcyl, Inc. Axcyl manufactures sleeve systems which are complementary to the products manufactured by Axcyl S.A. in France. In February 1999, PTI acquired all of the outstanding stock of Supratech, Inc., a Delaware corporation, from Nippon Paint (USA) Inc. and Nippon Paint Co., Ltd. for $5.6 million. The transaction is being accounted for as a purchase business combination. The excess of the purchase price over the fair value of identifiable assets amounted to $0.4 million. PTI will amortize this goodwill using the straight line method over its estimated useful life of twenty years. Supratech produces and markets waterwash, flexographic plate material. In January 1999, PTI sold EEC, a business owned by its French subsidiary. PTI received $1.6 million for a portion of the net assets of EEC and recorded an after-tax gain F-30 134 NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED) of $0.5 million. In June 1999, PTI sold textile blanket splicing equipment and recorded an after tax gain on the sale of $0.3 million. Neither the sale of the EEC business nor the textile equipment is not expected to have a material impact on PTI's future operations. In December 1998, PTI acquired all of the outstanding stock of Jager Jeune, S.A., a French company, primarily engaged in the conversion and distribution of offset printing blankets. In April 1998, PTI acquired all of the outstanding stock of Axcyl Composite, S.A., a French company, which manufactures sleeve systems made of advanced composite materials for use in flexographic printing applications. The operating results of the above acquisitions, all of which were accounted for under the purchase method of accounting, have been included in the consolidated statements of operations from the date of acquisition. The following unaudited pro forma information has been prepared assuming all acquisitions occurred at the beginning of the respective periods (dollars in thousands except per share):
SIX MONTHS ENDED JUNE 30, -------------------- 1999 1998 -------- -------- (UNAUDITED) Net sales........................................ $121,894 $126,636 Cost of goods sold............................... 69,963 70,354 Net income....................................... 7,532 8,954 Earnings per share: Basic.......................................... 7.94 9.67 Diluted........................................ 6.75 8.23
5. Selected Quarterly Financial Data ($ in thousands except per share):
1999 BY QUARTERS ---------------------------- MARCH JUNE JUNE YTD ------- ------- -------- Net sales................................... $57,086 $63,091 $120,177 Gross profit................................ 24,020 27,204 51,224 Net income.................................. 3,258 4,261 7,519 Net earnings available to common shareholders.............................. 2,885 3,888 6,773 Diluted earnings per share.................. 2.87 3.87 6.74
1998 BY QUARTERS ---------------------------- MARCH JUNE TOTAL ------- ------- -------- Net sales................................... $56,258 $57,236 $113,494 Gross profit................................ 25,572 26,696 52,268 Net income.................................. 4,488 4,392 8,880 Net earnings available to common shareholders.............................. 4,145 4,048 8,193 Diluted earnings per share.................. 4.12 4.03 8.15
F-31 135 NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED) 6. Commitments and Contingencies: The Company leases a variety of assets for use in its operations, including its corporate offices. Minimum rental payments under operating leases that have noncancelable lease terms in excess of twelve months are as follows (in thousands): 1999................................................... $1,521 2000................................................... 924 2001................................................... 789 2002................................................... 601 2003................................................... 601 ------ Minimum lease payments................................. $4,436 ======
The Company is subjected to lawsuits and claims arising out of the conduct of its business. Management believes that these matters are without merit or will not have a material impact on the financial position or results of operations of the Company. F-32 136 APPENDIX A PLAN AND AGREEMENT OF MERGER A-1 137 TABLE OF CONTENTS
PAGE ---- SECTION 1. Definitions................................................. A-6 SECTION 2. Merger...................................................... A-12 2.1 General..................................................... A-12 2.2 Closing..................................................... A-12 2.3 Actions at Closing.......................................... A-12 2.4 Effect of Merger............................................ A-13 2.5 Buyer Warrants.............................................. A-15 2.6 Anti-Dilution............................................... A-15 SECTION 3. Representations and Warranties of Seller.................... A-16 3.1 Organization, Qualification, and Corporate Power............ A-16 3.2 Authorization of Merger..................................... A-16 3.3 Noncontravention............................................ A-16 3.4 Capitalization of Seller and its Subsidiaries............... A-16 3.5 Subsidiaries................................................ A-17 3.6 Financial Statements........................................ A-17 3.7 Litigation.................................................. A-18 3.8 Absence of Certain Developments............................. A-18 3.9 Taxes....................................................... A-19 3.10 Environmental, Health, and Safety Matters................... A-21 3.11 Employee Benefit Plans...................................... A-21 3.12 Proprietary Rights.......................................... A-23 3.13 Year 2000................................................... A-24 3.14 Inventories................................................. A-25 3.15 Accounts Receivable......................................... A-25 3.16 Tangible Property........................................... A-25 3.17 Books and Records........................................... A-26 3.18 Brokers' Fees............................................... A-26 3.19 Tax-Free Reorganization Representations..................... A-26 3.20 Pooling of Interest Treatment............................... A-27 3.21 Certain Contracts........................................... A-27 3.22 Absence of Improper Payments................................ A-28 3.23 Insurance................................................... A-28 3.24 Employees................................................... A-28 3.25 Disclosure.................................................. A-28 SECTION 4. CVC Representations and Warranties.......................... A-28 4.1 Organization and Corporate Power............................ A-28 4.2 Authorization of Merger..................................... A-28 4.3 Noncontravention............................................ A-29 4.4 Agency Agreement............................................ A-29 4.5 CVC Shares.................................................. A-29 4.6 Securities Law Issues....................................... A-29 4.7 Tax-Free Reorganization..................................... A-30 4.8 Pooling of Interest Treatment............................... A-30 4.9 Disclosure.................................................. A-30
A-2 138
PAGE ---- SECTION 5. Representations and Warranties of Buyer and Merger Sub...... A-30 5.1 Organization, Qualification, and Corporate Power............ A-30 5.2 Authorization of Merger..................................... A-30 5.3 Noncontravention............................................ A-30 5.4 Capitalization.............................................. A-31 5.5 SEC Filings................................................. A-31 5.6 Financial Statements........................................ A-31 5.7 Litigation.................................................. A-32 5.8 Absence of Certain Developments............................. A-32 5.9 Taxes....................................................... A-32 5.10 Environmental, Health, and Safety Matters................... A-33 5.11 Employee Benefit Plans...................................... A-33 5.12 Broker's Fee................................................ A-34 5.13 Tax-Free Reorganization Representations..................... A-34 5.14 Pooling of Interest Treatment............................... A-35 5.15 Disclosure.................................................. A-35 SECTION 6. Covenants................................................... A-35 6.1 General..................................................... A-35 6.2 Joint Proxy Statement -- Prospectus and S-4 Registration Statement; Stockholder Approval; NYSE Listing............... A-35 6.3 Other Regulatory Matters and Approvals...................... A-38 6.4 Seller's Interim Operation of Business...................... A-38 6.5 Covenants of Buyer.......................................... A-40 6.6 Access...................................................... A-41 6.7 Notice of Developments...................................... A-42 6.8 Acquisition Proposals....................................... A-42 6.9 Board of Directors.......................................... A-42 6.10 Financing................................................... A-43 6.11 Press Releases and Public Announcements..................... A-43 6.12 Covenants of CVC............................................ A-43 SECTION 7. Conditions to Closing....................................... A-44 7.1 Joint Conditions to Obligations of Buyer, Merger Sub and Seller...................................................... A-44 7.2 Conditions to Obligations of Buyer and Merger Sub........... A-45 7.3 Conditions to Obligations of Seller......................... A-46 SECTION 8. Indemnification............................................. A-47 8.1 Agreements to Indemnify..................................... A-47 8.2 Limitations on Indemnification.............................. A-48 8.3 Method of Asserting and Resolving Claims.................... A-49 SECTION 9. Termination and Its Consequences............................ A-51 9.1 Termination of Agreement.................................... A-51 9.2 Effect of Termination....................................... A-51 9.3 Termination Fee............................................. A-51 SECTION 10. Miscellaneous............................................... A-52 10.1 Representations and Survival................................ A-52 10.2 No Third Party Beneficiaries................................ A-52 10.3 Entire Agreement............................................ A-52 10.4 Succession and Assignment................................... A-52 10.5 Counterparts and Delivery................................... A-52
A-3 139
PAGE ---- 10.6 Notices..................................................... A-52 10.7 Governing Law............................................... A-53 10.8 Consent to Jurisdiction..................................... A-53 10.9 Waiver of Jury Trial........................................ A-54 10.10 Amendments and Waivers...................................... A-54 10.11 Construction................................................ A-54 10.12 Time is of the Essence; Computation of Time................. A-54 10.13 Specific Performance........................................ A-54
A-4 140 SCHEDULES Seller Schedules 2.4(e) Distribution of Buyer Shares Among Seller Stockholders 3.1 Organization, Qualification and Corporate Power 3.3 Seller Noncontravention 3.4 Capitalization of Seller and Subsidiaries 3.5 Subsidiaries 3.6 Financial Statements 3.7 Litigation 3.8 Absence of Certain Developments 3.9(a) Tax Returns of Seller Subject to IRS Audit Tax Indemnification, Tax Allocation and Tax Sharing 3.9(b) Agreements 3.10(a) Non-Compliance with Environmental, Health and Safety Matters Environmental Investigations, Studies, Reviews, Audits, 3.10(b) Tests and Other Analyses 3.11 Employee Benefit Plans 3.12 Proprietary Rights 3.14 Inventories 3.16 Real Property 3.17 Books and Records 3.20 Seller Affiliates 3.21(a) Contracts 3.23 Insurance 3.24 Employees Buyer's Schedules 5.3 Buyer Noncontravention 5.4 Capitalization 5.6 Financial Statements 5.8 Absence of Certain Developments 5.9(a) Tax Returns of Buyer Subject to IRS Audit Tax Indemnification, Tax Allocation and Tax Sharing 5.9(b) Agreements 5.10 Environmental, Health and Safety Matters Other Schedules 1 Seller Stockholders 6.4(g) Increases in Compensation or Fringe Benefits; Bonuses EXHIBITS EXHIBIT A Form of Agency Agreement EXHIBIT B Form of Escrow Agreement EXHIBIT C Form of Registration Rights Agreement EXHIBIT D Form of Seller Affiliate Agreement
A-5 141 PLAN AND AGREEMENT OF MERGER This Plan and Agreement of Merger is entered into as of February 18, 1999, by and among MacDermid, Incorporated, a Connecticut corporation ("Buyer"), MCD Acquisition Corp., a Delaware corporation ("Merger Sub") and wholly owned subsidiary of Buyer, PTI, Inc., a Delaware corporation ("Seller"), and Citicorp Venture Capital, Ltd., a New York corporation ("CVC"). Buyer, Merger Sub, Seller, and CVC are referred to collectively herein as the "Parties." RECITALS The respective boards of directors of Buyer and Seller have approved this agreement and declared its advisability, having determined that it would be consistent with and in furtherance of the long-term business strategy of Buyer and Seller, as applicable, and that it would be fair to and in the best interests of Buyer, Seller and their respective stockholders, to engage in a transaction whereby Seller and the Merger Sub will merge on the terms described herein (the "Merger"). For federal income tax purposes, it is intended that the Merger qualify as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and that as a consequence each Seller Stockholder will not recognize income or loss for federal income tax purposes except to the extent they receive cash in lieu of fractional shares or as a holder of Dissenting Shares (as defined herein). Therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows. SECTION 1. Definitions. In this Agreement: "AAA Rules" has the meaning given to that term in Section 8.3. "Agency Agreement" means that certain agreement, to be dated as of the Closing Date, among CVC, the Management Representative, all other Seller Stockholders (other than Seller Stockholders who have perfected dissenters rights) and CMP, which agreement shall be in substantially the form of Exhibit A hereto. "Acquisition Proposal" means, with respect to any Person, any proposal (other than any proposal with respect to the Merger) regarding (i) any merger, consolidation, share exchange, business combination or other similar transaction or series of related transactions involving that Person or any Subsidiary of that Person; (ii) any sale, lease, exchange, transfer or other disposition of the assets of that Person or any of its Subsidiaries; and (iii) any offer to purchase, tender offer, exchange offer or any similar transaction or series of related transactions made by any other Person involving the outstanding shares of any class of capital stock of that Person or the filing of any Statement on Schedule 14D-1 with the SEC in connection therewith. "Affiliate" means, with respect to any Person, any other Person controlling, controlled by or under common control with such Person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") means the possession, directly or indirectly, of power to direct or cause the direction of the management and policies of a Person whether through the ownership of voting securities, by contract or otherwise. A-6 142 "Arbitration Notice" has the meaning given to that term in Section 8.3. "Benefit Plan" has the meaning given to that term in Section 3.11. "Business Day" means each Monday, Tuesday, Wednesday, Thursday or Friday that banks located in New York, New York are not required or permitted by law to be closed. "Buyer Affiliate" has the meaning given to that term in Section 6.2(i). "Buyer Board of Directors" means the board of directors of Buyer as constituted from time to time. "Buyer Common Stock" means Buyer Common Stock, no par value per share. "Buyer Share" means a share of Buyer Common Stock issued in the Merger. "Buyer Special Meeting" means a meeting of holders of Buyer Common Stock at which such holders will vote on a proposal to approve this Agreement. "Buyer Stockholder Approval" means the affirmative vote of the holders of a majority of the outstanding shares of Buyer Common Stock in favor of the approval of the Merger Agreement in accordance with the certificate of incorporation and bylaws of Buyer and the NYSE Rule. "Buyer Warrants" means the Escrow Warrant and the Closing Warrant to purchase Buyer Shares issued pursuant to Section 2.5 in substitution for the CMP Warrant. "Certificate of Merger" has the meaning given to that term in Section 2.3. "Claim Notice" has the meaning given to that term in Section 8.3. "Closing" and "Closing Date" have the meanings given to those terms in Section 2.2. "Closing Warrant" means the warrant to purchase Buyer Shares as defined in Section 2.5(c). "CMP" means Citicorp Mezzanine Partners, L.P. "CMP Warrant" means the warrant to purchase 150,000 shares of Seller Class B Common Stock at an exercise price of $.01 per share issued to CMP as of December 29, 1994. "Code" means the Internal Revenue Code of 1986, as amended. "Computer Systems" means computer software, computer firmware, computer hardware (whether general or special purpose), and other similar or related items of automated, computerized, and/or software system(s), including but not limited to microprocessors that control telecommunication systems, elevators, diagnostic equipment, HVAC systems, automated assembly lines or other operating systems of Seller or any of its Subsidiaries. "Confidential Information" has the meaning given to that term in Section 6.6. "Contract" means any loan or credit agreement, note, bond, indenture, mortgage, deed of trust, lease, franchise, permit, authorization, license, contract, instrument, benefit plan or practice or other agreement, arrangement, obligation, instrument or commitment of any nature, whether written or oral. "Credit Agreement" means (i) a certain Amended and Restated Credit Agreement dated January 17, 1997 with Banque Paribas as Agent and (ii) a certain Senior Subordinated Credit Agreement, as amended, dated December 29, 1994 with CMP. A-7 143 "Current Market Price" means the price per share of Buyer Common Stock, with respect to any specific date, as determined by taking the average of the daily closing prices per share of Buyer Common Stock as traded on the NYSE for the thirty (30) consecutive trading days ending immediately prior to such date, rounded to the nearest cent, and ignoring the highest and lowest daily closing prices during such period. "CVC Shares" has the meaning given to that term in Section 4.5. "DGCL" means the General Corporation Law of the State of Delaware, as amended from time to time. "DOJ" has the meaning given to that term in Section 6.3. "Damages" has the meaning given to that term in Section 8.1. "Dissenting Shares" means all Seller Shares whose holders have perfected dissenters' rights under Section 262 of the DGCL. "Effective Time" has the meaning given to that term in Section 2.4(a). "Escrow Agent" means State Street Bank and Trust Company, a Massachusetts trust company, or a successor Escrow Agent under the terms of the Escrow Agreement. "Escrow Agreement" means the agreement by and among the Escrow Agent, Buyer, CVC and the Management Representative and substantially in the form of Exhibit B attached hereto, with such changes as the Escrow Agent may reasonably request. "Escrow Ratio" has the meaning given to that term in Section 2.4(h). "Escrow Shares" means the Buyer Shares deposited with the Escrow Agent as of the Closing in accordance with the terms of Section 2.4(h) and the Escrow Agreement. "Escrow Warrant" means the warrant to purchase Buyer Shares as defined in Section 2.5(b). "Environmental, Health, and Safety Requirements" means all federal, state, local and foreign statutes, regulations ordinances and other provisions having the force or effect of law, each as amended, all judicial and administrative orders and determinations, and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including without limitation all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any Hazardous Materials or noise. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended and the regulations and formal interpretations issued thereunder. "ERISA Affiliate" means any Person who, together with Seller, could be treated as a single employer under Sections 414(b), 414(c), 414(m) or 414(o) of the Code. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Financial Statements" has the meaning given to that term in Section 3.6. "FTC" has the meaning given to that term in Section 6.3. "GAAP" means, at any time, the United States generally accepted accounting principles as in effect at that time. A-8 144 "Grace Agreement" means that certain Grace Printing Products Restated Worldwide Purchase and Sale Agreement, dated as of October 14, 1994, among Seller, Print Tech International, Inc., W. R. Grace & Co., W. R. Grace & Co. -- Conn., Grace S. A. and the other parties named therein. "Governmental Entity" means any administrative agency, commission, court or other governmental authority or instrumentality, domestic or foreign, including any government-sponsored corporation having regulatory authority under law. "Hazardous Material" means any pollutant, contaminant, hazardous material, hazardous waste, toxic substance or hazardous substance as defined under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. sec.sec.9601 et seq., or the Resource Conversation and Recovery Act., 42 U.S.C. sec.sec.6901 et seq., the Clean Water Act, 33 U.S.C. sec.1251, et seq., the Toxic Substance Control Act, 15 U.S.C. sec.sec.2601, et seq. or any other federal, state or local law relating to safety, health, or environmental protection or any regulations promulgated under any of the foregoing, and specifically includes oil and any other petroleum derived products, asbestos, polychlorinated biphenyls (PCBs) and radiation. "HSRA" means the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended from time to time. "Indemnified Party" has the meaning given to that term in Section 8.1. "Indemnifying Party" has the meaning given to that term in Section 8.1. "Indemnity Threshold" shall have the meaning set forth in Section 8.2(c). "IRS" means the Internal Revenue Service. "Joint Proxy Statement -- Prospectus" means the Joint Proxy Statement -- Prospectus which will be a part of the S-4 Registration Statement and by which (i) Buyer will solicit proxies from the holders of Buyer Common Stock to vote in favor of the approval of this Agreement at the Buyer Special Meeting and (ii) Seller will either solicit proxies or written consents from the holders of Seller Voting Shares to approve this Agreement. "Liability" means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Loss Contingency" means an existing condition, situation, or set of circumstances involving uncertainty as to possible Liability to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur. "Management Representative" means the Seller Stockholder designated in the Agency Agreement as the agent of those Seller Stockholders who are identified in such agreement as "Management Stockholders." "Material Adverse Effect" means, with respect to any Person, any change in or effect on the business of that Person or any of its Subsidiaries that, in the aggregate, is or reasonably could be expected to be materially adverse to the business, operations (including the income statement), properties (including intangible properties), condition (financial or otherwise), assets, liabilities, regulatory status or prospects of that Person and its Subsidiaries taken as a whole. A-9 145 "Merger Sub" means MCD Acquisition Corp., a Delaware corporation wholly-owned by Buyer and formed solely for the purpose of consummating the Merger. "NYSE" means the New York Stock Exchange. "NYSE Rule" means the rule of the NYSE requiring that proxies be solicited from the shareholders of any listed corporation which issues stock in an amount exceeding 20% of its then-existing capital stock. "Ordinary Course" means with respect to any Person, in the ordinary course of that Person's business consistent with past custom and practice, including as to the quantity, quality and frequency. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a Governmental Entity (or any department, agency, or political subdivision thereof). "Preferred Exchange Shares" means the Buyer Shares issued in the Merger to the holders of Seller Preferred Shares pursuant to Section 2.4(e). "Proprietary Rights" means (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations, and renewals in connection therewith, (e) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) all computer software (including data and related documentation), (g) all other proprietary rights, and (h) all copies and tangible embodiments thereof (in whatever form or medium). "Recapitalization" has the meaning given to that term in Section 2.6. "Registration Rights Agreement" means that certain Registration Rights Agreement by and among Buyer, CVC and CMP that shall be executed and delivered as of the Closing in substantially the form of Exhibit C hereto. "Representatives" means each of the applicable Person's directors, officers, employees, agents, representatives and advisors. "Response Notice" has the meaning given to that term in Section 8.3. "S-4 Registration Statement" shall mean the registration statement referenced in Section 6.2(a) that includes the Joint Proxy Statement -- Prospectus, or such other registration statement as the SEC may require in connection with the Merger. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. A-10 146 "Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, equity or other encumbrance, other than (a) statutory liens for current taxes or other governmental charges, (b) mechanics and similar statutory liens arising or incurred in the ordinary course of business, (c) zoning, entitlement, building and other land use regulations imposed by governments or agencies which are not violated by any current or presently proposed use or operation, (d) covenants, conditions, restrictions, easements and other similar matters of record affecting title to any real property which do not materially impair the current occupancy, use or value of that Property and which have been disclosed in Schedule 3.16, (e) liens for Taxes not yet due and payable or for taxes that the taxpayer is contesting in good faith through appropriate proceedings, (f) purchase money liens and liens securing rental payments under capital lease arrangements, and (g) other liens arising in the Ordinary Course and not incurred in connection with the borrowing of money. "Seller Affiliate" means a Person listed on Schedule 3.20. "Seller Affiliate Agreement" means the agreement referenced in Section 6.2(h), which agreement shall be in the form of Exhibit D attached hereto. "Seller Common Ratio" means with respect to any holder of Seller Common Shares, the number of Seller Common Shares held by that Person immediately prior to the Closing divided by the total number of Seller Common Shares outstanding at that time on a pro forma basis assuming the purchase of all Seller Common Shares then purchasable upon the exercise of the CMP Warrant. "Seller Common Share" means a share of Seller Class A Common Stock, par value $.01 per share, or Seller Class B Common Stock, par value $.01 per share. "Seller Board of Directors" means the board of directors of Seller as constituted from time to time. "Seller Inventory" has the meaning given to that term in Section 3.14. "Seller Preferred Share" means a share of Series 2 Junior Exchangeable 14.0% Preferred Stock, $1.00 par value per share, or Series 3 Junior Exchangeable 14.0% Preferred Stock, par value $1.00 per share, or Series 4 Junior Exchangeable 14.0% Preferred Stock, par value $1.00 per share. "Seller Share" means any issued and outstanding share of Seller's capital stock. "Seller Stockholder" means a holder of any Seller Share immediately prior to the Closing. "Seller Stockholder Agreement" means that certain agreement dated as of December 29, 1994 by and among Seller, CVC, CMP, David R. Beckerman, Thomas C. Weaver and the other Persons specified on Schedule 1 hereto. "Seller Stockholder Approval" means the affirmative vote in favor of a proposal to approve this Agreement, at a meeting or by written consent, of the holders of a majority of each class of Seller Voting Shares entitled to vote thereon in accordance with the certificate of incorporation and bylaws of Seller and Section 251(c) of the DGCL. "Seller Voting Share" means a Seller Share entitled to vote on the Merger. "Senior Subordinated Credit Notes" means those promissory notes issued in connection with the Credit Agreements. A-11 147 "Subsidiary" means any corporation, partnership, limited liability company or other organization, whether or not incorporated, with respect to which a specified Person owns (directly or indirectly through one or more Subsidiaries thereof) at least twenty-five percent (25%) of the voting securities or equity interests or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "Surviving Corporation" means Seller as in existence after the Effective Time. "Tax" means any federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, real property gains, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profits, environmental (including without limitation under Section 59A of the Code), customs, duties, real property, personal property, capital stock, intangibles, social security (or similar), unemployment, disability, payroll, license, employee or other withholding, or other tax, of any kind whatsoever, including any interest, penalties or additions to tax or similar items in respect of the foregoing (whether disputed or not). "Tax Affiliate" means a Subsidiary of Seller and any affiliated, combined, or unitary group of which Seller or any Subsidiary is or was a member. "Tax Return" means any return, report, declaration, claim for refund, information return or other document (including any related or supporting schedule, statement or information) filed or required to be filed in connection with the determination, assessment or collection of any Tax of any party or the administration of any laws, regulations or administrative requirements relating to any Tax (including any amendment or other modification thereof). "10% PIK Subordinated Notes" means those certain promissory notes dated December 29, 1994 and March 15, 1996, the holder of which is W.R. Graced. "Termination Fee" shall have the meaning given to that term in Section 9.2 "Warrant Shares" has the meaning set forth in Section 2.5(a). "Year 2000 Compliant" has the meaning given to that term in Section 3.13. SECTION 2. Merger. 2.1 General. On and subject to the terms and conditions of this Agreement, the Merger will take place at the Effective Time. The structure of the Merger will be a reverse merger of Merger Sub with and into Seller, with Seller being the Surviving Corporation. The Parties will take all steps necessary to cause the Merger to comply with applicable requirements of the DGCL regarding corporate mergers. 2.2 Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Nutter, McClennen & Fish, LLP in Boston, Massachusetts, commencing at 10:00 a.m. local time on the second Business Day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties will take at or after the Closing itself) or such other date as the Parties may mutually determine) (the "Closing Date"). 2.3 Actions at Closing. At the Closing, (i) Seller and, as applicable, the Seller Stockholders will deliver to Merger Sub and Buyer the various certificates, instruments, and documents referred to in Section 7.2, (ii) Merger Sub and Buyer will deliver to Seller the various certificates, instruments, and documents referred to in Section 7.3, (iii) Seller and Merger Sub will file with the Secretary of State of Delaware a certificate of merger in A-12 148 due and proper form (the "Certificate of Merger"), (iv) Buyer will deliver to CVC, as agent for the Seller Stockholders, the certificates evidencing the Buyer Shares (other than the Escrow Shares) issued in the Merger in exchange for all of the certificates representing the Seller Shares, together with checks representing amounts of cash payable in lieu of fractional shares, if any, which each Seller Stockholder is entitled to receive, (v) Buyer will deliver to CVC, as agent for CMP, the Closing Warrant, and (vi) Buyer will deliver to the Escrow Agent, the certificates evidencing the Escrow Shares and the Escrow Warrant. 2.4 Effect of Merger. (a) General. The Merger shall become effective at the time (the "Effective Time") the Certificate of Merger is accepted for filing by the Secretary of State of Delaware. The Merger shall have the effect set forth under relevant provisions of the DGCL. The Surviving Corporation may, at any time after the Effective Time, take any action (including executing and delivering any document) in the name and on behalf of the Merger Sub in order to fully carry out and effectuate the Merger. (b) Certificate of Incorporation. The Certificate of Incorporation of Merger Sub as in effect immediately prior to the Effective Time will, pursuant to the terms of the Certificate of Merger, become the Certificate of Incorporation of the Surviving Corporation. (c) By-laws. The By-laws of Merger Sub as in effect immediately prior to the Effective Time will remain unchanged by the Merger and be the By-laws of the Surviving Corporation. (d) Directors and Officers. The directors and officers of Merger Sub in office immediately prior to the Effective Time will be the directors and officers of the Surviving Corporation. (e) Conversion of Seller Shares. Subject to the provisions of Section 2.4(h), at and as of the Effective Time, (i) each holder of Seller Preferred Shares then outstanding shall by virtue of the Merger be entitled to receive that number of Buyer Shares, rounded to the nearest thousandth, equal to the quotient obtained by dividing (X) the aggregate liquidation value of the Preferred Shares held by such holder plus any and all accumulated and unpaid dividends thereon to but not including the Effective Time by (Y) the Current Market Price as of the Closing Date (the Buyer Shares delivered pursuant to this Section 2.4(e)(i) to all holders of Seller Preferred Shares being collectively referred to as the "Preferred Exchange Shares"); and (ii) each holder of Seller Common Shares then outstanding, other than any holder of Dissenting Shares, shall by virtue of the Merger be entitled to receive that number of Buyer Shares, rounded to the nearest thousandth, which is equal to the product of (X) the Seller Common Ratio applicable to such holder of Seller Common Shares multiplied by (Y) Seven Million Seven Hundred Thousand (7,700,000) minus the aggregate number of the Preferred Exchange Shares. After the Closing, there shall be no transfers on the stock transfer books of Seller Shares which were issued and outstanding at the Effective Time and converted pursuant to the provisions of this Section 2.4(e). After the Effective Time, holders of certificates of Seller Shares shall cease to be, and shall have no rights as, stockholders of Seller, other than to receive Buyer Shares into which such Seller Shares have been converted and, if applicable, fractional share payments pursuant to the provisions hereof. Schedule 2.4(e) to this Agreement illustrates the distribution pursuant to this Agreement of the Buyer Shares and the Buyer Warrants (including the Escrow Shares and the Escrow Warrant) among, respectively, the A-13 149 Seller Stockholders and holder of the CMP Warrant (which is the only option, warrant or similar right to acquire Seller Shares that is outstanding as of the date of this Agreement), assuming solely for purposes of that presentation that (i) there are no Dissenting Shares, (ii) there are no accrued and unpaid dividends on the Seller Preferred Shares as of the Closing Date, and (iii) the Current Market Price as of the Closing Date is equal to $38.875. (f) Lost Certificates. In the event any certificate representing one or more Seller Shares shall have been lost, stolen or destroyed, upon receipt of appropriate evidence as to such loss, theft or destruction and to the ownership of such certificate by the Person claiming such certificate to be lost, stolen or destroyed, and the receipt by Buyer of an appropriate and customary indemnity, Buyer will issue, in exchange for such lost, stolen or destroyed certificate, one or more certificates representing Buyer Shares and the fractional share payment, if any, deliverable with respect thereof, as determined in accordance with this Section 2.4. (g) Fractional Shares. In lieu of the issuance of fractional Buyer Shares pursuant to Section 2.4(e), cash adjustments, without interest, will be paid to the holders of Seller Shares in respect of any fractional share that would otherwise be issuable pursuant to Section 2.4(e) after combining for each Seller Stockholder the number of Buyer Shares, if any, issued in exchange for Seller Preferred Shares with the number of Buyer Shares issued in exchange for Seller Common Shares, and the amount of such cash adjustment shall be determined by multiplying such holder's fractional interest by the Current Market Price as of the Closing Date. (h) Escrow Shares. At the Closing, CVC and the Escrow Agent shall enter into the Escrow Agreement, which Escrow Agreement is intended to serve as an adjustment to the aggregate amount of consideration payable to the holders of Seller Common Shares and the CMP Warrant in connection with the Merger. At the Closing, there shall be withheld from each holder of Seller Common Shares a number of Buyer Shares (collectively, the "Escrow Shares") equal to the product, rounded to the nearest whole share, of (X) the number of Buyer Shares such holder would have otherwise received pursuant to Section 2.4(e) multiplied by (Y) the Escrow Ratio. The "Escrow Ratio" shall be the quotient obtained by dividing (X) One Hundred Twenty-Seven Thousand (127,000) by (Y) the arithmetic difference between Seven Million Seven Hundred Thousand (7,700,000) and the aggregate number of the Preferred Exchange Shares. At the Closing, Buyer shall deposit with the Escrow Agent one or more stock certificates representing the Escrow Shares. (i) Restricted Shares. To the extent that any Seller Share is subject to restrictions on transfer and/or forfeiture provisions pursuant to any agreement between the holder and Seller, the Buyer Shares delivered in exchange therefor shall be subject to the same restrictions if in the reasonable opinion of Buyer's legal and accounting advisors the continuation of such restrictions are necessary in order for the Merger to qualify for "pooling of interests" accounting treatment under Accounting Principles Board Opinion No. 16. (j) Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, Dissenting Shares shall not be converted into the right to receive, or be exchangeable for, the Merger consideration provided for in Section 2.4(e), but, instead, each holder of Dissenting Shares shall be entitled to payment by the Surviving Corporation of the value of such Dissenting Shares as agreed upon or determined in accordance with the provisions of Section 262 of DGCL. A-14 150 2.5 Buyer Warrants. At the Closing, Buyer shall deliver the Buyer Warrants in exchange for the CMP Warrant. (a) Warrant Shares. As used in this Agreement, the term "Warrant Shares" means that number, rounded up to the nearest whole integer, which is equal to the product of (X) the Seller Common Ratio applicable to the CMP Warrant, treating CMP as a holder of Seller Common Shares, multiplied by (Y) Seven Million Seven Hundred Thousand (7,700,000) minus the aggregate number of the Preferred Exchange Shares. (b) Escrow Warrant. Buyer shall deliver at the Closing to the Escrow Agent a warrant (the "Escrow Warrant") entitling CMP or any successor holder thereof to purchase Buyer Shares. The Escrow Warrant shall be identical in all material respects to the CMP Warrant, except that (i) the number of Buyer Shares purchasable immediately after the Closing upon the full exercise of the Escrow Warrant shall be that number, rounded to the nearest whole share, which is equal to the product of (X) the total number of Warrant Shares multiplied by (Y) the Escrow Ratio, and (ii) the exercise price per Buyer Share of the Escrow Warrant shall be that price, rounded to the nearest tenth of a cent ($.001), which is equal to the quotient of (X) $1,500 divided by (Y) the total number of Warrant Shares. (c) Closing Warrant. Buyer shall deliver at the Closing to CVC, as agent for CMP, a warrant (the "Closing Warrant") entitling CMP or any successor holder thereof to purchase Buyer Shares. The exercise price per Buyer Share of the Closing Warrant shall be the same as the exercise price per Buyer Share of the Escrow Warrant, and the Closing Warrant shall otherwise be identical in all material respects to the Escrow Warrant, except that the number of Buyer Shares purchasable immediately after the Closing upon the full exercise of the Closing Warrant shall be equal to the arithmetic difference between (X) the total number of Warrant Shares and (Y) the number of Buyer Shares purchasable immediately after the Closing upon the full exercise of the Escrow Warrant. (d) If the CMP Warrant is exercised in part prior to the Closing, there will be an appropriate adjustment to the number of Warrant Shares and the exercise price of the Buyer Warrants. If the CMP Warrant is exercised in full prior to the Closing, none of the Buyer Warrants will be issued in the Merger. 2.6 Anti-Dilution. In the event that, subsequent to the date of this Agreement but prior to the Effective Time, the outstanding shares of Buyer Common Stock shall have been increased, decreased, changed into or exchanged for a different number of shares or securities through a split, reverse stock split, or other like changes in Buyer's capitalization, other than pursuant to this Agreement, as the case may be (a "Recapitalization"), then an appropriate and proportionate adjustment shall be made to the number of Buyer Shares so that each Seller Stockholder shall receive under Section 2.4, or upon exercise of the Buyer Warrants, the number of Buyer Shares (except for fractional shares) that such stockholder would have held immediately after the Recapitalization if the Merger had occurred immediately prior to the Recapitalization or the record date therefor, as applicable. For purposes of this Section 2.6 and by way of illustration and not limitation, a "Recapitalization" will in no event include the (i) issuance of shares or securities by Buyer pursuant to any existing or hereafter established or granted stock option or equity award or other compensation plan or arrangement to, or for the benefit of, one or more employees, officers, directors or contractors of Buyer or any of its Subsidiaries or (ii) in connection with Buyer acquiring directly or indirectly the stock or assets of any other Person. A-15 151 SECTION 3. Representations and Warranties of Seller. Seller represents and warrants to Buyer and the Merger Sub that the statements contained in this Section 3 are correct and complete as of the date of this Agreement. The representations and warranties which follow are deemed to be repeated on the Closing Date. 3.1 Organization, Qualification, and Corporate Power. Each of Seller and its Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation. Each of Seller and its Subsidiaries is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where the absence of such qualification would have a Material Adverse Effect on Seller. Schedule 3.1 lists each of the jurisdictions in which Seller or any of its Subsidiaries possess any foreign qualification or license and lists such license held in such jurisdiction. Each of Seller and its Subsidiaries has the corporate power and authority necessary to carry on the businesses in which each is engaged and to own, lease and use the respective properties owned, leased and/or used by each. Seller has delivered to Buyer a true and complete copy of its certificate of incorporation and by-laws as in effect on the date hereof. 3.2 Authorization of Merger. Seller has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly authorized by the board of directors of Seller, has been duly executed and delivered on behalf of Seller, and constitutes the valid and legally binding obligation of Seller, enforceable in accordance with its terms and conditions. The only vote of Seller Stockholders necessary to approve this Agreement or the consummation of the Merger is the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock entitled to vote thereon approving this Agreement, and the Seller Board of Directors has directed the officers of Seller to submit this Agreement to the holders of Seller Voting Shares for Seller Stockholder Approval. No other corporate proceedings on the part of Seller not heretofore taken are necessary to approve this Agreement or to consummate the Merger. 3.3 Noncontravention. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Seller or any of its Subsidiaries is subject or any provision of the certificate of incorporation or charter or bylaws of Seller or any of its Subsidiaries or (ii) conflict with, result in a breach of, constitute a default (or any event which, with notice or lapse of time, or both, would constitute a default) under, result in the acceleration of, create in any party a put right or repurchase obligation or the right to accelerate, terminate, modify or cancel, create any Security Interest or require any notice, under any material Contract to which Seller or any of its Subsidiaries is a party or by which any is bound or to which any of its assets is subject, including, without limitation, the Grace Agreement, except for any such matters identified on Schedule 3.3. Other than in connection with the provisions of the HSRA and the DGCL, none of Seller or any of its Subsidiaries needs to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency or other Person in order to consummate the Merger. 3.4 Capitalization of Seller and its Subsidiaries. Seller's authorized capital stock consists of 2,019,076 authorized shares of capital stock, which shares are fully described on and held of record by the persons and in the amounts set forth on Schedule 3.4. Except as set forth on Schedule 3.4, neither Seller nor any of its Subsidiaries has (i) any shares of A-16 152 common stock or preferred stock issued or reserved for issuance, or (ii) any Contract of any character to which Seller or any of its Subsidiaries or, to Seller's knowledge, any Affiliate of Seller is a party or subject relating to its capital stock or otherwise representing a right to receive any of its capital stock, nor are there any pending or, to Seller's knowledge, threatened claims or demands for, a direct or indirect equity interest in Seller or any Subsidiary, including, without limitation, any option, warrant, right or call or any stock appreciation, phantom stock, profit participation or similar rights. All of the issued and outstanding shares of capital stock of Seller have been duly authorized and validly issued, and are fully paid and are nonassessable. Except as set forth on Schedule 3.4, there are no voting trusts, proxies or any other agreements or understandings with respect to the voting of the capital stock of Seller or any of its Subsidiaries. 3.5 Subsidiaries. All Subsidiaries of Seller are listed on Schedule 3.5. Except as otherwise disclosed in Schedule 3.5, neither Seller nor any Subsidiary owns any shares of stock of any corporation or any equity interest in a partnership, joint venture or other business entity, and neither Seller nor any of its Subsidiaries controls any other corporation, partnership, joint venture or other business entity by means of ownership, management contract or otherwise. Except for nominal qualifying shares held by residents of certain foreign jurisdictions but which are beneficially owned by Seller or its Subsidiaries, all of the outstanding capital stock of, or other ownership interests in, each Subsidiary of Seller is owned beneficially and of record by Seller, directly or indirectly, is validly issued, fully paid and nonassessable and free and clear of any preemptive rights, restrictions on transfer, Taxes or Security Interests, except as provided under the Securities Act or state securities laws. 3.6 Financial Statements. Schedule 3.6 includes the following: (A) Seller's audited consolidated balance sheet for the fiscal year ended December 31, 1997 and the statements of income, cash-flow and shareholders' equity for each of the three years in the period ended December 31, 1997; and (B) Seller's unaudited consolidated balance sheet and statements of income, cash-flow and shareholders' equity as of and for the three-month and twelve-month periods ended December 31, 1998 (all such items mentioned previously in this Section, the "Financial Statements"). The Financial Statements (i) are correct and complete in all material respects, (ii) are consistent with the books and records of the Company and its Subsidiaries (which books and records are correct and complete, and are maintained in accordance with applicable regulations), (iii) have been prepared in conformity with GAAP applied on a consistent basis and present fairly the financial position of the respective entities as at the dates indicated and the results of their operations for the periods specified, and (iv) comply in all material respects, except as may be reflected in the notes to the Financial Statements, as to form with the accounting requirements of the Securities Act, the Securities Act regulations, including, without limitation, Regulation S-X, and the Exchange Act, except as may be described on Schedule 3.6. Except as set forth in the Financial Statements or described on Schedule 3.6, neither Seller nor any of its Subsidiaries has (i) any Loss Contingency which is not required by GAAP to be accrued and which if resolved adversely to Seller or any of its Subsidiaries could have an Material Adverse Effect on Seller or (ii) any other Liability material to Seller and its Subsidiaries on a consolidated basis that is not required by GAAP to be accrued. The financial statements to be delivered pursuant to Section 6.4(i) will be derived from the accounting books and records of Seller, will provide adequate disclosure of material changes to the accounts or business of Seller and its Subsidiaries and will be prepared in accordance with GAAP and otherwise on the same basis as the A-17 153 Financial Statements, subject to normal year-end adjustments in the case of monthly financial statements. 3.7 Litigation. Except as set forth in Schedule 3.7, there are no judgments, decrees, lawsuits, actions, proceedings, claims, complaints, injunctions, orders or investigations by or before any Governmental Entity pending or, to Seller's knowledge, threatened against Seller or its Subsidiaries (i) which could be reasonably expected to have a Material Adverse Effect on Seller if adversely determined, or (ii) seeking to enjoin any aspect of the Merger. To Seller's knowledge, there are no existing facts or circumstances which give any reason to believe that any such action, suit, proceeding, hearing or investigation may be brought or threatened against Seller or any of its Subsidiaries. 3.8 Absence of Certain Developments. Except as disclosed in Schedule 3.8, since December 31, 1997 no event has occurred which has had or reasonably could be expected to have a Material Adverse Effect on Seller. Except as disclosed in the Financial Statements, and except for this Agreement and the Merger, since December 31, 1997, each of Seller and its Subsidiaries has been operated in the Ordinary Course. Without limiting the generality of the foregoing, except as disclosed on Schedule 3.8, since December 31, 1997: (i) no party (including Seller or any of its Subsidiaries) has accelerated, terminated, modified or canceled any Contract (or series of related Contracts) involving more than $250,000 to which Seller or any of its Subsidiaries is a party or by which any of them is bound; (ii) neither Seller nor any of its Subsidiaries has imposed any Security Interest upon any of its assets, tangible or intangible, except in the Ordinary Course; (iii) neither Seller nor any of its Subsidiaries has made any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions) either involving more than $500,000 or that is outside the Ordinary Course; (iv) neither Seller nor any of its Subsidiaries has issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation either involving more than $100,000 singly or $200,000 in the aggregate; (v) neither Seller nor any of its Subsidiaries has delayed or postponed the payment of accounts payable and other liabilities outside the Ordinary Course; (vi) neither Seller nor any of its Subsidiaries has granted any license or sublicense of any rights under or with respect to any Proprietary Rights either involving more than $100,000 or outside the Ordinary Course; (vii) there has been no change made or authorized in the charter or bylaws of Seller or any of its Subsidiaries; (viii) neither Seller nor any of its Subsidiaries has issued, sold or otherwise disposed of any of its capital stock, or granted or entered into any option, warrant or other Contract to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock; (ix) neither Seller nor any of its Subsidiaries has declared, set aside or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased or otherwise acquired any of its capital stock other A-18 154 than dividends payable in cash in the Ordinary Course on Seller Preferred Shares in accordance with the terms of Seller's Certificate of Incorporation; (x) neither Seller nor any of its Subsidiaries has entered into a Contract or any other transaction with any of its Affiliates; (xi) neither Seller nor any of its Subsidiaries has entered into any employment Contract or collective bargaining agreement, written or oral, or modified the terms of any existing such Contract or agreement; (xii) neither Seller nor any of its Subsidiaries has granted any increase in the base compensation of any of its employees other than in the Ordinary Course; (xiii) neither Seller nor any of its Subsidiaries has adopted, amended, modified, or terminated any bonus, profit-sharing, incentive, severance or other plan or contract for the benefit of any of its directors, officers and employees (or taken any such action with respect to any other Benefit Plan (as hereinafter defined); (xiv) neither Seller nor any of its Subsidiaries has made any other change in employment terms for any of its officers or employees outside the Ordinary Course; (xv) there has not been any other occurrence, event, incident, action, failure to act or transaction outside the Ordinary Course involving Seller or any of its Subsidiaries; and (xvi) neither Seller nor any of its Subsidiaries has committed to do any of the foregoing. 3.9 Taxes. (a) All Tax Returns of Seller or any Tax Affiliate now subject to audit by the IRS or other applicable governmental authority or in respect of which an audit has been formally proposed are listed on Schedule 3.9(a), and Seller has provided to Buyer correct and complete copies of each such Tax Return. Seller and each of its Tax Affiliates has duly and timely filed all material Tax Returns required to be filed by it, all such Tax Returns have been prepared in compliance with all applicable laws and regulations and are true, correct and complete in all material respects. All Taxes owed by Seller and each of its Tax Affiliates, whether or not shown on any Tax Return, have been timely paid or are not yet due and payable. Seller has made available to Buyer correct and complete copies of its federal and state income Tax returns for the 1995, 1996 and 1997 taxable years and the corresponding balance sheets of Seller as of the end of each such year. (b) Except as set forth on Schedule 3.9(b): (i) each taxable period of Seller and each of its Tax Affiliates either (A) has been audited by the relevant taxing authority or (B) has closed, so that no further assessment or collection of Tax may occur and such taxable period is not subject to review by any relevant taxing authority; (ii) neither Seller nor any of its Tax Affiliates is the subject of a Tax audit or examination, in which any Tax may be assessed or collected by any taxing authority; (iii) neither Seller nor any of its Tax Affiliates has received from any taxing authority any written notice of proposed adjustment, deficiency, underpayment of Taxes or any other such written notice which has not been satisfied by payment or been withdrawn, and no claims have been asserted in writing relating to such Taxes against Seller or any such Tax Affiliate; A-19 155 (iv) neither Seller nor any of its Subsidiaries (A) is or has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was Seller) or (B) has any Liability for the Taxes of any Person (other than Seller and its Subsidiaries) under Treas. Reg. sec.1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (v) Seller and each of its Tax Affiliates has complied with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and has timely and properly withheld from employee wages and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under all applicable laws; (vi) neither Seller nor any of its Tax Affiliates (A) has filed a consent pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by Seller or any of its Tax Affiliates, (B) is required to include in income any adjustment pursuant to Section 481(a) of the Code by reason of a voluntary change in accounting method initiated by Seller or any of its Tax Affiliates, or has proposed any such adjustment or change in accounting method, or (C) is required, as a result of any excess loss account described in Treas. Reg. sec.1.1502-19 or Treas. Reg. sec.1.1502-32 (or any corresponding or similar provision or administrative rule of any federal, state, local or foreign income tax law), to include any item in income for any taxable period (or any portion thereof ending after the Closing Date); (vii) there are no liens for Taxes on any assets of Seller or any of its Tax Affiliates except liens for Taxes not yet due. No deficiency for any Tax has been proposed, asserted or assessed against Seller or any of its Tax Affiliates which has not been resolved and paid in full, and there are no outstanding waivers or consents given by Seller or any of its Tax Affiliates regarding the application of the statute of limitations with respect to any Taxes or the period for filing any Returns; (viii) neither Seller nor any of its Tax Affiliates is a party to or bound by any Tax indemnification, Tax allocation or Tax sharing agreement with any Person or has any current or potential contractual obligation to indemnify any other Person with respect to Taxes; and (ix) neither Seller nor any of its Subsidiaries has made or is affected by any election under Code Sections 108(b)(5), 338(g), or 565. (c) Seller and each of its Subsidiaries has established and until the Effective Time will maintain on its books and records reserves adequate to pay all Taxes accrued but not yet due and payable in accordance with GAAP, and such reserves are reflected on the Financial Statements to the extent required. All transactions that could give rise to an understatement of federal income tax within the meaning of Section 6662 of the Code have been adequately disclosed in accordance with Section 6662 of the Code. Neither Seller nor any of its Subsidiaries is a party to any agreement, contract or arrangement that would result, separately or in the aggregate, in the payment of any "excess parachute payment" within the meaning of Section 280G of the Code or in the payment of compensation that is not fully deductible pursuant to Section 162(m) of the Code. A-20 156 3.10 Environmental, Health, and Safety Matters. (a) Except as set forth on Schedule 3.10(a), (i) Seller and each of its Subsidiaries have complied with, and are in compliance with, the Environmental, Health, and Safety Requirements, in all material respects, (ii) without limiting the generality of the foregoing, Seller and each of its Subsidiaries have obtained and complied with, and are in compliance with, in all material respects, all permits, licenses and other authorizations that are required pursuant to the Environmental, Health, and Safety Requirements for the occupation of their facilities and the operation of their business, (iii) neither Seller nor any of its Subsidiaries has received any notice regarding any actual or alleged material violation of Environmental, Health, and Safety Requirements, or any material Liability or Loss Contingency arising under the Environmental, Health, and Safety Requirements (including any investigatory, remedial or corrective obligations) (iv) neither Seller nor any of its Subsidiaries has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any Hazardous Material or owned or operated any property or facility (and no such property or facility is contaminated by any Hazardous Material) in a manner that has given or reasonably could be expected to give rise to any material Liability, including Liability for response costs, corrective action costs, personal injury, property damage, natural resources damages or attorney fees, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Solid Waste Disposal Act, as amended, or any other Environmental, Health, and Safety Requirements, and (vi) neither Seller nor any of its Subsidiaries has, either expressly or by operation of law, assumed, undertaken or otherwise become subject to any material Liability of any other Person relating to Environmental, Health, and Safety Requirements. (b) There are no environmental investigations, studies, reviews, audits, tests or other analyses of environmental conditions conducted by or which are in the possession, custody or control of Seller or any of its Subsidiaries relating to the operation of Seller's business or any facility owned, leased or operated by Seller or any of its Subsidiaries, except as listed on Schedule 3.10(b), copies of which have been made available to Buyer, except for those identified as privileged on Schedule 3.10(b). 3.11 Employee Benefit Plans. (a) Schedule 3.11(a) lists all bonus, compensation, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock and stock option plans, all employment or severance contracts, health and medical plans, life insurance and disability plans, vacation and other employee benefit plans, policies, contracts, agreements or arrangements, which at any time during the 24 month period ending on the Closing Date cover (or covered) any employee(s) or former employee(s) of Seller, any of its Subsidiaries, any ERISA Affiliate and/or any such employees' beneficiaries or with respect to which Seller or any of its Subsidiaries or any ERISA Affiliate had, or has, any actual or potential Liability, including, but not limited to, all "employee benefit plans" within the meaning of Section 3(3) of ERISA (the "Benefit Plans"); provided, however, that with reference to "employee benefit plans" within the meaning of Section 3(3) of ERISA, the 24 month period referenced above shall be lengthened to a 60 month period. Except, as set forth on Schedule 3.11(a), no Benefit Plan is or was established, maintained or contributed to including any Benefit Plan to which there is (or was) an obligation to contribute to pursuant to an agreement with an employee organization (within the meaning of Section 3(4) of ERISA). Except as set forth on Schedule 3.11(a), no Benefit Plan has terms requiring assumption by Buyer or the A-21 157 Merger Sub. No Benefit Plan is a multiemployer plan (as defined in Section 4001(a)(3) of ERISA), neither Seller nor any of its Subsidiaries nor any of its ERISA Affiliates has incurred any withdrawal liability with respect to any multiemployer plan (and the transactions contemplated by this Agreement shall not give rise to any such withdrawal liability) or any Liability in connection with the termination or reorganization of any multiemployer plan and no Benefit Plan provides health or other welfare benefits to former employees extending beyond their retirement or other termination of service, other than coverage mandated by Part 6 of Title I of ERISA or death benefits or retirement benefits under any Benefit Plan that is an "employee pension plan," as that term is defined in Section 3(2) of ERISA. All contributions or other amounts payable by Seller or any of its Subsidiaries or any ERISA Affiliate as of the Effective Time with respect to each Benefit Plan in respect of current or prior plan years have been paid or accrued in accordance with GAAP, Section 302 of ERISA and Section 412 of the Code, and there is no accumulated funding deficiency with respect to any Benefit Plan. The present value of accrued benefits under each Benefit Plan which is an employee pension benefit plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such Benefit Plan's actuary with respect to such Benefit Plan, did not, as of its latest valuation date, exceed the then current value of the assets of such Benefit Plan allocable to such accrued benefits. (b) Neither Seller, nor any of its Subsidiaries, nor any ERISA Affiliate contributes or has contributed to any "multiemployer plan" as such term is defined in Section 3(37) of ERISA. Neither Seller nor any of its Subsidiaries nor any ERISA Affiliate is or was a substantial employer (within the meaning of Section 4001(a)(2) of ERISA) for any single employer plan that is (or was) subject to Section 4063 of ERISA. (c) To the extent applicable, each Benefit Plan (and its related trust) is maintained and administered in compliance in all respects with the applicable provisions of ERISA, the Code and any other laws. Each Benefit Plan (and its related trust) which is maintained, administered, reported or contributed to as if qualified under Sections 401(a) or 501(a) of the Code is so qualified and has received a favorable determination letter from the Internal Revenue Service that it is so qualified. Except as specified in Schedule 3.11(c), each Benefit Plan that is an employee benefit plan within the meaning of Section 3(3) of ERISA (and its related trust) may, by its terms, be amended or terminated, in whole or in part, at any time and from time to time by Seller (or, as applicable, any of its Subsidiaries or any ERISA Affiliate) without penalty or cost (other than out-of-pocket costs customary payable in the Ordinary Course in connection with the preparation and filing of any such amendment or termination, including reasonable fees and expenses of counsel). (d) No Liability to the Pension Benefit Guaranty Corporation (the "PBGC") (except for routine payment of premiums) has been incurred with respect to any Benefit Plan that is subject to Title IV of ERISA (and no fact or circumstance exists which could give rise to any such liability), no reportable event within the meaning of Section 4043 of ERISA has occurred with respect to any such Benefit Plan, the PBGC has not commenced proceedings for the termination of any Benefit Plan or the appointment of a trustee with respect to any Benefit Plan, and no fact or circumstance exists which can reasonably be expected to cause the PBGC to commence any proceedings under Title IV of ERISA with respect to any Benefit Plan. None of the assets of Seller or any of its Subsidiaries or any ERISA Affiliate is the subject of any Security Interest arising under Section 302 of ERISA or Section 412 of the Code, and no facts or circumstances exist which could give rise to such Security Interest. Neither Seller nor any of its Subsidiaries nor any ERISA A-22 158 Affiliate has been required to post any security under Section 307 of ERISA or Section 401(a) of the Code, and no facts or circumstances exist which could give rise to such posting of security. (e) With respect to each Benefit Plan, Seller has provided to Buyer true, complete and correct copies, to the extent applicable, of (i) all documents pursuant to which such Benefit Plans are maintained, funded and administered, (ii) the two most recent annual report (Form 5500 series), (iii) the two most recent actuarial and financial statements, and (iv) all governmental rulings, determinations and opinions (and any pending requests), including the most recent favorable determination letter issued by the IRS with respect to each such plan, or a written statement that no such determination exists or is required. (f) Neither Seller nor any of its Subsidiaries nor any ERISA Affiliate has engaged in a transaction in connection with which Seller, any of its Subsidiaries or any ERISA Affiliate, or any other Person or entity, could be subject to a Liability under ERISA, or the Code, including, without limitation, liability under Section 409 of ERISA or a civil penalty assessable pursuant to Section 502 of ERISA or a tax imposed pursuant to Section 4975 of the Code, and no event has occurred and no condition exists with respect to any Benefit Plan that could subject Seller or any of its Subsidiaries or any ERISA Affiliate to any tax, fine or penalty imposed by the Code or ERISA. (g) Except as provided in Schedule 3.11(g), neither the execution and delivery of this Agreement nor the consummation of the Merger will (i) result in any payment (including, without limitation, deferred compensation, severance, unemployment compensation, golden parachute or otherwise) becoming due to any director, employee, contractor, consultant or other service provider of Seller or any of its Subsidiaries or any ERISA Affiliate from Seller or any of its Subsidiaries or any ERISA Affiliate under any Benefit Plan or otherwise, (ii) increase any benefits otherwise payable under any Benefit Plan or otherwise, (iii) result in any acceleration of the time of payment or vesting of any such benefits, or (iv) result in any increase in or acceleration of the contribution or funding obligation, if any, of Seller or any of its Subsidiaries or any ERISA Affiliate. (h) No Benefit Plan will be amended or terminated on or prior to the Closing Date without the prior written approval of Buyer. The Seller has made all contributions and payments required to each Benefit Plan through the Effective Time, inclusive, or provided for such contributions and payments in accordance with GAAP. 3.12 Proprietary Rights. Except as set forth in Schedule 3.12, Seller and its Subsidiaries own and possess all right, title and interest in, free and clear of all Security Interests, or have a license or other right to use, all Proprietary Rights which are used in, or held for use in, the operation of the business of Seller and its Subsidiaries as presently conducted or as presently proposed to be conducted and which are material to such presently conducted or proposed business. Each of Seller and its Subsidiaries has taken all commercially reasonable action to maintain and protect each item of Proprietary Rights owned by Seller or any of its Subsidiaries. No item of the Proprietary Rights set forth in Schedule 3.12 has been adjudicated to be invalid or unenforceable and, to the knowledge of Seller and its Subsidiaries, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any of such Proprietary Rights. Notwithstanding any other provision of this Section, Schedule 3.12 lists all of the following items: all patented and registered Proprietary Rights owned by Seller or any of its Subsidiaries; all pending patent applications and applications for the registration of other Proprietary Rights filed by or on behalf of Seller or any of its Subsidiaries; all trade and corporate names owned or used by Seller or any of its Subsidiaries; and all joint A-23 159 development agreements to which Seller or any of its Subsidiaries is a party that assign or limit any Proprietary Rights owned or used by Seller or any of its Subsidiaries. Schedule 3.12 lists all licenses or other written contracts between Seller or any of its Subsidiaries and any third party regarding any of the Proprietary Rights (other than computer software) listed on Schedule 3.12. Neither Seller nor any of its Subsidiaries has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Proprietary Right of any third party as could reasonably be expected to have a Material Adverse Effect on Seller, and to the knowledge of Seller, neither Seller nor any of its Subsidiaries will interfere with, infringe upon, misappropriate, or otherwise come into conflict with any Proprietary Right of any third party as a result of the continued operation of its businesses as presently conducted and as presently proposed to be conducted as could reasonably be expected to have a Material Adverse Effect on Seller. Except as set forth on Schedule 3.12, each item of Proprietary Rights listed on Schedule 3.12 will be owned or available for use by Buyer or its Subsidiaries on identical terms and conditions immediately subsequent to the Effective Time. 3.13 Year 2000. (a) The Seller and the Subsidiaries have conducted an inventory and assessment (written summaries of which, to the extent prepared, have been provided to Buyer) of the computer software, computer firmware or computer hardware (whether general or special purpose) of Seller and each of its Subsidiaries in order to determine the extent to which such software, firmware or hardware is not Year 2000 Compliant (as defined below) and to estimate the cost of rendering such software, firmware or hardware Year 2000 Compliant prior to January 1, 2000 or such earlier date on which such software, firmware or hardware may shut down or may produce incorrect calculations or otherwise malfunction in any material respect. Any failure of the Computer Systems to be Year 2000 Compliant will not have a Material Adverse Effect on the Seller. The aggregate amount to be expended by Seller and its Subsidiaries, on a consolidated basis, during the 12-month period ending December 31, 1999 to render the Computer Systems Year 2000 Compliant, and to test whether any Computer System is Year 2000 Compliant, will not have a Material Adverse Effect on the Seller. For the purposes of this Agreement "Year 2000 Compliant" means that none of the Computer Systems or Benefit Plan Computer Systems (as defined below) of a particular Person will, in any material respect, malfunction, cease to function, generate incorrect data, or produce incorrect results when processing, receiving, calculating, writing and/or providing (i) date-related data into and between the twentieth and twenty-first centuries and (ii) date-related data in connection with any valid date in the twentieth and twenty-first centuries. (b) Seller has made available to Buyer copies of all material in-house correspondence and memoranda and all material correspondence between the Seller or any of its Subsidiaries with any customers, insurance company, vendor, supplier or service provider of Seller and its Subsidiaries concerning whether such Persons (including Seller or any of its Subsidiaries) are or expect to be Year 2000 Compliant or whether such Persons expect to be adversely affected by the failure of any other Person to be Year 2000 Compliant. (c) To the knowledge of Seller, no customer, supplier, contractor, distributor, insurance company, or other vendor or service provider with which Seller or any of its Subsidiaries transacts business can reasonably be expected not to be Year 2000 Compliant in any respect that could reasonably be expected to have a Material Adverse Effect on Seller. A-24 160 (d) To the knowledge of Seller (which for purposes of this Section 3.13(c) shall include, without limitation, the knowledge of each employee or consultant of Seller or any of its Subsidiaries that in the ordinary course is engaged in the administration or operation of any Benefit Plan), the Benefits Plans and each of the sponsors of and fiduciaries with respect to each Benefit Plan have conducted an inventory and assessment of the Computer Systems that are material to the administration or management of any Benefit Plan (including the management, investment and disposition of Benefit Plan assets, maintained under a trust or otherwise), including, without limitation, the Computer Systems of each Benefit Plan, the sponsor(s) of each such Benefit Plan, and third-party service providers to each such Benefit Plan, and each of the Computer Systems that are material to the investment of the assets of any of the Benefit Plans (the "Benefit Plan Computer Systems") in order to determine which parts of the Benefit Plan Computer Systems are not Year 2000 Compliant. The failure, individually or in the aggregate, of Benefit Plan Computer Systems to be Year 2000 Complaint will not result in any sponsor or fiduciary of any Benefit Plan incurring any liability or expense that will have a Material Adverse Effect on Seller. (e) Each Benefit Plan has made available to Buyer copies of all material in-house correspondence and memoranda and all material correspondence between such Benefit Plan (including its sponsor(s) and fiduciaries) and its agents, insurance companies, vendors, suppliers, service providers, participants and beneficiaries concerning whether such Persons are or expect to be Year 2000 Compliant or whether such Persons expect to be adversely affected by the failure of any other Person to be Year 2000 Compliant. (f) To the knowledge of Seller, no Benefit Plan (including its sponsor(s) and fiduciaries), and no agent, insurance company, supplier, vendor or service provider with which such Benefit Plan transacts business, can reasonably be expected not to be Year 2000 Compliant in any respect that could reasonably be expected to have a Material Adverse Effect on any Benefit Plan. 3.14 Inventories. Except as set forth on Schedule 3.14 and subject to applicable reserves reflected on Seller's unaudited consolidated balance sheet as of December 31, 1998, and except for obsolete items and items of below-standard quality, all of which have been written-off or written-down to net realizable value on Seller's unaudited consolidated balance sheet as of December 31, 1998, all items of finished goods reflected on the books of Seller and its Subsidiaries, or thereafter acquired (the "Seller Inventory") consist of items of a quality and quantity usable and saleable in the Ordinary Course. 3.15 Accounts Receivable. All accounts receivable reflected in the books of Seller and its Subsidiaries consist of accounts that are good and collectible in the Ordinary Course except for those which Seller and its Subsidiaries know to be invalid, past due or uncollectible and for which Seller and its Subsidiaries has created an applicable reserve for bad debts on Seller's unaudited consolidated balance sheet as of December 31, 1998. 3.16 Tangible Property. (a) Seller or one or more of its Subsidiaries own or lease all buildings, equipment, and other tangible assets necessary for the conduct of their businesses as presently conducted and as presently proposed to be conducted. Schedule 3.16 sets forth a true and complete list of all owned U.S. real property and owned foreign real property used by Seller or any of its Subsidiaries. Except as set forth in Schedule 3.16, the identified owner has good and marketable title to the parcel of real property, free and clear of any Security Interests, and there are no parties (other than Seller or its Subsidiaries) in possession of A-25 161 such parcel of real property. Schedule 3.16 also sets forth a list of all of the leased and subleased parcels of real property subject to leases and subleases in favor of Seller or one or more of its Subsidiaries which evidence leasehold or subleasehold interests of Seller or its Subsidiaries in such properties and designates those leases which require consent of a lessor or sublessor in connection with the Merger. (b) Except as set forth in Schedule 3.16, Seller has all easements, certificates of occupancy, permits, approvals, franchises, authorizations and other such rights, including but not limited to easements for all utilities (including without limitation all power lines, water lines and sewers) and roadways necessary to conduct the business conducted on such properties. 3.17 Books and Records. Except as set forth in Schedule 3.17 attached hereto, the books and records of Seller and each of its Subsidiaries are accurate and complete in all material respects, have been maintained in accordance with GAAP consistently applied, and accurately reflect in all material respects the ownership, use, and operations of Seller and each of its Subsidiaries. 3.18 Brokers' Fees. None of Seller and its Subsidiaries has any Liability or obligation to pay any fees or commissions to any broker, finder, or similar agent with respect to the transactions contemplated by this Agreement. 3.19 Tax-Free Reorganization Representations. To Seller's knowledge, it has not taken any action that would or reasonably could be expected to cause the Merger to fail to qualify as a "reorganization" within the meaning of Section 368 of the Code. Without limiting the generality of the immediately preceding sentence: (a) There is no intercorporate indebtedness existing between Seller and Buyer that was issued, acquired or will be settled at a discount. (b) Seller is not an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. (c) The Merger will be effected for a bona fide business purpose. (d) None of the Buyer Shares received by any stockholder/employee of Seller pursuant to the Merger are, or will be, separate consideration for, or allocable to, any employment, consulting or similar arrangement. The compensation paid to any stockholder/employee of Seller pursuant to any such employment, consulting or similar arrangement (including any covenant not to compete) is or will be for services actually rendered and performed (or not competing), and will be commensurate with amounts paid to third parties bargaining at arms length for similar services. (e) As at the Effective Time, Seller will hold at least ninety percent (90%) of the fair market value of its net assets and at least seventy percent (70%) of the fair market value of its gross assets held immediately prior to the Effective Time. For purposes of this representation, amounts paid or expected to be paid by Seller or the Surviving Corporation to dissenters, amounts paid by Seller to shareholders who receive cash or other property, amounts used or expected to be used by Seller or the Surviving Corporation to pay Seller's or any Seller Stockholder's reorganization expenses, and all redemptions and distributions (except for regular, normal dividends) made by Seller, will be included as assets of Seller immediately prior to the Merger. (f) In the Merger, Seller Shares representing control of Seller, as defined in Section 368(c) of the Code, will be exchanged for Buyer Shares. For purposes of this A-26 162 representation, Seller Shares exchanged for cash from Buyer will be treated as outstanding Seller Shares at the Effective Time. (g) Immediately after the Effective Time, Seller will not have outstanding any warrants, options, convertible securities, or any other type of right pursuant to which any Person could acquire stock in Seller that, if exercised or converted, would affect Buyer's acquisition or retention of control of Seller, as defined in Section 368(c) of the Code. (h) Immediately after the Effective Time, the fair market value of the assets of Seller will exceed the sum of its liabilities, plus the amount of liabilities, if any, to which the assets are subject. (i) Seller will not redeem any Seller Shares, or make an extraordinary distribution with respect to any Seller Shares prior to, or in connection with, the Merger within the meaning of Temporary Regulation sec.1.368-1T. 3.20 Pooling of Interest Treatment. To Seller's knowledge, it has not taken any action that would or reasonably could be expected to cause the Merger to fail to qualify for "pooling of interests" accounting treatment under Accounting Principles Board Opinion No. 16. Each of the Affiliates of Seller, within the meaning of SEC Accounting Staff Releases Nos. 130 and 135, is listed on Schedule 3.20. 3.21 Certain Contracts. (a) Schedule 3.21(a) lists the following contracts to which Seller or any of its Subsidiaries is a party: (i) any Contract concerning noncompetition, (ii) any Contract between Seller and any of its Affiliates or Subsidiaries, (iii) any profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance, or other plan or arrangement for the benefit of its current or former directors, officers, and employees, (iv) any powers of attorney executed on behalf of Seller or any of its Subsidiaries, (v) any Contract under which any of them has advanced or loaned any amount to any of its directors, officers, and employees outside the Ordinary Course, (vi) any Contract under which the consequences of a default or termination reasonably could be expected to have a Material Adverse Effect on Seller; (vii) any instrument or Contract whereby Seller or any of its Subsidiaries indemnifies or guarantees any loss or Liability which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on Seller; (viii) any Contract under which Seller or any of its Subsidiaries could have Liabilities or obligations in the future relating to the acquisition or disposition of material assets by way of merger, consolidation, purchase, sale or otherwise, or granting to any Person a right at such person's option to purchase or acquire any material asset or property of Seller or any interest therein (not including dispositions of inventory in the Ordinary Course); and (ix) any other Contract (or group of related contracts) the performance of which involves consideration in excess of $250,000. (b) To Seller's knowledge, the Grace Agreement is the valid and legally binding obligation of the parties thereto, is enforceable in accordance with its terms and conditions, and has not been amended or modified in any manner that would affect the rights of Seller or any of its Subsidiaries under Sections 14.05 thereof. To Seller's knowledge, there are no existing facts or circumstances which give Seller any reason to believe that the Selling Companies (as defined in the Grace Agreement) would not satisfy their obligation to indemnify Seller and the other members of the Buyer Group (as defined in the Grace Agreement) in accordance with the terms of Section 14.05 of the Grace Agreement. A-27 163 (c) To Seller's knowledge, the Seller Stockholder Agreement is the valid and legally binding obligation of the parties thereto, is enforceable in accordance with its terms and conditions, and has not been amended or modified in any manner that would affect the rights of Seller or CVC thereunder. 3.22 Absence of Improper Payments. Neither Seller nor any of its Subsidiaries (a) has made any contributions, payments or gifts of its property to or for the private use of any governmental official, employee or agent where either the payment or the purpose of such contribution, payments or gift is illegal under the laws of the United States, any state thereof or any other jurisdiction (foreign or domestic); (b) has established or maintained any unrecorded fund or asset for any purpose, or has made any false or artificial entries on its books or records for any reason; (c) has made any payments to any Person with the intention or understanding that any part of such payment was to be used for any other purpose other than that described in the documents supporting the payment; or (d) has made any contribution, or has reimbursed any political gift or contribution made by any other Person, to candidates for public office, whether Federal, state or local, where such contribution would be in violation of applicable law. 3.23 Insurance. Seller and its Subsidiaries maintain insurance policies, self-insurance programs and other forms of insurance in such amounts, with such deductibles and retained amounts, and against such risks and losses, as are reasonable for the conduct of the business of Seller and its Subsidiaries in the Ordinary Course as conducted on the date hereof. Schedule 3.23 lists all such insurance policies, self-insurance programs and other forms of insurance maintained on the date hereof by or on behalf of Seller or any of its Subsidiaries. 3.24 Employees. To Seller's knowledge, no executive officer, or group of employees, has any plans to terminate employment with Seller or any of its Subsidiaries. Except as disclosed on Schedule 3.24, neither Seller nor any of its Subsidiaries: (i) is a party to or bound by any collective bargaining agreement, nor has any of them experienced any strikes, grievances, claims of unfair labor practices, or other collective bargaining disputes; or (ii) has committed any unfair labor practice. 3.25 Disclosure. No representation or warranty of Seller contained in this Agreement or any schedule, attachment or exhibit hereto, and no statement contained herein or in any certificate or document furnished to Buyer pursuant to the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances in which they were made, not misleading. SECTION 4. CVC Representations and Warranties. CVC represents and warrants to Buyer and Merger Sub that the statements contained in this Section 4 are correct and complete as of the date of this Agreement. The representations and warranties which follow are deemed to be repeated on the Closing Date. 4.1 Organization and Corporate Power. CVC is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization, and has the power and authority necessary to enter into and perform its obligations under this Agreement. 4.2 Authorization of Merger. This Agreement has been duly authorized, executed and delivered by CVC and constitutes the valid and legally binding obligation of CVC, enforceable in accordance with its terms and conditions. A-28 164 4.3 Noncontravention. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which CVC is subject or any provision of the charter or bylaws of CVC or (ii) conflict with, result in a breach of, constitute a default (or any event which, with notice or lapse of time, or both, would constitute a default) under, result in the acceleration of, create in any party a put right or repurchase obligation or the right to accelerate, terminate, modify or cancel, create any Security Interest or require any notice, under any Contract to which CVC is a party or by which it is bound or to which any of its assets is subject. Other than in connection with the provisions of the HSRA, CVC is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency or other Person in order for Seller to consummate the Merger. 4.4 Agency Agreement. The Agency Agreement has been duly authorized by CVC, and as of the Closing, will have been duly executed and delivered by CVC, and will constitute the valid and legally binding obligation of CVC and each other Seller Stockholder, enforceable in accordance with its terms and conditions. 4.5 CVC Shares. CVC beneficially owns and has the sole and unrestricted voting power with respect to the number of Seller Shares indicated opposite CVC's name on Schedule 3.4 (together with any other Seller Shares of which CVC acquires beneficial ownership and sole voting power during the term of this Agreement, the "CVC Shares"), it being understood that the Class B Seller Common Shares are generally non-voting. CVC owns the CVC Shares free and clear of any liens, claims, charges or other encumbrances or restrictions of any kind whatsoever, other than pursuant to the Securities Act, the Exchange Act, or the Seller Stockholder Agreement. 4.6 Securities Law Issues. (a) CVC has received and had an opportunity to review Buyer's 1998 Annual Report to Stockholders, Buyer's Annual Report on Form 10-K for the fiscal year ended March 31, 1998 and Buyer's definitive proxy statement for its 1998 Annual Meeting of Stockholders, and CVC is aware of and has access to all other Buyer Public Reports and other filings by Buyer with the SEC since March 31, 1998. (b) CVC is familiar with Rule 145 of the Securities Act and understands and agrees that (i) the resale limitations imposed thereby will be applicable to all Seller Affiliates, including CVC, and (ii) any stock certificate evidencing the Buyer Shares issued to a Seller Affiliate may have the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), (II) IN CONFORMITY WITH THE VOLUME AND OTHER LIMITATIONS OF RULE 145 OF THE ACT, EVIDENCED BY A LETTER OF REPRESENTATION IN A FORM REASONABLY SATISFACTORY TO THE CORPORATION, OR (III) IN A TRANSACTION WHICH, IN THE OPINION OF INDEPENDENT COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION OR AS DESCRIBED IN A "NO ACTION" OR INTERPRETIVE LETTER FROM THE STAFF A-29 165 OF THE SECURITIES AND EXCHANGE COMMISSION, IS NOT REQUIRED TO BE REGISTERED UNDER THE ACT. 4.7 Tax-Free Reorganization. CVC has not taken, to its knowledge, any action that would or reasonably could be expected to cause the Merger to fail to qualify as a "reorganization" within the meaning of Section 368 of the Code. 4.8 Pooling of Interest Treatment. CVC has not taken, to its knowledge, any action that would or reasonably could be expected to cause the Merger to fail to qualify for "pooling of interests" accounting treatment under Accounting Principles Board Opinion No. 16. 4.9 Disclosure. No representation or warranty of CVC contained in this Agreement or any schedule, attachment or exhibit hereto, and no statement contained herein or in any certificate or document furnished to Buyer pursuant to the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances in which they were made, not misleading. SECTION 5. Representations and Warranties of Buyer and Merger Sub. Each of Buyer and Merger Sub represents and warrants to Seller and each Seller Stockholder that the statements contained in this Section 5 are correct and complete as of the date of this Agreement. The representations and warranties which follow are deemed to be repeated on the Closing Date. 5.1 Organization, Qualification, and Corporate Power. Each of Buyer and its Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation. Each of Buyer and its Subsidiaries is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where the absence of such qualification would have a Material Adverse Effect on Buyer and its Subsidiaries. Each of Buyer and its Subsidiaries has the corporate power and authority necessary to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. Buyer has delivered to Seller a true and complete copy of its certificate of incorporation and by-laws as in effect on the date hereof. 5.2 Authorization of Merger. Each of Buyer and Merger Sub has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder subject to Buyer Stockholder Approval. This Agreement has been duly executed and delivered on behalf of each of Buyer and Merger Sub, and constitutes the valid and legally binding obligation of Buyer and Merger Sub, enforceable and in effect in accordance with its terms and conditions. The only further corporate action of Buyer required to consummate the Merger is Buyer Stockholder Approval. 5.3 Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which either Buyer or its Subsidiaries is subject or any provision of the charter or bylaws of either Buyer or any of its Subsidiaries or (ii) conflict with, result in a breach of, constitute a default (or any event which, with notice or lapse of time, or both, would constitute a default) under, result in the acceleration of, create in any party a put right or repurchase obligation or the right to accelerate, terminate, modify or cancel, create any Security Interest or require any notice under, any material Contract to which either of Buyer or any of its Subsidiaries is a A-30 166 party or by which it is bound or to which any of its material assets is subject, except for any such matters identified on Schedule 5.3. Other than in connection with the provisions of the HSRA, the federal and state securities laws and the NYSE Rule, neither Buyer nor any of its Subsidiaries needs to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency or other Person in order for the Parties to consummate the Merger, except as set forth on Schedule 5.3. 5.4 Capitalization. The authorized capital stock of Buyer consists of 77,000,000 shares of capital stock, consisting of 75,000,000 of common stock, no par value per share, of which 25,136,349 shares are issued and outstanding as of the date of this Agreement, and 2,000,000 shares of serial preferred stock, none of which is outstanding. Except as set forth on Schedule 5.4, neither Buyer nor any of its Subsidiaries has (i) any shares of common stock or preferred stock reserved for issuance, or (ii) any Contract to which Buyer or any of its Subsidiaries or, to Buyer's knowledge, any Affiliate of Buyer is a party or subject relating to its capital stock or otherwise representing a right to receive any of its capital stock, nor are there any pending or, to Buyer's knowledge, threatened claims or demands for, a direct or indirect equity interest in Buyer or any Subsidiary, including, without limitation, stock appreciation, phantom stock, profit participation or similar rights. All of the issued and outstanding shares of Buyer Common Stock have been duly authorized, validly issued, are fully paid and are nonassessable. All Buyer Shares have been duly authorized and, upon consummation of the Merger, will be validly issued, fully paid and nonassessable. Notwithstanding the foregoing, Seller acknowledges that, after the date hereof and prior to the Effective Time, Buyer may issue additional shares of Buyer Common Stock. The authorized capital stock of the Merger Sub is owned in its entirety by Buyer. 5.5 SEC Filings. Buyer has made all filings with the SEC that it has been required to make since December 31, 1995 under the Securities Act and the Exchange Act (including any exhibits and amendments thereto). Each such filing complied with the Securities Act and the Securities Exchange Act in all material respects when filed. No such filing, when filed, contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. 5.6 Financial Statements. Buyer has filed an Annual Report on Form 10-K for the fiscal year ended March 31, 1998 and a Quarterly Report on Form 10-Q for each of the fiscal quarters ended June 30, 1998 and September 30, 1998 (together the "Buyer Public Reports"). The financial statements included in Buyer Public Reports have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby unless noted therein, present fairly the financial condition of Buyer and its Subsidiaries as of the indicated dates and the results of operations of Buyer and its Subsidiaries for the indicated periods, are consistent with the books and records of Buyer and its Subsidiaries, and comply in all material respects with the provisions of Regulations S-K and S-X of the Securities Act. Attached as Schedule 5.6 are the unaudited consolidated balance sheet, income statement and cash-flow statement of Buyer and its Subsidiaries as of and for the three and nine-month periods ended December 31, 1998, which have been prepared in accordance with GAAP on a basis consistent with Buyer Public Reports with the exception of footnotes, present fairly the financial condition of Buyer and its Subsidiaries as of the indicated dates and the results of operations of Buyer and its Subsidiaries for the indicated periods, and are consistent with the books and records of Buyer and its Subsidiaries. A-31 167 5.7 Litigation. There are no judgments, decrees, lawsuits, actions, proceedings, claims, complaints, injunctions, orders or investigations by or before any Governmental Entity pending or, to Buyer's knowledge, threatened against Buyer or its Subsidiaries seeking to enjoin any aspect of the Merger. To Buyer's knowledge, there are no existing facts or circumstances which give any reason to believe that any such action, suit, proceeding, hearing or investigation may be brought or threatened against Buyer or any of its Subsidiaries. 5.8 Absence of Certain Developments. (a) Except as disclosed in Schedule 5.8(a), since March 31, 1998 no event has occurred which has had or reasonably could be expected to have a Material Adverse Effect on Buyer. (b) Except as disclosed in Schedule 5.8(b) or the Financial Statements, and except for this Agreement and the Merger, since March 31, 1998, each of Buyer and its Subsidiaries has been operated in the Ordinary Course. 5.9 Taxes. (a) Except as set forth on Schedule 5.9(a), all Taxes owed by Buyer and each of its Tax Affiliates, whether or not shown on any Tax Return, have been timely paid or are not yet due and payable. (b) Except as set forth on Schedule 5.9(b): (i) neither Buyer nor any of its Subsidiaries (A) is or has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group of the common parent of which was Buyer) or (B) has any Liability for the Taxes of any Person (other than Buyer and its Subsidiaries) under Treas. Reg. sec.1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise; (ii) Buyer and each of its Tax Affiliates has complied with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and has timely and properly withheld from employee wages and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under all applicable laws; (iii) there are no liens for Taxes on any assets of Buyer or any of its Tax Affiliates except liens for Taxes not yet due. (iv) neither Buyer nor any of its Tax Affiliates is a party to or bound by any Tax indemnification, Tax allocation or Tax sharing agreement with any Person or has any current or potential contractual obligation to indemnify any other Person with respect to Taxes; and (v) Buyer and each of its Subsidiaries has established and until the Effective Time will maintain on its books and records reserves adequate to pay all Taxes accrued but not yet due and payable in accordance with GAAP, and such reserves are reflected on the Financial Statements to the extent required. Neither Buyer nor any of its Subsidiaries is a party to any agreement, contract or arrangement that would result, separately or in the aggregate, in the payment of any "excess parachute payment" within the meaning of Section 280G of the Code, or in the payment of compensation that is not fully deductible pursuant to Section 162(m) of the Code, as a result of the Merger. A-32 168 5.10 Environmental, Health, and Safety Matters. Except as set forth on Schedule 5.10, (i) Buyer has complied with, and is in compliance with, the Environmental, Health, and Safety Requirements, in all material respects, (ii) without limiting the generality of the foregoing, Buyer has obtained and complied with, and is in compliance with, in all material respects, all permits, licenses and other authorizations that are required pursuant to the Environmental, Health, and Safety Requirements for the occupation of their facilities and the operation of their business, (iii) Buyer has not received any notice regarding any actual or alleged material violation of Environmental, Health, and Safety Requirements, or any material Liability or potential Liability arising under the Environmental, Health, and Safety Requirements (including any investigatory, remedial or corrective obligations) (iv) Buyer has not treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any Hazardous Material or owned or operated any property or facility (and no such property or facility is contaminated by any Hazardous Material) in a manner that has given or reasonably could be expected to give rise to any material Liability, including Liability for response costs, corrective action costs, personal injury, property damage, natural resources damages or attorney fees, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Solid Waste Disposal Act, as amended, or any other Environmental, Health, and Safety Requirements, and (v) Buyer has not, either expressly or by operation of law, assumed, undertaken or otherwise become subject to any material Liability of any other Person relating to Environmental, Health, and Safety Requirements. 5.11 Employee Benefit Plans. (a) All contributions or other amounts payable by Buyer or any ERISA Affiliate as of the Effective Time with respect to each Benefit Plan in respect of current or prior plan years have been paid or accrued in accordance with GAAP, Section 302 of ERISA and Section 412 of the Code, and there is no accumulated funding deficiency with respect to any Benefit Plan. The present value of accrued benefits under each Benefit Plan which is an employee pension benefit plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such Benefit Plan's actuary with respect to such Benefit Plan, did not, as of its latest valuation date, exceed the then current value of the assets of such Benefit Plan allocable to such accrued benefits. (b) To the extent applicable, each Benefit Plan (and its related trust) is maintained and administered in material compliance in all respects with the applicable provisions of ERISA, the Code and any other laws. Each Benefit Plan (and its related trust) which is maintained, administered, reported or contributed to as if qualified under Sections 401(a) or 501(a) of the Code is so qualified and has received a favorable determination letter from the Internal Revenue Service that it is so qualified. Each Benefit Plan (and its related trust) may, by its terms, be amended or terminated, in whole or in part, at any time and from time to time by Buyer (or, as applicable, any ERISA Affiliate) without penalty or cost. (c) No Liability to the Pension Benefit Guaranty Corporation (the "PBGC") (except for routine payment of premiums) has been incurred with respect to any Benefit Plan that is subject to Title IV of ERISA (and no fact or circumstance exists which could give rise to any such liability), no reportable event within the meaning of Section 4043 of ERISA has occurred with respect to any such Benefit Plan, the PBGC has not commenced proceedings for the termination of any Benefit Plan or the appointment of a trustee with respect to any Benefit Plan, and no fact or circumstance exists which can be expected to A-33 169 cause the PBGC to commence any proceedings under Title IV of ERISA or otherwise with respect to any Benefit Plan. None of the assets of Seller or any ERISA Affiliate is the subject of any Security Interest arising under Section 302 of ERISA or Section 412 of the Code, and no facts or circumstances exist which could give rise to such Security Interest. Neither Buyer nor any ERISA Affiliate has been required to post any security under Section 307 of ERISA or Section 401(a) of the Code, and no facts or circumstances exist which could give rise to such posting of security. (d) Neither Buyer nor any ERISA Affiliate has engaged in a transaction in connection with which Buyer or any ERISA Affiliate, or any other Person or entity, could be subject to a material Liability under ERISA, or the Code, including, without limitation, liability under Section 409 of ERISA or a civil penalty assessable pursuant to Section 502 of ERISA or a tax imposed pursuant to Section 4975 of the Code, and no event has occurred and no condition exists with respect to any Benefit Plan that could subject Buyer or any ERISA Affiliate to any tax, fine or penalty imposed by the Code or ERISA. 5.12 Broker's Fee. None of Buyer and its Subsidiaries has any Liability or obligation to pay any fees or commissions to any broker, finder, or similar agent with respect to the transactions contemplated by this Agreement. 5.13 Tax-Free Reorganization Representations. To Buyer's knowledge, it has not taken any action that would or reasonably could be expected to cause the Merger to fail to qualify as a "reorganization" within the meaning of Section 368 of the Code, and does not intend to take any such action. Without limiting the generality of the immediately preceding sentence: (a) Except with respect to the payment of cash in lieu of fractional share interests pursuant to Section 2.4(g), neither Buyer nor any related Person (within the meaning of Treas. Reg. sec.1.368-1(e)(3)) has any plan or intention to reacquire any of the Buyer Shares that will be issued in the Merger pursuant to either Buyer Warrant. (b) There is no intercorporate indebtedness existing between Buyer and Seller that was issued, acquired or will be settled at a discount. (c) Neither Buyer nor Merger Sub is an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. (d) Merger Sub will have no liabilities that will be assumed by or transferred to Seller in the Merger. (e) Prior to and through the Effective Time of the Merger, Buyer will be in control of Merger Sub within the meaning of Section 368(c) of the Code. (f) Buyer has no plan or intention to: (i) liquidate the Surviving Corporation, (ii) merge the Surviving Corporation with and into another corporation other than Merger Sub, (iii) sell or otherwise dispose of the Seller Shares, or (iv) cause the Surviving Corporation to sell or otherwise dispose of any of its assets, except for dispositions made in the ordinary course of business or transfers described in Section 368(a)(2)(C) of the Code. (g) Neither Buyer nor any related Person (within the meaning of Treas. Reg. sec.1.368-1(e)(3)) has acquired or will acquire any Seller Shares in anticipation of the Merger. (h) Buyer does not own, and has not owned during the past five years, any Seller Shares. A-34 170 (i) The Merger will be effected for a bona fide business purpose. (j) None of the Buyer Shares received by any stockholder/employee of Seller pursuant to the Merger are, or will be, separate consideration for, or allocable to, any employment, consulting or similar arrangement. The compensation paid to any stockholder/employee of Seller pursuant to any such employment, consulting or similar arrangement (including any covenant not to compete) is or will be for services actually rendered and performed (or not competing), and will be commensurate with amounts paid to third parties bargaining at arms length for similar services. (k) Buyer has no plan or intention to cause the Surviving Corporation to issue Seller Shares after the Merger that would result in Buyer losing control of the Surviving Corporation within the meaning of Section 368(c) of the Code. (l) Buyer presently intends that after the Merger it will cause the Surviving Corporation to continue the historic business of Seller and/or to use a significant portion of Seller's business assets in a business. 5.14 Pooling of Interest Treatment. To Buyer's knowledge, it has not taken any action that would or reasonably could be expected to cause the Merger to fail to qualify for "pooling of interests" accounting treatment under Accounting Principles Board Opinion No. 16. 5.15 Disclosure. No representation or warranty of Buyer contained in this Agreement or any schedule, attachment or exhibit hereto, and no statement contained herein or in any certificate or document furnished to Buyer pursuant to the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances in which they were made, not misleading. SECTION 6. Covenants. The Parties agree as follows with respect to the period from and after the execution of this Agreement. 6.1 General. Each of the Parties will use all commercially reasonable efforts to take all action and to do all things necessary, proper, and advisable in order to consummate and make effective the Merger as soon as practicable after the date of this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Section 7). Each party will give any notices for which it is responsible by law or under this or any other contract (and will cause each of its Subsidiaries to give any notices) to any third parties, and will use all commercially reasonable efforts to obtain (and will cause each of its Subsidiaries to use all commercially reasonable efforts to obtain) any third party consents, necessary to the consummation of the Merger, including any consents, waivers, amendment or other action. 6.2 Joint Proxy Statement -- Prospectus and S-4 Registration Statement; Stockholder Approval; NYSE Listing. (a) Buyer shall promptly prepare and file with the SEC the Joint Proxy Statement -- Prospectus (including the preliminary form thereof), and shall thereafter prepare and file with the SEC a registration statement on Form S-4 (the "S-4 Registration Statement"), in which the Joint Proxy Statement -- Prospectus will be included as a prospectus. Buyer and Seller shall use all commercially reasonable efforts to file the preliminary form of the Joint Proxy Statement -- Prospectus with the SEC within twenty (20) Business Days after the date of this Agreement. Buyer's Representatives shall have principal responsibility for A-35 171 preparing the Joint Proxy Statement -- Prospectus. Each of Buyer and Seller shall use all commercially reasonable efforts to have the S-4 Registration Statement declared effective under the Securities Act as promptly as practicable after the initial filing of the preliminary form of Joint Proxy Statement -- Prospectus. Buyer shall use all commercially reasonable efforts to obtain all necessary state securities law or "Blue Sky" permits and approvals required for Buyer and Seller to carry out the transactions contemplated by this Agreement and Seller shall furnish all information concerning Seller and the holders of Seller Shares as may be reasonably requested in connection with any such action. Buyer shall promptly notify Seller and CVC of the receipt by it of any comments of the SEC or state securities laws regulators and will promptly supply Seller and CVC with copies of all correspondence between it or its Representatives, on the one hand, and the SEC or state securities law regulators, on the other hand, regarding the Joint Proxy Statement -- Prospectus, the S-4 Registration Statement or such "Blue Sky" permits and approvals. (b) Each Party shall, promptly upon request, furnish each other Party with all information concerning itself, its Subsidiaries, Representatives, stockholders, Affiliates and such other matters as may be reasonably necessary or advisable in connection with the Joint Proxy Statement -- Prospectus, the S-4 Registration Statement or any other statement, filing, notice or application made by or on behalf of Buyer, Seller or any of their respective subsidiaries to any Governmental Entity in connection with the Joint Proxy Statement -- Prospectus, the S-4 Registration Statement or the "Blue Sky" permits and approvals. Seller shall use all commercially reasonable efforts to cause the following items to be delivered to Buyer within ten (10) Business Days after the date of this Agreement: (x) Seller's audited consolidated balance sheets as of December 31, 1998 and 1997 and its audited statements of income, cash-flow and shareholders' equity for each of the years in the three-year period ended December 31, 1998, and the report of PricewaterhouseCoopers, LLP with respect thereto, and (y) Seller's discussion and analysis of Seller's financial condition as of December 31, 1998 and 1997 and its results of operations for fiscal 1998 and 1997 prepared in accordance with the requirements of Item 303 of SEC Regulation S-K. (c) Except as expressly provided in the immediately following sentence, the Joint Proxy Statement -- Prospectus shall contain a recommendation by each of the Buyer Board of Directors and the Seller Board of Directors in favor of the approval of this Agreement. Notwithstanding the immediately preceding sentence, nothing in this Section 6.2 shall be construed to require any director of Buyer to take any action or permit any event otherwise required under this Section 6.2 to the extent that the Buyer Board of Directors or such director shall conclude in good faith, based upon the written advice of counsel, that such action is prohibited or inadvisable in order for the Buyer Board of Directors or such director to act in a manner that is consistent with its or his fiduciary obligations under applicable laws. (d) Buyer and Seller shall cause the Joint Proxy Statement -- Prospectus to be mailed to their respective stockholders as promptly as practicable after the S-4 Registration Statement is declared effective under the Securities Act, and in any event Seller shall cause the Joint Proxy Statement -- Prospectus to be mailed to the Seller Stockholders no later than the third (3rd) Business Day after the Joint Proxy Statement -- Prospectus is mailed to Buyer stockholders. Notwithstanding any other provision in this Agreement, Seller shall use its best efforts to obtain Seller Stockholder Approval not later than the first Business Day that is at least twenty (20) calendar days after the Joint Proxy Statement -- Prospectus is mailed to the Seller Stockholders. A-36 172 (e) Seller represents and warrants to Buyer that, as of the date the Joint Proxy Statement -- Prospectus is issued and as of the date of each of Seller Stockholder Approval and the Buyer Special Meeting, the Joint Proxy Statement -- Prospectus will not contain any untrue statement of a material fact regarding Seller or any of its Subsidiaries or omit to state any material fact regarding Seller or any of its Subsidiaries necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, it being understood that Seller is making no representation or warranty with respect to information set forth in the Joint Proxy Statement -- Prospectus concerning Buyer or the Buyer Special Meeting. Seller will promptly advise Buyer in writing if, at any time prior to the date of Seller Stockholder Approval or the date of the Buyer Special Meeting, it shall obtain knowledge of any facts that might make it necessary or appropriate to amend or supplement the Joint Proxy Statement -- Prospectus in order to make the statements regarding Seller or any of its Subsidiaries contained therein not misleading or to comply with applicable law and agrees to correct any statements that are or have become misleading. (f) Buyer represents and warrants to Seller that as of the date the Joint Proxy Statement -- Prospectus is issued and as of the date of each of Seller Stockholder Approval and the Buyer Special Meeting, the S-4 Registration Statement and the Joint Proxy Statement -- Prospectus will comply as to form in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and the rules and regulations of the SEC thereunder, and will not at any such time contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, except that no representation or warranty is made with respect to information set forth in the Joint Proxy Statement -- Prospectus concerning Seller or the terms of Seller Stockholder Approval. Buyer will promptly advise Seller in writing if, at any time prior to the Seller Stockholder Approval, Buyer shall obtain knowledge of any facts that might make it necessary or appropriate to amend or supplement the S-4 Registration Statement or the Joint Proxy Statement -- Prospectus in order to make the statements contained or incorporated by reference therein not misleading or to comply with applicable law and agrees to correct any statements that are or have become misleading. (g) Seller shall use all commercially reasonable efforts to cause to be delivered to Buyer letters from its independent accountants dated the date on which the S-4 Registration Statement or last amendment thereto shall become effective, and dated the Closing Date, and addressed to Buyer and Seller, with respect to Seller's consolidated financial position and the results of operations, which letters shall be based on SAS 72 and certain agreed-upon procedures, which procedures shall be consistent with applicable professional standards for letters delivered by independent accountants in connection with comparable transactions, and each in form and substance which is reasonably satisfactory to Buyer. (h) Seller and CVC shall use all commercially reasonable efforts to cause each Seller Affiliate to deliver to Buyer within fifteen (15) Business Days after the date of this Agreement an executed copy of the Seller Affiliate Agreement in the form of Exhibit D. Within sixty (60) days after the end of the first fiscal quarter of Buyer ending at least thirty (30) days after the Effective Time, Buyer shall publish results including at least thirty (30) days of combined operations of Buyer and Seller as referred to in Seller Affiliates Agreement as contemplated by and in accordance with SEC Accounting Series Release No. 135. A-37 173 (i) Buyer shall identify, after consultation with counsel, all persons who, at the time of the Buyer Special Meeting, it believes may be deemed to be "affiliates" of Buyer, as that term is defined for purposes of paragraphs (c) and (d) of Rule 145 under the Securities Act and/or as used in and for purposes of Accounting Series Releases 130 and 135, as amended, of the SEC (the "Buyer Affiliates"). Buyer shall use all commercially reasonable efforts to provide to each Buyer Affiliate, at least forty (40) days prior to the Effective Time, written notice regarding the applicable restrictions in Rule 145 and the ramifications of the SEC interpretative positions in Accounting Series Releases 130 and 135, as amended. (j) Buyer shall use all commercially reasonable efforts to cause the Buyer Shares that will be issued to the Seller Stockholders upon consummation of the Merger, and the Warrant Shares that will be issued upon the exercise of the Buyer Warrants, to be authorized for listing on the NYSE, subject to official notice of listing, prior to the Closing. 6.3 Other Regulatory Matters and Approvals. Each of the Parties will (and will cause each of its Subsidiaries to) give any notices to, make any filings with, and use all commercially reasonable efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in Sections 3.3 and 5.3. Without limiting the scope of the immediately preceding sentence, Buyer and Seller will as promptly as practicable, but in no event later than fifteen (15) Business Days following the date of this Agreement, each file any Notification and Report Forms or other form or report and related material that the Parties may be required to file with the Federal Trade Commission ("FTC") and the Antitrust Division of the United States Department of Justice ("DOJ") under the HSRA or with any other Governmental Entity under the laws of any foreign jurisdiction. Any such notification and report form and supplemental information will be in substantial compliance with the requirements of the HSRA. Each of Buyer and Seller shall furnish to the other such necessary information and reasonable assistance as the other may request in connection with its preparation of any filing or submission which is necessary under the HSRA. Buyer and Seller shall keep each other apprised of the status of any communications with, and inquiries or requests for additional information from, the FTC and the DOJ and shall respond promptly with any such inquiry or request. Buyer and Seller will use all commercially reasonable efforts to obtain an early termination of any applicable waiting period, and will make any further filings pursuant thereto that may be necessary, proper, or advisable. 6.4 Seller's Interim Operation of Business. Prior to the Closing, except as otherwise expressly provided herein, Seller shall, and shall cause its Subsidiaries to: (a) except as contemplated by this Agreement, operate only in the Ordinary Course; (b) use all commercially reasonable efforts to keep in full force and effect its corporate existence and all material rights, franchises, Proprietary Rights and goodwill relating or obtaining to its business; (c) use reasonable efforts to retain its employees and preserve its present relationships with customers, suppliers, contractors, distributors and such employees; (d) perform in all material respects all of its obligations under all Contracts to which it is a party or by which it or its properties or assets may be bound and not enter into, assume, create, renew, amend or terminate, or give notice of a proposed renewal, amendment or termination of, (i) any Contract for goods, services or office A-38 174 space to which Seller or any of its Subsidiaries is (or would thereby be) a party or by which Seller or any of its Subsidiaries or any of their properties are (or would thereby be) bound, excepting only Contracts made in the Ordinary Course or under which the aggregate payments by either party over the term of the Contract do not exceed $100,000, (ii) any Contract the benefits of which (to either party) will accrue or be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of the Merger (either alone or upon the occurrence of any additional acts or events) or the value of any of the benefits under which will be calculated on the basis of the Merger or any portion or aspect of either (including any so-called retention or similar bonuses), (iii) any Contract relating to non-competition, or (iv) any Contract that materially restricts the conduct of any line of business by Seller or any of its Subsidiaries; (e) not make any single capital expenditure exceeding $2,000,000 or any capital expenditures exceeding $3,000,000 in the aggregate; provided, however, that with Buyer's prior written consent, which consent may not be unreasonably withheld, conditioned or delayed, Seller's aggregate capital expenditures during the term of this Agreement may exceed $3,000,000 but not more than $7,000,000; (f) not enter into any new line of business; (g) not enter into, renew or amend any agreement relating to employment, salary continuation, severance, consulting, collective bargaining or otherwise relating to the provision of personal services or payment therefor; not institute, amend or terminate any Benefit Plan; not terminate any group health plan that covers, as of the date of this Agreement, current or former employees of Seller, any of its Subsidiaries or any ERISA Affiliate or their beneficiaries; not enter into, renew or amend any agreement that, upon the consummation of the Merger, will result in any payment (whether of severance pay or otherwise) becoming due from Buyer, the Surviving Corporation, or any of their Subsidiaries, to any officer or employee of Seller or any of its Subsidiaries; not pay any pension or retirement allowance to any Person not required by an existing plan or agreement; not increase in any manner the compensation or fringe benefits of, or pay any bonus to, any officer, director or employee except (i) as set forth on Schedule 6.4(g) or (ii) customary annual (or less frequent) increases in the wages or salaries of employees and customary annual (or less frequent) bonuses to employees, in each case substantially consistent with past practice and which on an annualized basis do not increase the aggregate personnel costs for all employees by more than six percent (6.0%) over the levels in effect as of December 31, 1998; or not increase any other direct or indirect compensation or employee benefit for or to any of its officers, directors or employees; (h) prepare and file, on a timely basis, all Tax Returns and other Tax reports, filings and amendments thereto required to be filed by it; (i) deliver to Buyer, within fifteen (15) days of each month end from the date hereof through the Closing Date, Seller's consolidated unaudited balance sheets, income statements and cash flow statements as of and for the immediately preceding month, all consistent with the applicable requirements of Section 3.6; (j) not declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of its outstanding capital stock, except for cash dividends in the Ordinary Course on the Seller Preferred Shares in accordance with the terms of Seller's Certificate of Incorporation; A-39 175 (k) not issue, sell, grant, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or option to acquire, any such shares, voting securities or convertible securities, or take any action that would make the representations and warranties set forth in Section 3.4 as applicable not true and correct in all material respects; (l) not amend its Certificate of Incorporation or By-laws or other comparable charter or organizational documents; (m) not acquire by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof (or any interest therein), or form any subsidiary or solicit or negotiate any Acquisition Proposal with respect to any other Person; (n) not change its accounting policies in any material respect, except as required by GAAP; (o) pay their own expenses in connection with the Merger and, at Seller's discretion, pay any expense CVC reasonably incurs in connection with the Merger; and (p) not authorize or enter into any agreement or commitment to take any action inconsistent with any of the foregoing. Further, prior to the Closing, without the prior written consent of Buyer or as otherwise expressly provided herein, Seller will not, and will not permit any of its Subsidiaries, to enter into any Contract or take any other action which, if entered into or taken prior to the date of this Agreement, would cause any representation or warranty of Seller to be untrue in any respect or be required to be disclosed on any Schedule; or take any action that is intended or may reasonably be expected to result in any of the conditions to the Merger as set forth in Section 7 not being satisfied or in a violation of this Agreement; or take or omit to be taken any action which reasonably could be expected to have a Material Adverse Effect on Seller. 6.5 Covenants of Buyer. Prior to the Closing, except as otherwise expressly provided for herein, Buyer shall, and shall cause its Subsidiaries to: (a) not take any action that is intended or may reasonably be expected to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect, or in any of the conditions to the Merger set forth in Sections 7.2 not being satisfied or in a violation of any provision of this Agreement, except, in every case, as may be required by applicable law; (b) not take any other action that would materially impede the ability of Buyer to obtain the requisite regulatory approvals or otherwise materially adversely affect Buyer's ability to consummate the transactions contemplated by this Agreement; (c) not declare or pay any dividend on, or make any other distributions in respect of, Buyer Common Stock except for dividends in the Ordinary Course and dividends or distributions in Buyer Common Stock; (d) not issue any shares of Buyer Common Stock in connection with Buyer acquiring directly or indirectly the stock or assets of any other Person, except with the prior consent of Seller, which consent may not be unreasonably withheld, conditioned or delayed; A-40 176 (e) not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person unless such Person shall expressly assume the obligations of Buyer hereunder; (f) pay their own expenses in connection with the Merger; and (g) not authorize or enter into any agreement or commitment to take any action inconsistent with any of the foregoing. Further, prior to the Closing, without the prior written consent of Seller or as otherwise expressly provided for herein, Buyer will not, and will not permit any of its Subsidiaries, to enter into any Contract or take any other action which, if entered into or taken prior to the date of this Agreement, would cause any representation or warranty of Buyer to be untrue in any respect or be required to be disclosed on any Schedule; or take any action that is intended or may reasonably be expected to result in any of the conditions to the Merger as set forth in Section 7 or in a violation of this Agreement. 6.6 Access. (a) Seller shall make available to Buyer all information regarding Seller that Buyer reasonably may request and shall authorize all reasonable visits to Seller's premises to make such investigations of the business, properties, books and records of Seller and its Subsidiaries (including without limitation Phase I and Phase II environmental assessments and other environmental due diligence) as Buyer reasonably may request. Buyer agrees to coordinate closely all such activities with Seller's President or Chief Financial Officer and to conduct any such inquiries with appropriate discretion and sensitivity to Seller's relationships with its employees, customers and suppliers. (b) Upon reasonable notice, Buyer shall, within a reasonable period of time prior to the Closing, afford Seller and its officers, employees, counsel, accountants and other authorized Representatives, such access as is reasonably necessary to confirm that the representations and warranties of Buyer made herein are true and correct in all material respects. Buyer shall furnish promptly to Seller a copy of each application, report, schedule, correspondence and other document filed by Buyer with or received by Buyer from any Governmental Entity in connection with the transactions contemplated hereunder, and Buyer agrees to notify Seller by telephone within twenty-four (24) hours of receipt of any adverse oral communication from any Governmental Entity regarding the outcome of any regulatory applications required in connection with the Merger. (c) Nothing in this Section 6.6 shall require any Party or any of its Subsidiaries to provide access to or to disclose information where such access or disclosure would jeopardize the attorney-client privilege of the Person in possession or control of such information or would contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. The Parties will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the immediately preceding sentence apply. (d) Each Party acknowledges that certain of the information made available to it pursuant to this Section 6.6 and otherwise in connection with the Merger may be confidential, proprietary or otherwise nonpublic, and each Party agrees, for itself and for each of its Representatives, that it (i) shall hold in confidence all confidential information received by it from or with regard to the other Party ("Confidential Information") subject to the terms of this Section 6.6, (ii) shall disclose such Confidential Information only to those of its Representatives and, in the case of Buyer, its current or prospective lenders, and other sources of capital, in each case having a need to know the same for purposes of evaluating, negotiating or implementing financing for Buyer, and (iii) shall inform each A-41 177 Representative or current or prospective lender or investor to whom Confidential Information is disclosed that such information is confidential and direct such Representative or current or prospective lender or investor not to disclose the same. Each Party shall remain responsible for any disclosure of Confidential Information by any of its Representatives or current or prospective lender or investors. Each Party further agrees that, upon the request of the other Party given following the termination of this Agreement for any reason, the receiving Party and each of its Representatives either shall return to the requesting Party all Confidential Information received by the receiving Party and its Representatives (including all compilations, analyses or other documents prepared by it that contain Confidential Information) or shall certify that the same has been destroyed. As used herein, Confidential Information shall not include (i) information that is or becomes generally available to the public other than as a result of a breach of this Agreement, (ii) information that the receiving Party demonstrates was known to it on a non-confidential basis prior to receiving such information from the other Party, (iii) information that the receiving Party develops independently without relying on Confidential Information, and (iv) information that becomes available to the receiving Party on a non-confidential basis from another source if the source was not known to or not reasonably believed by the receiving Party to be subject to any prohibition against disclosing such information. 6.7 Notice of Developments. Each Party shall promptly advise the other Party of any change or event having a Material Adverse Effect on it or its ability to perform its obligations under this Agreement or which it believes would or may be reasonably likely to cause or constitute a material breach of any of its representations, warranties or covenants contained herein or to preclude the satisfaction of one or more of the conditions set forth in Section 7; provided, however, that any such disclosure shall not have any effect for the purpose of determining the accuracy of any representation or warranty when made, for determining satisfaction of the conditions set forth in Section 7, or for determining the compliance by Seller with any other provision of this Agreement. 6.8 Acquisition Proposals. Seller shall not, and it shall not authorize or permit any of its Subsidiaries, officers, directors, employees, Affiliates, stockholders or any Representative retained by Seller or its Subsidiaries, directly or indirectly, to (i) solicit, initiate or knowingly encourage or induce the making of any Acquisition Proposal, (ii) negotiate with any third party with respect to any Acquisition Proposal, (iii) endorse or recommend the Acquisition Proposal of any Person other than the Buyer or any of its Subsidiaries or (iv) enter into any Contract with any third party with the intent to effect any Acquisition Proposal. 6.9 Board of Directors. CVC shall have the right to designate one (1) director to serve on Buyer's Board of Directors from and after the Effective Time, and Buyer's Board of Directors shall take all such action reasonably necessary to cause and maintain such designation, so long as at all times from and after the Effective Time each of the following conditions is satisfied: (i) CVC owns shares of Buyer Common Stock constituting forty percent (40.0%) or more of the total number of Buyer Shares issued to CVC in the Merger (as adjusted for any Recapitalization) and (ii) CVC owns shares of Buyer Common Stock constituting two percent (2.0%) or more of the shares of Buyer Common Stock outstanding from time to time. A condition to the election of the CVC designee is the agreement of such designee to resign at the request of Buyer's Board of Directors if the either of the conditions set forth in the immediately preceding sentence is not satisfied. Buyer shall use all commercially reasonable efforts to maintain directors' and officers' liability insurance covering the CVC director designee, and in no event shall such A-42 178 directors' and officers' liability insurance applicable to the CVC director designee be less favorable than the directors' and officers' liability insurance covering Buyer's directors generally. Buyer shall reimburse such designee for any reasonable out-of-pocket expenses incurred in connection with his or her position on the Board of Directors in accordance with Buyer's customary practices and shall pay such designees any fees or other compensation comparable to other non-executive directors of Buyer. 6.10 Financing. Buyer shall use all commercially reasonable efforts to obtain, on terms satisfactory to Buyer, debt financing on or prior to the Closing Date in an amount not less than the amount required to refinance all financial indebtedness of Seller and its Subsidiaries under the Credit Agreements, the Senior Credit Notes and the 10% PIK Subordinated Notes and to provide for the ordinary working capital needs of Seller and its Subsidiaries. Buyer shall deliver to Seller true and correct copies of the fully executed and delivered definitive financing agreements with respect thereto on or before the Closing Date. Buyer shall use all commercially reasonable efforts to cause it and its Subsidiaries to satisfy on or before the Closing Date all requirements of the definitive financing agreements which are conditions to closing the transactions constituting the financing and to drawing the cash proceeds thereunder. Seller and its Subsidiaries shall use all commercially reasonable efforts to cooperate with Buyer to facilitate such financing. 6.11 Press Releases and Public Announcements. Other than required by this Agreement, no Party shall issue any press release or make any public announcement (including filings with the SEC or NYSE) prior to the Effective Time and relating to the subject matter of this Agreement without the prior written approval of the other Parties; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will use all commercially reasonable efforts to advise the other Parties prior to making the disclosure). 6.12 Covenants of CVC. (a) Prior to the Closing, without the prior written consent of Buyer or as otherwise expressly provided herein, CVC will not, and will not permit any of its Affiliates to, enter into any Contract or take any other action which, if entered into or taken prior to the date of this Agreement, would cause any representation or warranty of Seller or CVC in Article 3 or Article 4 to be untrue in any respect or be required to be disclosed on any Schedule; or take any action that is intended or may reasonably be expected to result in any of the conditions to the Merger as set forth in Section 7 not being satisfied or in a violation of this Agreement; or take or omit to be taken any action which reasonably could be expected to have a Material Adverse Effect on Seller. (b) CVC shall use its best efforts to cause Seller to obtain Seller Shareholder Approval and to cause the condition set forth in Section 7.2(g) to be satisfied, including, with respect to Section 7.2(g), enforcing to the extent necessary the waiver of dissenter's rights provided in the Seller Stockholder Agreement. Without limiting the scope of the immediately preceding sentence, so long as this Agreement has not been terminated in accordance with the terms CVC shall vote or cause to be voted all of the CVC Shares that are Seller Voting Shares and that are owned by CVC as of the record date for Seller Stockholder Approval, for the approval of this Agreement, and shall vote, or cause to be voted, all such CVC Shares against the approval of any Acquisition Proposal providing for a merger, acquisition, consolidation, sale of a material amount of assets or other business combination of Seller or any of its Subsidiaries with any Person other than Buyer or any of its Subsidiaries. A-43 179 (c) So long as this Agreement has not been terminated in accordance with the terms hereof, CVC will not sell, assign, transfer or otherwise dispose of (including, without limitation, by the creation of a Security Interest), or permit to be sold, assigned, transferred or otherwise disposed of, any of the CVC Shares, whether such CVC Shares are held on the date of this Agreement or are subsequently acquired, whether pursuant to the exercise of stock options or otherwise, except (i) transfers by operation of law (in which case this Agreement shall bind the transferee), and (ii) as Buyer may otherwise agree in its sole discretion. (d) CVC agrees that, so long as this Agreement has not been terminated in accordance with the terms hereof, CVC shall, and shall instruct each of its Representatives and Affiliates to, cease and refrain from any and all activities, discussions, negotiations, providing any information with respect to, or other actions with any Person other than Buyer or any of its Subsidiaries or any of their respective Representatives with respect to any Acquisition Proposal other than the Merger. (e) From the date that is thirty (30) days prior to the Effective Time, CVC will not sell, transfer or otherwise dispose of, or reduce the risk of ownership with respect to, any CVC Share and will not sell, transfer or otherwise dispose of, or reduce the risk of ownership with respect to, any Buyer Shares received by CVC in the Merger or other shares of Buyer Common Stock until after such time as results covering at least thirty (30) days of combined operations of Buyer and Seller have been published by Buyer, in the form of a quarterly earnings report, an effective registration statement filed with the Commission, a report to the Commission on Form 10-K, 10-Q, or 8-K, or any other public filing or announcement which includes the results of at least thirty (30) days of combined operations as contemplated by and in accordance with SEC Accounting Series Release No. 135. SECTION 7. Conditions to Closing. 7.1 Joint Conditions to Obligations of Buyer, Merger Sub and Seller. The obligations of Buyer and Seller to consummate the Merger are subject to the satisfaction of each of the following conditions: (a) Buyer Stockholder Approval and Seller Stockholder Approval shall have been obtained. (b) All necessary approvals of any Governmental Entity required for the consummation of the Merger shall have been obtained and shall remain in full force and effect; all statutory or other required waiting periods in respect thereof shall have expired; and no approval of any Governmental Entity shall have imposed any condition or requirement which, in the reasonable opinion of Buyer, would so materially adversely affect the economic or business benefits to Buyer of the Merger so as to render inadvisable the consummation thereof. (c) The S-4 Registration Statement shall have become effective under the Securities Act, no stop order suspending its effectiveness shall have been issued, and no proceedings for that purpose shall have been initiated or shall be threatened by the SEC. (d) The Buyer Shares that will be issued to the Seller Stockholders upon consummation of the Merger, and the Warrant Shares that will be issued upon the exercise of the Buyer Warrants, shall have been authorized for listing on the NYSE subject to official notice of listing. A-44 180 (e) There shall be no claim, action, suit, investigation or other proceeding pending or overtly threatened before any court or other Governmental Entity wherein an unfavorable judgment, order, decree, ruling, charge or injunction has been issued, or reasonably could be expected to be issued, which would (i) prevent consummation of any of the transactions contemplated by this Agreement, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (iii) present a substantial risk of the obtaining of material damages from Seller or Buyer or their respective officers or directors in connection therewith. 7.2 Conditions to Obligations of Buyer and Merger Sub. The obligations of Buyer and the Merger Sub to consummate the transactions to be performed by them in connection with the Closing are subject to satisfaction of the following conditions. (a) the representations and warranties set forth in Section 3 and Section 4 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date; (b) Seller shall have performed and complied with all of its agreements and covenants hereunder through the Closing; (c) there shall have been no event having a Material Adverse Effect on Seller; (d) Seller shall have delivered to Buyer and Merger Sub a certificate signed by its Chief Executive Officer and its Chief Financial Officer to the effect that each of the conditions specified above in Section 7.1 and 7.2 (a)-(c) is satisfied in all respects, provided, that such certificate need not address Section 4 of this Agreement; (e) CVC shall have delivered to Buyer and Merger Sub a certificate to the effect that the representations and warranties in Section 4 are true and correct in all material respects as of the date of this Agreement and as of the Closing Date; that CVC has complied with the agreements and covenants applicable to it; and that the condition in Section 7.1(e) has been satisfied as it pertains to CVC; (f) Buyer shall have obtained the proceeds of the financing necessary to provide debt financing of an amount not less than the amount required to refinance all financial indebtedness of Seller and its Subsidiaries under the Credit Agreement, the Senior Subordinated Credit Note and the 10% PIK Subordinated Notes and to provide for the ordinary working capital needs of Seller and its Subsidiaries, in each case on terms and conditions reasonably satisfactory to Buyer, and Buyer shall have received in form and substance reasonably satisfactory to it such releases, discharges and other similar instruments as it may reasonably request to confirm that all creditors under such lending arrangements have released all Security Interests encumbering or otherwise affecting the assets of Seller or any of its Subsidiaries. (g) The total number of Buyer Shares that potentially may not be issued in the Merger as a consequence of one or more Seller Stockholders having the right, as of the Closing, to exercise dissenter's rights under the DGCL shall not exceed Three Hundred Eighty-Five Thousand (385,000). (h) Buyer shall have received letters, in form and substance acceptable to it, from KPMG Peat Marwick LLP and PricewaterhouseCoopers, LLP, dated the Closing Date, substantially to the effect that, on the basis of a review of the Agreement and the Merger contemplated hereby, in such accountants' unqualified opinion, Accounting Principles Board Opinion No. 16 provides that the Merger may be accounted for as a pooling of interests. A-45 181 (i) Buyer shall have received an opinion, dated as of the Closing Date, from its counsel, Nutter, McClennen & Fish, LLP or other counsel acceptable to Buyer, substantially to the effect that, on the basis of facts and representations set forth therein, or set forth in writing elsewhere and referred to therein, for federal income tax purposes the Merger constitutes a reorganization within the meaning of Section 368(a) of the Code. (j) each of Buyer and the Merger Sub shall have received from counsel to Seller opinions as to corporate matters dated as of the Closing Date and addressed to, and in form and substance reasonably satisfactory to, each of Buyer and the Merger Sub; (k) Seller and each Seller Affiliate shall have terminated, to the extent requested by Buyer, the Seller Stockholder Agreement and any and all other similar agreements or arrangements, to which Seller or any Seller Affiliate is a party; (l) CVC, the Management Representative, all other Seller Stockholders (other than Seller Stockholders who have perfected dissenter's rights) and the holder of the CMP Warrant shall have entered into the Agency Agreement; (m) CVC and the Management Representative, in their individual capacities and as agents for the holders of Seller Common Shares and the CMP Warrant, shall have entered into an Escrow Agreement with Buyer and Escrow Agent; (n) Each Seller Affiliate shall have executed and delivered to Buyer the Seller Affiliate Agreement; (o) Each of David R. Beckerman and any other Seller employee who owns a stock or other ownership interest in any Subsidiary of Seller shall have executed and delivered to Buyer an instrument in form and substance reasonably acceptable to Buyer whereby such Person will transfer or agree to transfer, to any Person reasonably designated by Buyer, any and all stock or other ownership interest he or she may have in any Subsidiary of Seller; and (p) Without limiting the scope of any other provision of this Section 7.2 and except for the CMP Warrant, there shall be, as of the Closing, no Contract of any character to which Seller or any of its Subsidiaries is a party or subject representing an option, warrant, right call or similar right to receive or acquire any capital stock of Seller or any of its Subsidiaries, nor shall there be, as of the Closing, any pending or, to Seller's knowledge, threatened any claim or demand for, a direct or indirect equity interest in Seller or any Subsidiary, including, without limitation, any option, warrant, right or call or any stock appreciation, phantom stock, profit participation or similar rights. 7.3 Conditions to Obligations of Seller. The obligation of Seller and Seller Stockholders to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions. (a) the representations and warranties set forth in Section 5 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date; (b) each of Buyer and the Merger Sub shall have performed and complied with all of its covenants hereunder through the Closing; A-46 182 (c) each of Buyer and the Merger Sub shall have delivered to Seller a certificate to the effect that each of the conditions specified in Section 7.1 and 7.3(a)-(b) is satisfied in all respects; (d) Seller shall have received a letter, in form and substance acceptable to it, from PricewaterhouseCoopers, LLP, dated the Closing Date, substantially to the effect that, on the basis of a review of the Agreement and the Merger contemplated hereby, in such accountants' unqualified opinion, Accounting Principles Board Opinion No. 16 provides that the Merger may be accounted for as a pooling of interests. (e) Seller shall have received from counsel to Buyer and the Merger Sub opinions as to corporate matters dated as of the Closing Date and addressed to, and in form and substance reasonably satisfactory to, Seller; (f) Seller shall have received an opinion, dated as of the Closing Date, from its counsel, Kirkland & Ellis or other counsel acceptable to Seller, substantially to the effect that, on the basis of facts and representations set forth therein, or set forth in writing elsewhere and referred to therein, for federal income tax purposes the Merger constitutes a reorganization within the meaning of Section 368(a) of the Code. (g) Buyer shall have taken all steps necessary to cause to be elected, effective not later than the Effective Time, the Person designated by CVC pursuant to Section 6.9; (h) Buyer shall have refinanced not later than the Effective Time all financial indebtedness of Seller and its Subsidiaries under the Credit Agreement, the Senior Subordinated Credit Note and the 10% PIK Subordinated Notes; and (i) Buyer shall have executed and delivered to CVC the Registration Rights Agreement. SECTION 8. Indemnification. 8.1 Agreements to Indemnify. (a) As used in this Section 8: (i) "Damages" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including court costs and attorneys' fees and expenses, and including costs of environmental investigations and/or cleanups ordered by federal, state, local, or foreign governments (or any agencies thereof). (ii) "Indemnifying Party" means the party obligated to provide indemnification under Sections 8.1(b), (c) or (d). (iii) "Indemnified Party" shall mean a party entitled to indemnification under Sections 8.1(b), (c), or (d). (b) On the terms and subject to the limitations set forth in this Section 8 and the Escrow Agreement, the Escrow Agent, solely on behalf of the Persons receiving Buyer Shares in connection with the Merger and the holder of the Escrow Warrant, and not individually, shall indemnify, defend and hold harmless Buyer and its Subsidiaries and their Representatives from and against any and all Damages incurred in connection with or arising out of or resulting from or incident to (i) any breach of any warranty, or the A-47 183 inaccuracy of any representation made by Seller in or pursuant to this Agreement, or (ii) any breach of any other covenant or agreement made by Seller in or pursuant to this Agreement. (c) On the terms and subject to the limitations set forth in this Section 8, Buyer shall indemnify, defend and hold harmless Seller and the Seller Stockholders and their respective Subsidiaries and Representatives from and against any and all Damages incurred in connection with or arising out of or resulting from or incident to (i) any breach of any or warranty, or the inaccuracy of any representation, made by Buyer in or pursuant to this Agreement, or (ii) the breach of any other covenant or agreement made by Buyer in or pursuant to this Agreement. (d) On the terms and subject to the limitations set forth in this Section 8 and the Escrow Agreement, the Escrow Agent, solely on behalf of CVC, and not individually, shall indemnify, defend and hold harmless Buyer and its Subsidiaries and their respective Representatives from and against any and all Damages incurred in connection with or arising out of or resulting from or incident to (i) any breach of any or warranty, or the inaccuracy of any representation, made by CVC in or pursuant to this Agreement, or (ii) the breach of any other covenant or agreement made by CVC in or pursuant to this Agreement. (e) Any payment made by the Escrow Agent on behalf of CVC or any other Seller Stockholder pursuant to the indemnification obligations provided for in this Section 8 shall constitute a reduction in the consideration paid by Buyer in the Merger. Any payment made by Buyer pursuant to the indemnification obligations provided for in this Section 8 shall constitute an addition to the consideration paid by Buyer. 8.2 Limitations on Indemnification. (a) None of the parties hereto shall be liable to the other pursuant to the indemnification provisions of Sections 8.1(b), (c) or (d) unless it receives notice from the other party of its claim for indemnification hereunder within twelve (12) months after the Closing Date; or in the case of the representations of Seller set forth in Sections 3.6 and 3.9 and of Buyer under Sections 5.6 and 5.9 as to which the notice must be received by the later of (x) twelve (12) months after the Closing Date or (y) by April 30, 2000 or such later date as the audit of Buyer's financial statements for the year ended March 31, 2000 is complete. (b) Indemnification payments due under Sections 8.1 shall be reduced by (i) any insurance proceeds received by the Indemnified Party with respect to those Damages which relate to the indemnity claim and which proceeds are received under an insurance policy of Seller or any of its Subsidiaries in effect as of the date of this Agreement; provided that this Section 8.2(b) shall not obligate Buyer or any of its Subsidiaries to obtain any insurance coverage or, if already obtained, to maintain the effectiveness of such insurance or to make any claim thereunder; and (ii) the amount of any Tax savings realized by the indemnified party with respect to those Damages which relate to the indemnity claim (net of any increased Tax Liability which may result from the receipt of an indemnity payment under Sections 8.1(b), 8.1(c) or 8.1(d)); provided that future Tax deductions and Tax Liability will be discounted at the prime rate of interest reported in the Wall Street Journal at the time the indemnification payment pursuant to this Section 8 is made. (c) Pursuant to claims for indemnification of the type referred to in Sections 8.1(b), 8.1(c) or 8.1(d), an Indemnifying Party shall only be liable to an Indemnified Party to the A-48 184 extent the aggregate amount of such claims by the Indemnified Party for indemnification exceeds Two Million Dollars ($2,000,000) in the aggregate (the "Indemnity Threshold"), whereupon only the amount of such claims in excess of the Indemnity Threshold shall be recoverable in accordance with the terms hereof. For purposes of the applying the Indemnity Threshold to Seller Stockholder claims under Section 8.1(c), all Seller Stockholders shall be treated as a single Indemnified Party. (d) If the Merger has occurred, (i) the aggregate liability of the Seller Stockholders for any and all Damages arising from indemnification claims under Section 8.1(b) shall not exceed the value of the Escrow Fund (as defined in the Escrow Agreement), (ii) the aggregate liability of Buyer for any and all Damages arising from indemnification claims under Section 8.1(c) shall not exceed the aggregate Current Market Price of the Escrow Shares as of the Closing Date, and (iii) the liability of CVC for any and all Damages arising from indemnification claims under Section 8.1(b) or Section 8.1(d), in the aggregate, shall not exceed the value of Escrow Account (as defined in the Escrow Agreement) of CVC and each Escrow Account Beneficiary, if any, who is a successor or assignee of CVC under the Escrow Agreement. (e) If the Merger has occurred, any indemnification payment owed by Buyer pursuant to Section 8.1(c) shall be payable solely in additional shares of Buyer Common Stock with the value of such shares being deemed to be equal to the Current Market Price of Buyer Common Stock as of the Closing Date. (f) The indemnification provided for in this Section 8 shall be the sole and exclusive remedy of Buyer, Merger Sub, Seller, the Seller Stockholders and CMP, for any and all Damages incurred in connection with or arising out of or resulting from or incident to any breach of any warranty, or the inaccuracy of any representation made any Party in or pursuant to this Agreement, or any breach of any other covenant or agreement made by any Party in or pursuant to this Agreement or otherwise related to or arising out of the Merger. Without limiting the scope of the immediately preceding sentence, except as expressly set forth in this Section 8 and subject only to the occurrence of the Effective Time, each Party does hereby irrevocably and absolutely waive and release, to the fullest extent permitted under law, any and all claims, demands, damages, debts, liabilities, accounts, reckonings, obligations, costs, expenses, liens, actions and causes of action of every kind and nature whatsoever, which it/he now has, own or holds, or at any time heretofore ever had, owned or held, or could, shall or may hereafter have, own or hold, whether now known or unknown, suspected or unsuspected, against any other Party or other Seller Stockholder incurred in connection with or arising out of or resulting from or incident to any breach of any warranty or the inaccuracy of any Party in or pursuant to this Agreement or any breach of any other covenant or agreement made by any Party in or pursuant to this Agreement or otherwise related to or arising out of this Agreement or the Merger. 8.3 Method of Asserting and Resolving Claims. (a) All claims for indemnification by Buyer pursuant to Section 8.1(b) shall be made and resolved in accordance with the provisions of the Escrow Agreement. (b) Any claim for indemnification pursuant to Section 8.1(c) or (d), shall be made and resolved in accordance with this Section 8.3. A Person seeking indemnification shall, prior to the Termination Date, give written notice of such claim (a "Claim Notice") to the proposed Indemnifying Party. In the case of Claim Notice seeking indemnification pursuant to Section 8.1(c), the Claim Notice shall be given by CVC. Each Claim Notice A-49 185 shall state the amount of claimed Damages and the basis for such claim. Within thirty (30) days after delivery of a Claim Notice, the proposed Indemnifying Party shall provide a written response (the "Response Notice") to the Person who gave the Claim Notice. If no Response Notice is delivered within such thirty (30) day period, the proposed Indemnifying Party shall be deemed to have waived its right to dispute such claim for indemnification. Buyer, on the one hand, and Seller or CVC, on the other hand, shall use good faith efforts to resolve any disputed indemnification claim. If the matter is not resolved within fifteen (15) days of the delivery of the Response Notice, either Party shall have the right, by delivery of written notice to the other (the "Arbitration Notice"), to submit the matter to binding arbitration in Stamford, Connecticut. Such matter shall then be settled by three arbitrators in accordance with the Commercial Arbitration Rules then in effect of the American Arbitration Association (the "AAA Rules"). CVC and Buyer shall each designate one arbitrator within fifteen (15) days of the delivery of the Arbitration Notice. CVC and Buyer shall cause such designated arbitrators mutually to agree upon and shall designate a third arbitrator; provided, however, that (i) failing such agreement within forty-five (45) days of delivery of the Arbitration Notice, the third arbitrator shall be appointed in accordance with the AAA Rules and (ii) if either CVC or Buyer fails to timely designate an arbitrator, the dispute shall be resolved by the one arbitrator timely designated. CVC and Buyer shall pay the fees and expenses of their respectively designated arbitrators and shall bear equally the fees and expenses of the third arbitrator. CVC and Buyer shall cause the arbitrators to decide the matter to be arbitrated pursuant hereto within sixty (60) days after the appointment of the last arbitrator. The arbitrators' decision shall relate solely to whether the proposed Indemnified Party is entitled to receive the claimed Damages (or a portion thereof) pursuant to the applicable terms of this Agreement. The final decision of the majority of the arbitrators shall be furnished to Seller or CVC, as applicable, and Buyer in writing and shall constitute a conclusive, final and nonappealable determination of the issue in question, binding upon Seller or CVC, as applicable, Buyer and all Seller Stockholders, as applicable, and their successors and assigns. Such decision may be used in a court of law only for the purpose of seeking enforcement of the arbitrators' award. (c) The Indemnified Party shall give prompt written notification to the Indemnifying Party of the commencement of any action, suit or proceeding relating to a third party claim for which indemnification pursuant to this Section 8 may be sought. Within twenty (20) Business Days after delivery of such notification, the Indemnifying Party (which for purposes of this Section 8.3(c) shall mean Seller or, if the merger has occurred, CVC, as agent for the Seller Stockholders, in the case of a claim pursuant to Section 8.1(c)) may, upon written notice thereof to the Indemnified Party, assume control of the defense of such action, suit or proceeding with counsel reasonably satisfactory to the Indemnified Party, provided the Indemnifying Party acknowledges in writing to the Indemnified Party that any Damages that may be assessed against the Indemnified Party in connection with such action, suit or proceeding constitute Damages for which the Indemnified Party shall be entitled to indemnification pursuant to this Section 8. If the Indemnifying Party does not so assume control of such defense, the Indemnified Party shall control such defense. The Person not controlling such defense may participate therein at its own expense. The Person controlling such defense shall keep the other Person (i.e., the Indemnified Party or the Indemnifying Party, as the case may be) advised of the status of such action, suit or proceeding and the defense thereof and shall consider in good faith recommendations made by the other Party with respect thereto. The Indemnified Party shall not agree to any settlement of such action, suit or proceeding without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld. The Indemnifying Party A-50 186 shall not agree to any settlement of such action, suit or proceeding without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld. SECTION 9. Termination and Its Consequences. 9.1 Termination of Agreement. (a) Buyer and Seller may terminate this Agreement by mutual written consent at any time prior to the Effective Time. (b) Either Buyer or Seller may terminate this Agreement by giving written notice to the other Party at any time prior to the Effective Time, if the Closing has not occurred on or before July 31, 1999 by reason of the failure of any condition precedent under Section 7.1, 7.2 or 7.3 hereof, unless the failure of the Closing to occur by such date shall be due to the failure of the Party seeking to terminate this Agreement to perform or observe the covenants and agreements of such Party set forth herein. (c) Either Buyer or Seller may terminate this Agreement by giving written notice to the other Party at any time prior to the Effective Time if any other Party has breached any material representation, warranty, covenant or agreement contained in this Agreement, which breach has not been cured within ten (10) Business Days of receiving notice thereof from the other Party or which breach, by its nature, cannot be cured prior to July 31, 1999, provided, however, that a Party may not terminate this Agreement pursuant to this Section 9.1(c) if such Party is then in breach of any material representation, warranty, covenant or agreement contained in this Agreement. (d) Buyer may terminate this Agreement at any time after Buyer Stockholder Approval is obtained if (i) Seller Stockholder Approval has not been obtained as of the effective date of such termination and (ii) each other condition precedent under Section 7.1 and 7.3 has been, or it is probable will be, satisfied on or before July 31, 1999. 9.2 Effect of Termination. In the event of termination of this Agreement by either Buyer or Seller as provided in Section 9.1, all rights and obligations of the Parties hereunder will terminate without any liability of any Party to any other Party, except (i) Sections 6.6(d) and 9.2 and the liability to pay the Termination Fee in accordance with Section 9.3, if applicable, will survive any termination of this Agreement and (ii) notwithstanding anything to the contrary contained in this Agreement, any termination of this Agreement will not relieve or release any Party from any liability or damages arising out of its breach of any provision of this Agreement. 9.3 Termination Fee. (a) If Buyer terminates this Agreement either (i) pursuant to Section 9.1(c) after the deadline for Seller Stockholder Approval specified in Section 6.2(d), if either Seller or CVC materially breached its covenant to use its best efforts to obtain Seller Stockholder Approval and as of the effective date of such termination Seller Stockholder Approval has not been obtained, or (ii) pursuant to Section 9.1(d), Seller shall, within three (3) Business Days after the effectiveness of such termination, pay to Buyer the Termination Fee in immediately available funds. (b) If Seller terminates this Agreement because of the failure to obtain Seller Stockholder Approval on or before July 31, 1999, Seller shall, prior to and as a A-51 187 precondition of the effectiveness of such termination, pay to Buyer the Termination Fee in immediately available funds. (c) The "Termination Fee" shall be equal to Five Million Dollars ($5,000,000). SECTION 10. Miscellaneous. 10.1 Representations and Survival. The Parties make no other representations or warranties to each other except as expressly set forth in this Agreement. Except as expressly provided in Section 8, none of the representations, warranties, and covenants of the Parties will survive the Effective Time. 10.2 No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns, except as expressly provided in Section 8 with respect to Buyer's obligation to indemnify the Seller Stockholders as represented through CVC. 10.3 Entire Agreement. This Agreement (including the Schedules) and other documents referenced herein as exhibits hereto constitute the entire agreement between the Parties and supersedes any prior understanding, agreement, or representation by or between the Parties, written or oral, to the extent they relate in any way to the subject matter, including without limitation those certain confidentiality agreements entered into prior to the date of this Agreement. 10.4 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party. 10.5 Counterparts and Delivery. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. The delivery of a signature page of this Agreement by one Party to the each of the other Parties via facsimile transmission shall constitute the execution and delivery of this Agreement by the transmitting Party. 10.6 Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given two Business Days after it is sent either by certified mail or FedEx or similar overnight courier service, and addressed to the intended recipient as set forth below: A-52 188 If to Seller: Copy to (which shall not constitute notice): PTI, Inc. Kirkland & Ellis c/o Polyfibron Technologies, Inc. Citicorp Center 900 Middlesex Turnpike 153 East 53rd Street Billerica, MA 01821-3946 New York, NY 10022-4675 Fax: (508) 439-2105 Fax: (212) 446-4900 Attention: David R. Beckerman Attention: Kirk A. Radke, Esq. Chief Executive Officer If to Buyer or the Merger Sub: Copy to (which shall not constitute notice): MacDermid, Incorporated Nutter, McClennen & Fish, LLP 245 Freight Street One International Place Waterbury, CT 06702 Boston, MA 02110-2699 Fax: (203) 575-5630 Fax: (617) 973-9748 Attention: John L. Cordani, Esq. Attention: Michael E. Mooney, Esq. General Counsel and Secretary and Michael K. Krebs, Esq. If to CVC: Copy to (which shall not constitute notice): Citicorp Venture Capital, Ltd. Kirkland & Ellis 399 Park Avenue Citicorp Center New York, NY 10022 153 East 53rd Street Fax: (212) 888-2940 New York, NY 10022-4675 Attention: Joseph Silvestri Fax: (212) 446-4900 Attention: Kirk A. Radke, Esq.
Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice of the change in the manner herein set forth. 10.7 Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Connecticut without giving effect to any choice or conflict of law provision or rule (whether of the State of Connecticut or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Connecticut. 10.8 Consent to Jurisdiction. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS SITTING IN THE STATE OF CONNECTICUT IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE AGENCY AGREEMENT, THE ESCROW AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, THE SELLER AFFILIATE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY ANY OF THE FOREGOING. EACH PARTY HEREBY IRREVOCABLY AGREES, ON BEHALF OF ITSELF AND ON BEHALF OF SUCH PARTY'S SUCCESSORS AND PERMITTED ASSIGNS, THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN ANY SUCH A-53 189 COURT AND IRREVOCABLY WAIVES ANY OBJECTION SUCH PERSON MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. 10.9 Waiver of Jury Trial. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT THEY MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE AGENCY AGREEMENT, THE ESCROW AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, THE SELLER AFFILIATE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY ANY OF THE FOREGOING. 10.10 Amendments and Waivers. The Parties may mutually amend any provision of this Agreement at any time prior to the Effective Time with the prior authorization of their respective boards of directors. No amendment or other modification of any provision of this Agreement and no waiver of any provision hereof or any right or benefit hereunder shall be valid unless the same shall be in writing and signed by each of the Parties. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. 10.11 Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context otherwise requires. The word "including" shall mean including without limitation. The terms "herein", "hereunder", and terms of similar import refer to this Agreement as a whole and not to the specific Section or Article in which they are used. The phrase "to the knowledge" of a Party (and phrases of similar import) shall mean to the actual knowledge, after reasonable inquiry, of the executive officers of the Party, as applicable. The Exhibits and Schedule identified in this Agreement are incorporated herein by reference and made a part hereof. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 10.12 Time is of the Essence; Computation of Time. Time is of the essence for each and every provision of this Agreement. Whenever the last day for the exercise of any privilege or the discharge of any duty hereunder shall fall upon a Saturday, Sunday, or any date on which banks in New York, New York are authorized to be closed, the party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding day which is a Business Day. 10.13 Specific Performance. Each of the Parties acknowledges that the rights created hereby are unique and recognizes and affirms that in the event of a breach of this Agreement irreparable harm would be caused, money damages may be inadequate and an aggrieved party may have no adequate remedy at law. Accordingly, each of the Parties agrees that the other Party shall have the right, in addition to any other rights and remedies existing in its favor at law or in equity, to enforce its rights and the obligations of the other party hereunder not only by an action or actions for damages but also by an A-54 190 action or actions for specific performance, injunctive and/or other equitable relief (without posting of bond or other security). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] A-55 191 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. MACDERMID, INCORPORATED By: /s/ JOHN L. CORDANI ----------------------------------------- Name: John L. Cordani Title: Secretary MCD ACQUISITION CORP. By: /s/ JOHN L. CORDANI ----------------------------------------- Name: John L. Cordani Title: Vice President PTI, INC. By: /s/ DAVID R. BECKERMAN ----------------------------------------- Name: David R. Beckerman Title: President CITICORP VENTURE CAPITAL, LTD. By: /s/ JOSEPH M. SILVESTRI ----------------------------------------- Name: Joseph M. Silvestri Title: Vice President A-56 192 APPENDIX B FIRST AMENDMENT THIS FIRST AMENDMENT (the "Amendment") is entered into as of July 27, 1999 by and among MacDermid, Incorporated, a Connecticut corporation ("Buyer"), MCD Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Buyer ("Merger Sub"), PTI, Inc., a Delaware corporation ("Seller"), and Citicorp Venture Capital, Ltd., a New York corporation ("CVC"), to amend that certain Plan and Agreement of Merger entered into as of February 18, 1999 (as amended hereby, the "Merger Agreement"), by and among Buyer, Merger Sub, Seller and CVC. Buyer, Merger Sub, Seller and CVC are collectively referred to as the "Parties." Any capitalized term used in this Amendment and not otherwise defined shall have the meaning ascribed to that term in the Merger Agreement. WHEREAS, the Parties desire to extend the date on which the Parties may terminate the Merger Agreement and to effectuate certain other amendments to the Merger Agreement in accordance with the terms and conditions set forth herein. NOW THEREFORE, in consideration of the mutual agreements set forth herein and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged the Parties agree as follows: A. The Merger Agreement is hereby amended, effective as of the date hereof: 1. By deleting the section reference "2.4(e)" from Section 2.4(h) of the Merger Agreement and substituting in the place thereof section reference "2.4(e)(ii)." 2. By adding the following sentence to the end of Section 6.3 to the Merger Agreement: "The Parties shall use all commercially reasonable efforts, and will negotiate in good faith with each other and the FTC, to persuade the FTC to approve the Merger in exchange for a settlement with the FTC that is consistent in all material respects with the terms set forth on Schedule 6.3 to this Agreement and containing such other terms and conditions as the Parties and the FTC may agree; provided that nothing contained in this Agreement shall obligate Buyer to accept a settlement with the FTC that imposes any material term or condition that is (i) not expressly specified in Schedule 6.3 and (ii) unacceptable to Buyer in Buyer's reasonable discretion. Seller shall use all commercially reasonable efforts to negotiate and enter into a definitive agreement for the sale of the portion of its business described on Schedule 6.3 to a purchaser that Buyer and Seller reasonably believe will be acceptable to the FTC, which sale may be contingent on the completion of the Merger; and the other Parties shall use all commercially reasonable efforts to cooperate with Seller in negotiating such sale. A Party will be deemed to have satisfied its obligations under this Section to use all commercially reasonable efforts to obtain the FTC's approval of the Merger if the Party complies with its obligations under the two immediately preceding sentences. FTC approval that is conditioned upon a settlement on the terms described in Schedule 6.3 hereto shall not by itself be deemed to prevent the closing condition specified in Section 7.1(b) from being satisfied. 3. Seller's actions in entering into one or more agreements necessary for the sale of the portion of its business consistent with Section 6.3 and Schedule 6.3, and all actions by Seller and CVC reasonably necessary in connection therewith, shall not, individually or in the aggregate, (i) constitute a breach by either Seller or CVC of B-1 193 any of their respective obligations under Section 6.4 or Section 6.8 of the Merger Agreement or (ii) prevent the satisfaction of any of the closing conditions in Section 7.1, Section 7.2 or Section 7.3 of the Merger Agreement. 4. By deleting in its entirety Section 6.4(e) of the Merger Agreement and substituting in the place thereof the following: "(e) not make any single capital expenditure or series of capital expenditures during the term of this Agreement outside the Ordinary Course without the prior written consent of Buyer, which consent shall not be unreasonably withheld, conditioned or delayed." 5. By deleting in its entirety Section 6.4(i) of the Merger Agreement and substituting in the place thereof the following: "(i) deliver to Buyer, within fifteen (15) Business Days of each month end from the date hereof through the Closing Date, Seller's consolidated unaudited balance sheets, income statements and cash flow statements as of and for the immediately preceding month, all consistent with the applicable requirements of Section 3.6; 6. By deleting in its entirety Section 6.4(f) of the Merger Agreement and substituting in the place thereof the following: "(f) not enter into any new line of business without Buyer's consent, which consent shall not be unreasonably withheld, conditioned or delayed and shall be deemed to be given if Buyer does not respond to Seller in writing within ten (10) Business Days after receipt of a written request from Seller; 7. By deleting in its entirety Section 6.4(m) of the Merger Agreement and substituting in the place thereof the following: "(m) not, without Buyer's consent, which consent shall not be unreasonably withheld, conditioned or delayed and shall be deemed to be given if Buyer does not respond to Seller in writing within ten (10) Business Days after receipt of a written request from Seller, (i) acquire by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof (or any interest therein), or form any subsidiary or (ii) solicit or negotiate any Acquisition Proposal with respect to any other Person; provided, however, that Buyer shall have no obligation whatsoever to consent to any action by Seller or CVC regarding an Acquisition Proposal with respect to which Seller is the target company and which is not permitted under Section 6.8 of this Agreement; 8. By deleting all references to the date "July 31, 1999" from Section 9 of the Merger Agreement and substituting in the place thereof the date "September 30, 1999." 9. By correcting Seller's facsimile number by replacing the number "508-439-2105" from Section 10.6 of the Merger Agreement and substituting in the place thereof the facsimile number "978-439-2105." B-2 194 10. By adding the following names to Schedule 1 to the Merger Agreement: H. Theodore Miller, Jr. Kai Wenk-Wolff Thomas O. Gavin 11. By adding the following disclosure to paragraphs (xiii) and (xiv) of Schedule 3.8 to the Merger Agreement: "Stay bonuses for 6 SAP specialists (none of whom hold PTI stock) totalling $240,000 in the aggregate and to be paid after January 1, 2002 if the SAP specialist stays with PTI at least through January 1, 2002." 12. By deleting the disclosure to paragraph (xvi) of Schedule 3.8 to the Merger Agreement and substituting in the place thereof the following disclosure: "Pursuant to a Stock Purchase Agreement among Polyfibron Technologies ("Buyer"), Nippon Paint (USA) Inc. and Nippon Paint Co., Ltd. ("Seller") executed January 20, 1999, Buyer has consummated the transaction and purchased the stock of Supratech, Inc. Pursuant to a Letter of Intent between Polyfibron Technologies ("Buyer") and International Composites Corporation, Inc. ("Seller") executed December 16, 1998, Buyer has consummated the transaction and purchased the stock of International Composites Corporation, Inc." 13. By adding the following name to Schedule 3.11(A)(i) of the Merger Agreement under "Change of Control Contracts:" Kai Wenk-Wolff. 14. By adding the following name to Schedule 3.11(G) of the Merger Agreement under "Change of Control Contracts:" Kai Wenk-Wolff. 15. By deleting the disclosure "NAPP Quality Council (seven individuals)" in Schedule 3.11(G) of the Merger Agreement under "Severance Contracts/Stay Bonuses for NAPP" and substituting in the place thereof the following disclosure: "Two NAPP executives." 16. By adding the following contracts to Schedule 3.21(A)(ix) of the Merger Agreement: "Supply Contract with Precision Coating, Inc. for a three-year period providing for the supply of certain film products." "Sales Agreement with Lancaster Newspapers, Inc. for a three-year period providing for the sale of Polyfibron's Letterflex Platemaking materials." B. Each of the Parties represents to the other that (i) it has full corporate power and authority to execute and deliver this Amendment and to perform its obligations hereunder, (ii) the execution and delivery of this Amendment by such Party have been duly and validly approved its Board of Directors and no other corporate proceedings on the part of such Party are necessary in connection with this Amendment, except for shareholder approval of the Merger Agreement as amended hereby by the shareholders of Buyer and the holders of Seller voting common stock, and (iii) this Amendment has been duly and validly executed and delivered by such Party and constitutes a valid and binding obligation of such Party, enforceable against such Party in accordance with its terms. C. Each Party (an "Acknowledging Party") agrees that no action taken or omitted to be taken by any other Party and known to the Acknowledging Party through and including B-3 195 the date of this Amendment with respect to preparation and prosecution of either the Joint Proxy Statement-Prospectus or any submission to the FTC or DOJ in connection with the HSRA shall constitute a basis for any Acknowledging Party to claim that another Party has breached any of its obligation under the Agreement, including without limitation any obligation set forth in Section 6.1, Section 6.2 or Section 6.3 of the Merger Agreement. Each Acknowledging Party further agrees that no statement, claim or allegation made by any Governmental Entity (and known to the Acknowledging Party) in connection with SEC's review of the Joint Proxy Statement-Prospectus or the FTC's review of the Merger under the HSRA, including without limitation any allegation regarding the conduct of any Party unrelated to the Merger or the Merger Agreement or the conduct underlying or alleged to be underlying such statement, claim or allegation, and no response by a Party (and known to the Acknowledging Party) to any such statement, claim or allegation, shall constitute a basis for any Acknowledging Party to claim that another Party has breached any of its representations, warranties, covenants or agreements under the Merger Agreement. D. Except as expressly provided by this Amendment, the Merger Agreement remains in full force and effect, and except as expressly provided by this Amendment, this Amendment shall not constitute a modification or waiver of any other provision of the Merger Agreement. E. This Amendment may be executed in counterparts, all of which shall be considered one and the same instrument, each being deemed to constitute an original, and shall be effective when one or more counterparts have been signed by each Party and delivered to the other Parties, which delivery may be made by facsimile transmission. F. This Agreement shall be governed by, and interpreted in accordance with the laws of the State of Connecticut, without regard to any applicable conflicts of law. G. In the event of any inconsistency between the terms of this Amendment and the Merger Agreement, this Amendment shall govern. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] B-4 196 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed, under seal, in counterparts by their duly authorized officers, as of the date first above written. MACDERMID, INCORPORATED By: /s/ JOHN L. CORDANI --------------------------------------------- Name: John L. Cordani Title: Secretary MCD ACQUISITION CORP. By: /s/ JOHN L. CORDANI --------------------------------------------- Name: John L. Cordani Title: Vice President PTI, INC. By: /s/ DAVID R. BECKERMAN --------------------------------------------- Name: David R. Beckerman Title: President CITICORP VENTURE CAPITAL, LTD. By: /s/ JOSEPH M. SILVESTRI --------------------------------------------- Name: Joseph M. Silvestri Title: Vice President B-5 197 APPENDIX C DELAWARE GENERAL CORPORATION LAW SECTION 262, APPRAISAL RIGHTS 262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merge or consolidation, who has otherwise complied with subsection (d) of this section and who have neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to sec.228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository. (b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to sec.251 (other than a merger effected pursuant to sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or sec.264 of this title: (1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of sec.251 of this title. (2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except: a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof; b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders; C-1 198 c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph. (3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under sec.253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation. (c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable. (d) Appraisal rights shall be perfected as follows: (1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsections (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of such stockholder's shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder's shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or (2) If the merger or consolidation was approved pursuant to sec.228 or sec.253 of this title, each constituent corporation, either before the effective date of the merger or consolidation or within ten days thereafter, shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section; provided that, if the notice is given on or after the effective date of the merger or consolidation, such notice shall be given by the surviving or resulting corporation to all such holders of any class or series of stock of a constituent corporation that are entitled to appraisal rights. Such notice may, and, if given on or after the effective date of the merger or C-2 199 consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given. (e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw such stockholder's demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholder's written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later. (f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such C-3 200 a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation. (g) At the hearing on such petition, the court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. (h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation of by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted such stockholder's certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section. (i) The Court may direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation by a corporation of this State or of any state. (j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal. (k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other C-4 201 distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, of if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder's demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just. (l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation. (Last amended by Ch. 339, L. '98, eff. 7-1-98.) C-5 202 APPENDIX D FORM OF ESCROW AGREEMENT THIS ESCROW AGREEMENT is entered into as of the day of [ ], 1999, by and among MacDermid, Incorporated, a Connecticut corporation ("Buyer"), Citicorp Venture Capital, Ltd., a New York corporation ("CVC"), David Beckerman (the "Management Representative") and State Street Bank and Trust Company, a Massachusetts trust company (the "Escrow Agent"). WHEREAS, Buyer has agreed to acquire all of the issued and outstanding shares of capital stock of PTI, Inc., a Delaware corporation ("Seller"), in exchange for shares of Buyer common stock, no par value (the "Buyer Shares"), pursuant to that certain Plan and Agreement of Merger dated as of February , 1999 (the "Merger Agreement") by and among Buyer, MCD Acquisition Corp., Seller and CVC; WHEREAS, Buyer has agreed to acquire a certain Warrant exercisable for capital stock of Seller in partial exchange for the Escrow Warrant (as defined below) pursuant to the Merger Agreement; WHEREAS, CVC has entered into this Agreement on behalf of itself and as an agent for and attorney-in-fact of those Seller stockholders designated as outside stockholders on Schedule 1 attached hereto (the "Outside Stockholders") pursuant to that certain Agency Agreement dated as of [ ], 1999 (the "Agency Agreement"); WHEREAS, Management Representative has entered into this Agreement on his own behalf and as agent for and attorney-in-fact of those Seller stockholders designated as management stockholders on Schedule 1 attached hereto (the "Management Stockholders") pursuant to the Agency Agreement; WHEREAS, the Merger Agreement provides that an Escrow Fund will be established to secure the indemnification obligations to Buyer under Section 8.1(b) and 8.1(d) of the Merger Agreement on the terms and conditions set forth herein; and WHEREAS, the parties hereto desire to establish the terms and conditions pursuant to which such Escrow Fund will be established and maintained. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Defined Terms. "Closing Date" means April , 1999. "CMP" means Citicorp Mezzanine Partners, L.P. "Designated Percentages" has the meaning set forth in Section 3.2 hereof. "Effective Date" means the effective date of the Merger, as defined in the Merger Agreement. "Escrow Account" has the meaning set forth in Section 3.2 hereof. "Escrow Account Beneficiary" means CVC, the Management Representative, a Person listed on Schedule 1 hereto, or any permitted successor or assignee of such Person. "Escrow Fund" has the meaning set forth in Section 3.1 hereof. "Escrow Security" means any Primary Escrow Security or any Secondary Escrow Security that is an asset of an Escrow Account. D-1 203 "Escrow Shares" means 127,000 shares of Buyer's common stock, no par value, issued in connection with the Merger Agreement and deposited with the Escrow Agent hereunder. "Escrow Value" means, except as otherwise provided in this Agreement, (i) with respect to each Escrow Share, Dollars ($ )(1), (ii) with respect to any Primary Escrow Security (other than an Escrow Share or the Escrow Warrant), the Escrow Value of the equivalent number of Escrow Shares as determined by CVC and the Buyer, (iii) with respect to any Secondary Escrow Security that is listed on a national exchange or Nasdaq, the average of the daily closing prices per such for the thirty (30) consecutive trading days immediately prior to the specified date, rounded to the nearest cent and ignoring the highest and lowest closing prices during such period as determined by CVC and the Buyer, and (iv) with respect to any other assets in the Escrow Fund, other than cash or a cash equivalent instrument, such value as Buyer and CVC may mutually agree, or, if Buyer and CVC are unable to agree, as determined by a nationally recognized investment banking firm selected by CVC and consented to by Buyer, such consent not to be unreasonably withheld, and all fees and expenses incurred in connection with such retention of an investment banking shall be split equally between Buyer and CVC. The Escrow Value of the Escrow Warrant shall be equal to (X) the Escrow Value of the total number of the Primary Escrow Securities purchasable upon the full exercise thereof minus (Y) the aggregate exercise price thereof. Notwithstanding anything contained herein to the contrary, for the purpose of making distributions to the Buyer pursuant to Section 6 hereof, the aggregate value of the Escrow Fund and of each Escrow Account shall not be deemed to exceed the Escrow Value of the Primary Escrow Securities held therein. "Escrow Warrant" means that certain warrant for Buyer Shares held by CMP or any successor holder and any replacement warrant issued in exchange therefor. "Primary Escrow Security" means the Escrow Shares and the Escrow Warrant and any other securities distributable to the holders of those Primary Escrow Securities in respect of or in exchange therefor, whether by way of stock dividends, stock splits, merger or otherwise. "Pooling Period Expiration Date" means that date on which results covering at least thirty (30) days of combined operations of Buyer and Seller have been published by Buyer, in the form of a quarterly earnings report, an effective registration statement filed with the Commission, a report to the Commission on Form 10-K, 10-Q, or 8-K, or any public filing or announcement which includes the results of at least 30 days of combined operations. "Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of the date of this Agreement, among Buyer, CVC and certain other parties named therein providing for the registration under the Securities Act of 1933, as amended, of the resale of Buyer Shares. "Secondary Escrow Security" means any security (other than a Primary Escrow Security) that is an asset of an Escrow Account. - --------------- (1) This amount shall be calculated as of the Closing and shall equal the average of the daily closing price of Buyer Common Stock for the thirty (30) consecutive trading days immediately prior to the Closing Date, rounded to the nearest cent and ignoring the highest and lowest closing prices during such period. D-2 204 "Termination Date" means April 30, 2000 unless two (2) business days prior to such date the Escrow Agent receives notice that such date will not be the Termination Date, in which event, the Termination Date shall be the date which is five (5) days after Escrow Agent has received written notice from Buyer that the audit of Buyer's financial statements for the fiscal year ending March 31, 2000 is completed. 2. Escrow Agent. The Escrow Agent accepts appointment hereunder and agrees to hold in escrow the Escrow Fund in accordance with the terms of this Escrow Agreement. 3. Escrow Fund. 3.1 Escrow Fund. In accordance with the provisions of the Merger Agreement, Buyer will deliver to the Escrow Agent the Closing Date (i) a certificate evidencing the Escrow Shares and (ii) a certificate evidencing the Escrow Warrant, each registered in the name of the Escrow Agent, as Escrow Agent under this Agreement. The Primary Escrow Securities represented by such certificates and any income thereon, or other property which is delivered to the Escrow Agent under the terms of this Agreement with respect thereto, shall be referred to herein as the "Escrow Fund." The Escrow Fund and each Escrow Account shall be held as a separate fund and shall not be subject to any lien, attachment, trustee process or any other judicial process of any creditor of any party hereto. The Escrow Agent will hold the Escrow Fund until it is released in accordance with the provisions of this Agreement. In order to facilitate the sale or release, in accordance with the terms of this Agreement, of the Escrow Warrant (or an interest therein) or any Primary Escrow Securities purchasable upon the exercise of the Escrow Warrant, Buyer shall deliver a replacement Escrow Warrant to the Escrow Agent promptly after receipt of a written request therefor from the Escrow Agent, which replacement Escrow Warrant shall be adjusted appropriately to reflect the partial exercise of such Escrow Warrant, the assignment of an interest therein, or the release of a portion of the underlying Primary Escrow Securities thereof to Buyer or each Escrow Account Beneficiary entitled thereto. The Escrow Agent shall have no responsibility for the genuineness, validity, market value, title or sufficiency for any intended purpose of the Escrow Fund. 3.2 Escrow Accounts. The Escrow Agent shall establish and maintain separate escrow accounts (each an "Escrow Account") within the Escrow Fund for each Escrow Account Beneficiary. Schedule 1 attached hereto specifies (i) the percentage (each, a "Designated Percentage") of the total Escrow Fund which each such Escrow Account shall constitute as of the Closing Date and (ii) the specific assets (e.g., Escrow Shares or Escrow Warrant) that comprise each such Escrow Account as of the Closing Date. The Escrow Agent shall promptly amend Schedule 1 to reflect any change in the assets comprising an Escrow Account; provided, however, that the Designated Percentages of the Escrow Accounts shall remain fixed. The Escrow Agent shall deliver an amended Schedule 1 to Buyer, CVC, the Management Representative and each Escrow Account Beneficiary on a quarterly basis along with the reports required by Section 4.2 below. 4. Custody of Escrow Fund. 4.1. Investments. The Escrow Agent shall hold assets in an Escrow Account until (i) sold in accordance with the written direction of the respective Escrow Account Beneficiary or (ii) released in accordance with the provisions of this Agreement. The Escrow Agent will invest and reinvest, from time to time, any cash or cash equivalents in an Escrow Account (including without limitation cash received as a result of dividends on or the sale of any Escrow Security) in any one or more of the following investments as D-3 205 designated in writing by the respective Escrow Account Beneficiary: (a) obligations of the United States of America having a remaining maturity of one year or less; (b) general obligations of any State of the United States of America having a remaining maturity of one year or less, if such obligations are rated by at least two recognized rating services as at least "AAA"; (c) certificates of deposit of any domestic commercial bank or trust company (including, if applicable, the Escrow Agent or an affiliate of the Escrow Agent) if the deposits of such bank are insured up to applicable limits by the Federal Deposit Insurance Corporation (FDIC) and the bank has a net worth in excess of $500 million (an "Acceptable Bank"), provided that the maturity date of any such certificate of deposit is prior to April 30, 2000; (d) demand interest bearing accounts of Escrow Agent or an affiliate of Escrow Agent if Escrow Agent is an Acceptable Bank; or (e) any open-end or closed-end management type investment company or investment trust registered under the Investment Company Act of 1940, as amended, which invests in any of the investments described in clause (a) or (b) of this sentence. In the absence of such instructions, the Escrow Agent shall invest any cash in a State Street Money Market account. The Escrow Agent shall not be responsible or liable for any loss accruing from any investment made in accordance herewith. All earnings received from the investment of property in an Escrow Account shall be credited to, and shall become a part of such Escrow account (and any losses on such investments shall be debited to the appropriate Escrow Account). The Escrow Agent shall have no liability for any investment losses, including any losses on any investment required to be liquidated prior to maturity in order to make a payment required hereunder. 4.2. Reports. In addition to the delivery of an amended Schedule 1, the Escrow Agent shall deliver to Buyer, CVC, the Management Representative and each Escrow Account Beneficiary, as promptly as practicable after the end of each calendar quarter during the term of this Agreement, a statement setting forth the assets in each Escrow Account as of the end of such calendar quarter, and the interest, income, dividends or distributions which were added to or paid from, or any changes otherwise made to, any Escrow Account during the quarter ending as of that date. 5. Dividends, Voting and Sale of Escrow Fund Assets. 5.1 Dividends, Etc. Any cash dividends or property (including, without limitation, any securities distributable to the holders of Escrow Securities in respect of or in exchange for any of the Escrow Securities, whether by way of stock dividends, stock splits or otherwise) shall be delivered to the Escrow Agent, in the name of the Escrow Agent or its nominee, who shall hold such cash or securities in the applicable Escrow Account. Any such dividends or property shall be accompanied by written notice from the person making such deposit identifying such property as relating to an identified Escrow Account Beneficiary and as being delivered for deposit to the Escrow Account identified in such writing. 5.2 Voting of Shares. Each Account Beneficiary shall have the right to direct the Escrow Agent in writing as to the exercise of any voting rights pertaining to such Account Beneficiary's Escrow Securities and the Escrow Agent shall comply with any such written instructions. In the absence of such instructions, the Escrow Agent shall not vote any of the Escrow Securities. The Escrow Agent shall not be responsible for forwarding to any Account Beneficiary or any other party, notifying any such Beneficiary or Party with respect to, or taking any action with respect to, any notice, solicitation or other document or information, written or otherwise, received from an issuer or other person with respect D-4 206 to the assets in the Escrow Fund, including but not limited to, proxy material, tenders, options, the pendency of calls and maturities and expiration of rights. 5.3 Sale of Property Constituting Escrow Fund Assets. Except as otherwise provided in this Agreement and the Registration Rights Agreement pursuant to which CVC may request the registration of certain Primary Escrow Securities pursuant to the Securities Act of 1933, as amended, at any time and from time to time during the term of this Escrow Agreement, each Escrow Account Beneficiary may direct in writing the Escrow Agent to sell for cash any or all of assets, including without limitation, any of the Escrow Securities, in such Escrow Account Beneficiary's Escrow Account. The Escrow Agent shall have no responsibility for the adequacy of sale proceeds, compliance with securities laws or otherwise in connection with any such sale and shall provide any information reasonably required by the Escrow Agent to consummate such sale. No Escrow Securities may be sold or otherwise transferred prior to the Pooling Period Expiration Date (which date shall be noticed to the Escrow Agent by the Buyer). 5.4 Transferability. No interest in the Escrow Fund or in any individual Escrow Account may be assigned or transferred, other than by operation of law, provided that CMP may assign one or more interests in its Escrow Account to any one or more of its partners. Notice of any such assignment or transfer shall be given to the Escrow Agent and Buyer, and no such assignment or transfer shall be valid until such notice is given. Upon receipt of written notice substantially in the form of Exhibit A attached hereto that a total or partial transfer or assignment of an Escrow Account has been made, the Escrow Agent shall promptly amend Schedule 1 to reflect such transfer or assignment and deliver such amended Schedule 1 to Buyer, CVC, the Management Representative and each Escrow Account Beneficiary simultaneously with the reports required by Section 4.2 above. Escrow Agent shall have no duty or responsibility for determining that an assignment or transfer is permissible hereunder. 5.5 CVC and Management Representative Representations and Succession. (a) Each of CVC and the Management Representative represents and warrants to the Escrow Agent that it or he has irrevocable right, power and authority (i) to enter into and perform this Agreement and bind all of the Outside Stockholders or Management Stockholders, as the case may be, to its terms, (ii) to give and receive directions and notices hereunder; and (iii) to make all determinations that may be required or that it or he deems appropriate under this Escrow Agreement. (b) Until notified in writing by CVC and the Management Representative that it or he has resigned or been removed and a successor has been named, the Escrow Agent may act upon the directions, instructions and notices of CVC and the Management Representative and, thereafter, upon the directions, instructions and notices of any successor named in such writing. 6. Claims Against Escrow Fund. 6.1 Claim Notice. If Buyer has incurred or suffered Damages for which it is entitled to indemnification under Section 8.1(b) or (d) of the Merger Agreement, Buyer shall, prior to the Termination Date, give written notice of such claim (a "Claim Notice") to CVC, the Management Representative and the Escrow Agent. Each Claim Notice shall state the amount of claimed Damages (the "Claimed Amount") and the basis for such claim. D-5 207 6.2 Response Notice. Within 30 days after delivery of a Claim Notice, CVC shall provide to Buyer, with a copy to the Escrow Agent and the Management Representative, a written response (the "Response Notice") in which CVC shall either: (i) agree that the full Claimed Amount may be released from the Escrow Fund to Buyer, (ii) agree that part, but not all, of the Claimed Amount (the "Agreed Amount") may be released from the Escrow Fund to Buyer or (iii) contest that any of the Escrow Fund may be released to Buyer. CVC may contest the release of Escrow Fund assets equal to all or a portion or the Claimed Amount only based upon a good faith belief that all or such portion of the Claimed Amount does not constitute Damages for which Buyer is entitled to indemnification under Section 8.1(b) or (d) of the Merger Agreement. If no Response Notice is delivered to the Escrow Agent by CVC within the 30-day period from the Escrow Agent's receipt of such Claim Notice, CVC shall be deemed to have agreed, on behalf of itself and all Escrow Account Beneficiaries, including the Management Stockholders, that all of the Claimed Amount may be released to Buyer from the Escrow Fund. 6.3 Contested Amount. If CVC in the Response Notice contests the release of Escrow Fund assets equal to all or part of the Claimed Amount (the "Contested Amount"), Buyer and CVC shall use good faith efforts to resolve the matter between themselves. If the matter is not resolved within 15 days of the delivery of the Response Notice contesting the Claimed Amount, either Buyer or CVC shall have the right, by delivery of written notice to the other (the "Arbitration Notice"), to submit the matter to binding arbitration in Stamford, Connecticut. Such matter shall then be settled by three arbitrators in accordance with the Commercial Arbitration Rules then in effect of the American Arbitration Association (the "AAA Rules"). CVC and Buyer shall each designate one arbitrator within 15 days of the delivery of the Arbitration Notice. CVC and Buyer shall cause such designated arbitrators mutually to agree upon and shall designate a third arbitrator; provided, however, that (i) failing such agreement within 45 days of delivery of the Arbitration Notice, the third arbitrator shall be appointed in accordance with the AAA Rules and (ii) if either CVC or Buyer fails to timely designate an arbitrator, the dispute shall be resolved by the one arbitrator timely designated. CVC and Buyer shall pay the fees and expenses of their respectively designated arbitrators and shall bear equally the fees and expenses of the third arbitrator. CVC and Buyer shall cause the arbitrators to decide the matter to be arbitrated pursuant hereto within 60 days after the appointment of the last arbitrator. The arbitrators' decision shall relate solely to whether Buyer is entitled to receive the Contested Amount (or a portion thereof) pursuant to the applicable terms of the Merger Agreement and this Agreement. The final decision of the majority of the arbitrators shall be furnished to CVC, the Management Representative, Buyer and the Escrow Agent in writing and shall constitute a conclusive, final and nonappealable determination of the issue in question, binding upon CVC, the Management Representative, Buyer, the Escrow Agent and all Escrow Account Beneficiaries. Such decision may be used in a court of law only for the purpose of seeking enforcement of the arbitrators' award. After delivery of a Response Notice that the Claimed Amount is contested by CVC, the Escrow Agent shall continue to hold in the Escrow Fund an amount of Escrow Fund assets sufficient to cover the Contested Amount (or such lesser amount as is then available in the Escrow Fund), notwithstanding the occurrence of the Termination Date, until (i) delivery of a copy of a settlement agreement executed by Buyer and CVC setting forth instructions to the Escrow Agent as to the release of Escrow Fund, if any, that shall be made with respect to the Contested Amount or (ii) delivery of a copy of the final award of the majority of the arbitrators setting forth instructions to the Escrow Agent as to the amount of the Escrow Fund, if any, that shall be released with D-6 208 respect to the Contested Amount. The Escrow Agent shall promptly thereafter release such Escrow Fund assets in accordance with Section 6.4 of this Agreement. 6.4 Release of Escrow Fund to Buyer. If (i) pursuant to Section 6.2 CVC agrees (or is deemed to have agreed) that Escrow Fund assets having a value equal to all of the Claimed Amount may be released from the Escrow Fund to Buyer or (ii) the Escrow Agent is instructed pursuant to Section 6.3 to release Escrow Fund assets to Buyer, the Escrow Agent shall promptly thereafter transfer, deliver and assign to Buyer such an amount of assets from the Escrow Fund equal to (X) in the case of clause (i) of this sentence, the amount of the Escrow Fund assets that CVC has agreed (or is deemed to have agreed) to allow the Escrow Agent to release (or such lesser amount of assets as then comprises the entire Escrow Fund) or (Y) in the case of clause (ii) of this sentence, the amount of the Escrow Fund assets that the Escrow Agent has been directed to release (or such lesser amount of assets as then comprises the entire Escrow Fund), in each case pro rata from each Escrow Account in accordance with the Designated Percentages. For purpose of calculating the amount of Escrow Fund assets to be released, Escrow Securities shall be valued at the Escrow Value. If less than all of the Escrow Fund assets in an Escrow Account will be released to Buyer pursuant to this Section 6.4 such assets shall be released in the following order: (i) first, Primary Escrow Securities in such amounts as the Escrow Account Beneficiary may direct in writing and (ii) second (to the extent that assets in addition to Escrow Securities must be released in order to give effect to the provisions hereof), Secondary Escrow Securities, cash or cash equivalents or other property constituting assets of each Escrow Account or any combination thereof per the written instructions of each Escrow Account Beneficiary). If the Escrow Agent does not receive such instruction from an Escrow Account Beneficiary at least two (2) business days prior to an anticipated release date, Buyer shall so instruct the Escrow Agent. Under no circumstances shall the terms of this Escrow Agreement require the Escrow Agent to release or distribute all or any portion of the Escrow Fund sooner than two (2) Business Days after the Escrow Agent has received the requisite notices or paperwork in good form, or passage of the applicable claims period or release date, as the case may be. 6.5 Limitations on Escrow Account Beneficiary Liability. Notwithstanding anything contained in this Agreement to the contrary, if the Escrow Value of the Escrow Fund assets in an Escrow Account is insufficient to satisfy the indemnification obligations to the Buyer with respect thereto, none of CVC, the Management Representative, the Escrow Account Beneficiary of that Escrow Account or any other Escrow Account Beneficiary shall be liable hereunder for such deficiency. 7. Release of Escrow Fund Upon Termination Date. Promptly after the Termination Date, the Escrow Agent shall distribute to the Escrow Account Beneficiaries, all of the assets constituting each such Escrow Account Beneficiary's Escrow Account after the payment of such Escrow Account Beneficiary's share of the fees and expenses of the Escrow Agent. Notwithstanding the immediately preceding sentence, if Buyer has previously given a Claim Notice which has not then been resolved in accordance with Section 6, the Escrow Agent shall retain in the Escrow Fund after the Termination Date an amount of assets from the Escrow Fund equal to the Claimed Amount which has not then been resolved, which amount shall be retained pro rata from each Escrow Account in accordance with the Designated Percentages. For purpose of calculating the amount of Escrow Fund assets to be distributed pursuant to this Section 7, Escrow Securities shall be valued at the Escrow Value. If less than all of the Escrow Fund assets in an Escrow Account will be released to an Escrow Account Beneficiary pursuant to this Section 7, such assets shall be released in the following order: (i) first, Secondary Escrow Securities, D-7 209 cash or cash equivalents, or other property (other than Primary Escrow Securities) in such amounts as the Escrow Account Beneficiary may direct in writing and (ii) second (to the extent that additional assets from an Escrow Account must be released in order to give effect to the provisions hereof), Primary Escrow Securities in such amounts as the Escrow Account Beneficiary may direct in writing. If the Escrow Agent does not receive such instruction from an Escrow Account Beneficiary, Buyer shall so instruct the Escrow Agent. 8. Fees and Expenses. The fees and expenses of the Escrow Agent (including reasonable attorneys' fees and expenses) for the preparation of this agreement and the services to be rendered by the Escrow Agent hereunder in accordance with the attached fee schedule (which may be subject to change hereafter on an annual basis) shall be payable out of the Escrow Account pro rata in accordance with the Designated Percentages of the Escrow Account Beneficiaries. To the extent there is insufficient cash in an Escrow Account to pay the fees and expenses of the Escrow Agent in full on a timely basis, Buyer shall advance such funds to the Escrow Agent, which amounts shall be reimbursed in cash or Escrow Securities prior to any release of Escrow Fund assets to the respective Escrow Account Beneficiary, provided, however, that if there are insufficient assets in an Escrow Account to repay in full any such advance, Buyer shall not be entitled to recover the deficiency from any other Escrow Account or from any other Person. 9. Limitation of Escrow Agent's Liability. 9.1 Duties and Responsibilities. (a) The Escrow Agent may act on any instrument or other writing reasonably believed by it to be genuine and to have been signed or presented by the proper person and shall have no responsibility for the accuracy thereof. The Escrow Agent shall incur no liability with respect to any action taken or suffered by it in reliance upon any notice, direction, instruction (including without limitation, wire transfer instructions, whether incorporated herein or provided in a separate written instruction), consent, statement or other documents believed by it to be genuine and duly authorized, nor for other action on inaction except its own willful misconduct or gross negligence. The Escrow Agent is not charged with any knowledge of, or any duties or responsibilities in connection with, any other documents and agreements (including without limitation the Merger Agreement or Agency Agreement), and shall not be responsible for determining or compelling compliance therewith, and shall not otherwise be bound thereby. The Escrow Agent's duties and responsibilities shall be entirely administrative and not discretionary and determined only with reference to this Escrow Agreement and applicable laws. The Escrow Agent shall not be responsible for the validity or sufficiency of this Agreement. In all questions arising under the Escrow Agreement, the Escrow Agent may rely on the advice of counsel (provided such counsel is not counsel to any other party to this Agreement) including in-house counsel, and for anything done, omitted or suffered in good faith by the Escrow Agent based on such advice the Escrow Agent shall not be liable to anyone. The Escrow Agent shall not be required to take any action hereunder involving any expense or liability unless the payment of such expense or liability is made or provided for in a manner reasonably satisfactory to it. The Escrow Agent shall be obligated only for the performance of such duties as are expressly and specifically set forth in this Escrow Agreement on its part to be performed, each of which is ministerial (and shall not be construed to be fiduciary) in nature, and no implied duties or obligations of any kind shall be read into this Agreement against or on the part of the Escrow Agent. In no event shall the Escrow Agent be liable for indirect, punitive, special or consequential damage or loss (including but not limited to lost profits) whatsoever, even if the Escrow Agent has been informed of the likelihood of such loss or damage and regardless of the form of action. D-8 210 (b) The Escrow Agent shall have no more or less responsibility or liability on account of any action or omission of any book-entry depository, securities intermediary or other subescrow agent employed by the Escrow Agent than any such book-entry depository, securities intermediary or other subescrow agent has to the Escrow Agent, except to the extent that such action or omission of any book-entry depository, securities intermediary or other subescrow agent was caused by the Escrow Agent's own gross negligence, bad faith or wilful misconduct in breach of this Agreement. 9.2 Indemnification. The Buyer, on the one hand, and the Escrow Account Beneficiaries, on the other hand, hereby agree, severally and jointly, to indemnify the Escrow Agent for, and to hold it harmless against, any loss, liability or expense (including reasonable attorneys' fees and other costs and expenses of defending or preparing to defend any claim of liability) incurred without gross negligence or willful misconduct on the part of Escrow Agent arising out of or in connection with its carrying out of its duties hereunder. Without altering or limiting the joint and several liability of the parties hereunder, as between themselves the Buyer, on the one hand, and the Escrow Account Beneficiaries, on the other hand, shall be liable for half of any indemnification amount due hereunder. The amount payable by the Escrow Account Beneficiaries pursuant to this Section 9.2 shall be allocated among the Escrow Accounts pro rata in accordance with the Designated Percentages and shall be paid as an expense in accordance with Section 8. The foregoing indemnification and agreement to hold harmless shall survive the termination of this Escrow Agreement and the resignation of the Escrow Agent. 9.3 Tax-Related Terms. (a) Tax Reporting. The parties hereto agree that, for tax reporting purposes, all interest or other income earned from the investment of the Escrow Funds in any tax year shall (i) to the extent such interest or other income is distributed by the Escrow Agent to any person or entity pursuant to the terms of this Agreement during such tax year, be allocated to such person or entity, and (ii) otherwise shall be allocated to the applicable Escrow Account Beneficiary. (b) Certification of Tax Identification Number. Each of the parties hereto agree to, and shall cause each Escrow Account Beneficiary to, provide the Escrow Agent with a certified tax identification number by signing and returning a Form W-9 (or Form W-8, in case of non-U.S. persons) to the Escrow Agent prior to the date on which any income earned on the investment of the Escrow Fund is credited to the appropriate Escrow Account. The parties hereto understand that, in the event their tax identification numbers are not certified to the Escrow Agent, the Internal Revenue Code, as amended from time to time, may require withholding of a portion of any interest or other income earned on the investment of the Escrow Fund. (c) Tax Indemnification. Each of the Buyer and the Escrow Account Beneficiaries agrees, jointly and severally, (i) to assume any and all obligations imposed now or hereafter by any applicable tax law with respect to any payment or distribution of the Escrow Funds or performance of other activities under this Agreement, (ii) to instruct the Escrow Agent in writing with respect to the Escrow Agent's responsibility for withholding and other taxes, assessments or other governmental charges, and to instruct the Escrow Agent with respect to any certifications and governmental reporting that may be required under any laws or regulations that may be applicable in connection with its acting as Escrow Agent under this Agreement, and (iii) to indemnify and hold the Escrow Agent harmless from any liability or obligation on account of taxes, assessments, additions for late payment, interest, penalties, expenses and other governmental charges that may be assessed D-9 211 or asserted against the Escrow Agent in connection with or relating to any payment made or other activities performed under the terms of this Agreement, including without limitation any liability for the withholding or deduction of (or the failure to withhold or deduct) the same, and any liability for failure to obtain proper certifications or to report properly to governmental authorities in connection with this Agreement, including costs and expenses (including reasonable legal fees and expenses), interest and penalties. The foregoing indemnification and agreement to hold harmless shall survive the termination of this Agreement. 10. Termination. This Agreement shall terminate upon the later of the Termination Date or the release by the Escrow Agent of all of the Escrow Fund assets in accordance with this Agreement. 11. Notices. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) via a reputable nationwide overnight courier service, in each case to the address set forth below. Any such notice, instruction or communication shall be deemed to have been delivered two business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service for next day delivery. If to Buyer: 245 Freight Street Waterbury, Connecticut 06702 Attention: John Cordani, Esq. If to CVC: Citicorp Venture Capital, Ltd. 399 Park Avenue New York, NY 10022 Attention: John Silvestri If to Management Representative: PTI, Inc. c/o Polyfibron Technologies, Inc. 900 Middlesex Turnpike Billerica, MA 01821-3946 If to Escrow Agent: State Street Bank and Trust Company Two International Place Boston, Massachusetts 02110 Attention: Corporate Trust Department, Fourth Floor Attention: [insert name of escrow agreement] Fax: 617-664-5365 Any funds to be paid to or by the Escrow Agent hereunder shall be sent by wire transfer pursuant to the following instructions (or by such method of payment and D-10 212 pursuant to such instruction as may have been given in advance and in writing to or by the Escrow Agent, as the case may be, in accordance with Section 11 above): If to _________________________________ : Bank: ___________________________ ABA #: __________________________ A/C #: __________________________ Attn: ___________________________ Ref: ____________________________ If to _________________________________ : Bank: ___________________________ ABA #: __________________________ A/C #: __________________________ Attn: ___________________________ Ref: ____________________________ If to the Escrow Agent: Bank: State Street Bank and Trust Company ABA #: 0110 0002 8 A/C #: 9903-990-1 Attn: Corporate Trust Department Ref: ____________ Escrow Any party may give any notice, instruction or communication in connection with this Agreement using any other means (including personal delivery, telecopy or ordinary mail), but no such notice, instruction or communication shall be deemed to have been delivered unless and until it is actually received by the party to whom it was sent. Any party may change the address to which notices, instructions or communications are to be delivered by giving the other parties to this Agreement notice thereof in the manner set forth in this Section 11. 12. Successor Escrow Agent. In the event the Escrow Agent becomes unavailable or unwilling to continue in its capacity herewith, Escrow Agent may resign and be discharged from its duties and obligations hereunder by delivering a resignation to the parties to this Escrow Agreement, not less than sixty (60) days prior to the date when such resignation shall take effect. Buyer may appoint a successor Escrow Agent without the consent of CVC so long as such designee meets the definition of an Acceptable Bank, and may appoint any other successor Escrow Agent with the consent of CVC, which shall not be unreasonably withheld. If, within such notice period, Buyer provides to the Escrow Agent written instructions with respect to the appointment of a successor Escrow Agent and directions for the transfer of the Escrow Fund then held by the Escrow Agent to such successor, the Escrow Agent shall act in accordance with such instructions and promptly transfer such Escrow Fund to such designated successor. If no successor is so named, the Escrow Agent may apply to a court of competent jurisdiction for appointment of a successor. 13. General. 13.1 Governing Law, Assigns. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Connecticut without giving effect to any choice or conflict of law provision or rule (whether of the State of Connecticut or any other jurisdiction) that would cause the application of the laws of any jurisdiction other D-11 213 than the State of Connecticut, and shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. 13.2 Jurisdiction, Venue and Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS SITTING IN THE STATE OF CONNECTICUT IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS ESCROW AGREEMENT, THE MERGER AGREEMENT, THE AGENCY AGREEMENT AND THE WAIVER AND RELEASE OR THE TRANSACTIONS CONTEMPLATED BY ANY OF THE FOREGOING. EACH PARTY HERETO HEREBY IRREVOCABLY AGREES, THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING SHALL BE INSTITUTED, HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT, HE OR SHE MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT IT, HE OR SHE MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS ESCROW AGREEMENT, THE MERGER AGREEMENT, THE WAIVER AND RELEASE, THE AGENCY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY ANY OF THE FOREGOING. 13.3 Dispute Resolution. It is understood and agreed that should any dispute arise with respect to the delivery, ownership, right of possession, and/or disposition of any or all of the Escrow Fund, or should any claim be made upon the Escrow Agent or the Escrow Fund by a third party, the Escrow Agent upon receipt of notice of such dispute or claim is authorized and shall be entitled (at its sole option and election) to retain in its possession without liability to anyone, all or any of said Fund until such dispute shall have been settled either by the mutual written agreement of the parties involved or by a final order, decree or judgment of a court in the United States of America, the time for perfection of an appeal of such order, decree or judgment having expired. The Escrow Agent may, but shall be under no duty whatsoever to, institute or defend any legal proceedings which relate to the Escrow Fund. 13.4 Force Majeure. The Escrow Agent shall not be responsible for delays or failures in performance resulting from acts beyond its control. Such acts shall include but not be limited to acts of God, strikes, lockouts, riots, acts of war, epidemics, governmental regulations superimposed after the fact, fire, communication line failures, computer viruses, power failures, earthquakes or other disasters. 13.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 13.6 Entire Agreement. Except as set forth in the Merger Agreement (but then solely with respect to CVC, Buyer, and the Management Stockholders), this Agreement constitutes the entire understanding and agreement of the parties with respect to the D-12 214 subject matter of this Agreement and supersedes all prior agreements or understandings, written or oral, between the parties with respect to the subject matter hereof. 13.7 Waivers. No waiver by any party hereto of any condition or of any breach of any provision of this Escrow Agreement shall be effective unless in writing. No waiver by any party of any such condition or breach, in any one instance, shall be deemed to be a further or continuing waiver of any such condition or breach or a waiver of any other condition or breach of any other provision contained herein. 13.8 Amendment. This Agreement may be amended only with the written consent of Buyer, the Escrow Agent, CVC and the Management Representative. [REMAINDER OF PAGE INTENTIONALLY BLANK] D-13 215 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. MACDERMID, INCORPORATED BY: ----------------------------------------- Title: -------------------------------------- CITICORP VENTURE CAPITAL, LTD., on its own behalf and as agent and attorney-in-fact for the Outside Stockholders By: ------------------------------------------ Title: -------------------------------------- --------------------------------------------- David Beckerman, on his own behalf and as agent and attorney-in-fact for the Management Stockholders STATE STREET BANK AND TRUST COMPANY By: ------------------------------------------ Title: -------------------------------------- D-14 216 APPENDIX E FORM OF AGENCY AGREEMENT, WAIVER AND RELEASE THIS AGREEMENT, made as of the day of February, 1999, by and among Citicorp Venture Capital, Ltd ("CVC,"), a Delaware corporation, David R. Beckerman (the "Management Representative" and together with CVC, the "Representatives" and each individually a "Representative") and the other Stockholders (as defined herein). W I T N E S S E T H: WHEREAS, the parties hereto (the "Stockholders" and each individually a "Stockholder") are stockholders or holders of warrants to purchase capital stock of PTI, Inc. ("PTI"), a Delaware corporation; WHEREAS, CVC has entered into a Plan and Agreement of Merger dated as of February , 1999 (the "Merger Agreement") with PTI, MacDermid, Incorporated ("Buyer"), and MCD Acquisition Corp. (the "Merger Sub"); WHEREAS, in connection with the Merger Agreement, the Representatives will enter into an Escrow Agreement (the "Escrow Agreement") with Buyer and an escrow agent named therein in order to provide for the collateralization of those indemnification obligations set forth in the Merger; WHEREAS, it is the intention and desire of the parties hereto that the indemnification provisions set forth in the Merger Agreement be the sole remedy and recourse for any and all claims arising out of or in connection with the Merger Agreement and the transactions contemplated thereby; WHEREAS, the Stockholders wish to appoint the Representatives as their agents and attorneys-in-fact to act on their behalf in connection with certain transactions contemplated by the Merger Agreement and the Escrow Agreement; and WHEREAS, the Merger Agreement requires the Stockholders to become parties to this Agency Agreement appointing the Representatives as the Stockholders' agents and attorneys-in-fact. NOW, THEREFORE, for good and valuable consideration and the mutual covenants and conditions herein contained, the receipt and sufficiency of which is hereby acknowledged, it is agreed as follows: 1. Capitalized Terms. Capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Merger Agreement. 2. Appointment of Representatives by Stockholders. 2.1 General. Each Management Stockholder irrevocably appoints an authorizes (i) CVC for the purposes set forth in Section 2.2(a) and (ii) Management Representative for the purposes set forth in Section 2.2(b) and each Outside Stockholder irrevocably appoints CVC for the purposes set forth in Sections 2.2(a) and (b), in each case, to be such person's true and lawful agent and attorney-in-fact, to act for such person and in such person's name, place and stead, in any and all capacities, as fully to all intents and purposes as such person might or could do in person with full power of substitution and with the power to make, execute, sign, acknowledge and deliver all waivers, opinions, certificates, agreements and other documents and instruments in connection with the exercise of such powers. E-1 217 2.2 Scope of Authority. (a) CVC is authorized to act on behalf of the Stockholders to do and perform every act and thing required or permitted to be done in connection with or contemplated by Section 8 of the Merger Agreement and Section 6 of the Escrow Agreement (collectively, the "Indemnification Provisions") or which CVC may deem necessary or appropriate in order to give effect to the Indemnification Provisions including without limitation: (i) To give or accept any notices or other communications and to authorize or give any waiver or consent with respect to the Indemnification Provisions. (ii) To approve or disapprove claims against the Escrow Fund (as defined in the Escrow Agreement) made by Buyer against the Stockholders. (iii) To defend claims made against the Stockholders and to bring claims against the Buyer on behalf of the Stockholders in each case, under the Merger Agreement and to retain and hire, or replace counsel in connection therewith. (iv) To refer any matter to dispute resolution or arbitration as provided in the Merger Agreement and to settle, resolve or dismiss any matter. (v) To incur or pay expenses on behalf of the Stockholders in connection with this Agreement and the Indemnification Provisions. (b) The Management Representative is authorized to act on behalf of the Management Stockholders and CVC is authorized to act on behalf of the Outside Stockholders to do and perform every acta d thing required or permitted to be done in connection with the transactions contemplated by the Escrow Agreement other than Section 6 thereof, or which a Representative may deem necessary or appropriate in order to give effect to this Agreement and the Escrow Agreement, including without limitation: (i) To negotiate, execute and perform the Escrow Agreement. (ii) To give or accept notices under, or to amend, give any waiver or consent with respect to any provision of, the Escrow Agreement or to terminate the Escrow Agreement. (iii) To incur and pay expenses in connection with this Agreement and in connection with the negotiation and performance of the transactions contemplated by the Escrow Agreement. 2.3 Power to Bind Stockholders. Each Stockholder acknowledges and agrees that upon execution of this Agreement, such Stockholder shall be bound by any waiver, opinion, certificate, agreement or other document executed by its Representative and delivered to Buyer in accordance with this Section 2, as fully as if such Stockholder had executed and delivered such documents. 2.4 Duration of Appointment. Each Stockholder hereby empowers each of the Representatives to determine in the Representative's sole discretion the time when, purpose for, and the manner in which any power herein conferred upon the Representative shall be exercised an the conditions, provisions an covenants of any instruments or document which may be executed by it pursuant to this Section 2. The powers granted hereunder are coupled with an interest and shall be irrevocable and shall survive the termination, liquidation, dissolution or bankruptcy of each Stockholder, but shall terminate upon a Representative's resignation. In the event CVC's appointment hereunder is so terminated, CVC shall be succeeded by a person selected by Stockholders owning two-thirds of the Buyer Shares issued to the Stockholders in the Merger in exchange for the Seller E-2 218 Common Shares (giving effect tot he exercise of the Buyer Warrants). Such successor agent shall have all the powers, duties and obligations of CVC provided under this Agreement. 2.5 Reservation of Rights. Nothing in this Section 2 shall be interpreted to abridge or otherwise negate the powers and privileges specifically granted to the Stockholders pursuant to Sections 4.1, 5.2 and 5.3 of the Escrow Agreement, except to the extent that the Escrow Agreement is amended in accordance with its terms. 3. Instructions to Escrow Agent. CVC hereby covenants and agrees that it will promptly deliver to the Escrow Agent all written instructions received from an Outside Stockholder relating to the exercise of the powers and privileges granted to such Outside Stockholder pursuant to Sections 4.1, 5.2 and 5.3 of the Escrow Agreement. The Management Representative hereby covenants and agrees that it will promptly deliver to the Escrow Agent all written instructions received from a Management Stockholder relating to the exercise of the powers and privileges granted to such Management Stockholder pursuant to Sections 4.1, 5.2 and 5.3 of the Escrow Agreement. 4. Limitation on Liability. Neither Representative shall have by reason of this Agreement a fiduciary relationship in respect of any Stockholder, except in respect of amounts received on behalf of such Stockholder. Neither Representative shall not be liable to any Stockholder for any action taken or omitted by it or him hereunder, under the Merger Agreement, Escrow Agreement or under any other certificate, agreement or document contemplated hereunder or thereunder, in connection therewith, except that neither Representative shall be relieved of any liability imposed by law for gross negligence or willful misconduct. Neither Representative shall be liable to the Stockholders for any apportionment or distribution of payments made by it or him in good faith, and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Stockholder to whom payment was due, but not made, shall be to recover from the other Stockholders any payment in excess of the amount to which such other Stockholders are determined to have been entitled. Neither Representative shall be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement, the Merger Agreement, the Escrow Agreement or any other certificate, agreement or document contemplated hereunder or thereunder. 5. Representations and Warranties of Stockholders. Each of the Stockholders hereby, represents and warrants to the Representatives that the statements contained in this Section 5 are correct and complete as of the date of this Agreement. The representations and warranties which follow are deemed to be repeated on the Closing Date. 5.1 Organization and Corporate Power. Each of the non-individual Stockholders (i) is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization, and (ii) has the power and authority necessary to enter into and perform its obligations under this Agreement. 5.2 Authorization of Agreement. This Agreement has been duly authorized by each non-individual Stockholder. This Agreement has been duly executed and delivered by each Stockholder and constitutes the valid and legally binding obligation of each Stockholder, enforceable in accordance with its terms and conditions. 5.3 Noncontravention. Neither the execution or delivery of this Agreement nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, E-3 219 statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which any Stockholder is subject or any provision of the charter or bylaws of any Stockholder or (ii) conflict with, result in a breach of, constitute a default (or any event which, with notice or lapse of time, or both, would constitute a default) under, result in the acceleration of, create in any party a put right or repurchase obligation or the right to accelerate, terminate, modify or cancel, create any lien, encumbrance, claim or other security interest or require any notice, under any agreement to which any Stockholder is a party or by which it, he or she is bound or to which any of its, his or her assets is subject. 5.4 Consultation with Attorney. Each Stockholder has reviewed the provisions of this Agreement carefully and to the extent necessary discussed such provisions with PTI's counsel or its, his or her counsel. 6. Waiver and Release. 6.1 Definitions. For the purposes of this Section 6, "Claims" shall mean any and all claims, demands, judgments, liabilities, damages, accounts, bonds, bills, covenants, contracts, agreements, promises, complaints, and causes of action of whatever kind or character, whether known or unknown, at law or in equity, contingent or liquidated. 6.2 Released Claims. Each Stockholder, on behalf of itself, himself or herself and its, his or her estate, agents, employees, former employees, representatives, attorneys, accountants, assigns, partners, administrators, executors, successors, and any other person or entity claiming by, through or under it, him or her (collectively, the "Releasing Party"), does hereby unconditionally, waive, release and forever discharge Buyer, and all of its respective agents, employees, former employees, officers, directors, shareholders, affiliates (including but not limited to the Merger Sub and the Surviving Corporation), representatives, attorneys, accountants and successors and assigns (collectively the "Released Party") from any and all Claims arising from, in connection with or relating to the following: (i) the execution, delivery or performance of the Merger Agreement; (ii) the execution or performance of any agreement, document or instrument delivered in connection with the Merger Agreement, including but not limited to this Agency Agreement, the Escrow Agreement and the Registration Rights Agreement; (iii) the consummation of the transactions contemplated by the Merger Agreement including but not limited to the Merger; or (iv) the issuance of Buyer Shares; which the Releasing Party may now have or ever had against any Released Party, from the beginning of the world through and including the date of this Waiver and Release (the "Released Claims"); provided, however, that nothing in this Waiver and Release shall be construed to release any Claim that the Releasing Party may have to indemnification pursuant to the terms and conditions of the Merger Agreement. The Releasing Party acknowledges and agrees that the Released Claims include all Claims, whether known or unknown, suspected or unsuspected, and even though it, he or she may hereafter discover facts different from or in addition to those which the Releasing Party now knows, or believes to be true with respect to the Released Claims. This Waiver and Release shall remain effective in all respects, notwithstanding such different or additional facts, or the discovery thereof. E-4 220 Notwithstanding anything to the contrary contained herein, this Waiver and Release shall not extend to, or operate to release, any Claims which the Releasing Party may have against PTI or its affiliates in the nature of indemnity or contribution if a Claim is brought by a third party against the Releasing Party which arises out of or relates to the Releasing Party having been an officer, director or employee of PTI or an affiliate of PTI, and PTI or such affiliate would otherwise have had an obligation to defend and/or indemnify the Releasing Party with regard to such Claim. In addition, this Waiver and Release shall not be construed to have, and shall have, no effect upon, and shall not be construed to affect, any insurance coverages which may be available to the Releasing Party. 6.3 Enforceability of Waiver and Release. No breach or alleged breach of the terms and conditions of this Agency Agreement, shall affect, limit, or otherwise negate the enforceability of the Waiver and Release granted pursuant to this Section 6. 7. Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior written or oral understandings. 8. Governing Law, Jurisdiction and Venue. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Connecticut without giving effect to any choice or conflict of law provision or rule (whether of the State of Connecticut or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Connecticut. EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS SITTING IN THE STATE OF CONNECTICUT IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGENCY AGREEMENT, THE MERGER AGREEMENT, THE ESCROW AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY ANY OF THE FOREGOING. EACH PARTY HERETO HEREBY IRREVOCABLY AGREES, ON BEHALF OF ITSELF, HIMSELF OR HERSELF AND ON BEHALF OF SUCH PARTY'S SUCCESSORS AND PERMITTED ASSIGNS THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING SHALL BE INSTITUTED, HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT, HE OR SHE MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT IT, HE OR SHE MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGENCY AGREEMENT, THE MERGER AGREEMENT, THE ESCROW AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY ANY OF THE FOREGOING. 9. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or mailed, by certified or registered mail, return receipt requested, first class postage prepaid or by Federal Express or some other reputable overnight carrier to the parties at the addresses set forth on the records of PTI or to such other place and with such other copies as any party may designate by written notice. E-5 221 10. Enforceability. If any one or more of the provisions of this Agreement or any application thereof shall be invalid, illegal, or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions hereof and any other application thereof shall not be affected or impaired. 11. Assignment. No Stockholder shall assign its, his or her liabilities and obligations under this Agreement without the express written consents of the other Stockholders. This Agreement shall be binding on the heirs, administrators, executors, personal representatives and assigns of the parties hereto. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] E-6 222 IN WITNESS WHEREOF, CVC, the Management Representative and each of the Stockholders has set his or her hands, hereto as of the date and year first above written. MACDERMID, INCORPORATED By: --------------------------------------------- Name: Title: CITICORP VENTURE CAPITAL, LTD. By: --------------------------------------------- Name: Title: --------------------------------------------- David R. Beckerman CCT PARTNERS I, L.P. By: --------------------------------------------- Name: Title: CITICORP MEZZANINE PARTNERS By: --------------------------------------------- Name: Title: --------------------------------------------- Bruce C. Bruckman --------------------------------------------- WTC/63 BR Partnership --------------------------------------------- Richard M. Cashin --------------------------------------------- Stephen C. Sherrill --------------------------------------------- David F. Thomas --------------------------------------------- Joseph M. Silvestri E-7 223 --------------------------------------------- Harold O. Rosse --------------------------------------------- Michael A. Delaney --------------------------------------------- Thomas McWilliams --------------------------------------------- Stephen Edwards --------------------------------------------- James Urry --------------------------------------------- Richard E. Mayberry --------------------------------------------- Saleem Muqaddam --------------------------------------------- David Howe --------------------------------------------- Noelle Cournoyer --------------------------------------------- John Weber --------------------------------------------- David Kolb --------------------------------------------- Robert Pokelwaldt --------------------------------------------- Ann P. McDowell --------------------------------------------- James W. Stevens --------------------------------------------- Gerald Loeb E-8 224 --------------------------------------------- Thomas C. Weaver --------------------------------------------- Edward T. Murphy --------------------------------------------- Shojiro Makino --------------------------------------------- Tom Gavin --------------------------------------------- John Rastetter --------------------------------------------- Etienne Igersheim --------------------------------------------- Hugues Serain --------------------------------------------- Reto Buchli --------------------------------------------- Michael M. Yang --------------------------------------------- Ted Miller --------------------------------------------- Rai Wenk-Wolff --------------------------------------------- Terence Smith --------------------------------------------- Allan T. Michaud --------------------------------------------- Douglas H. Rich --------------------------------------------- Thomas W. Pietrocini E-9 225 PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Connecticut Business Corporation Act, Sections 33-770 to 33-778, inclusive, and Article 11 of MacDermid, Incorporated (the "Registrant")'s by-laws, contain provisions authorizing indemnification by the Registrant of directors, officers and employees of the Registrant against certain liabilities and expenses which they may incur as directors, officers and employees of the Registrant or of certain other corporations. Section 33-773 also provides that such indemnification may include payment by the Registrant of expenses incurred in defending a proceeding in advance of the final disposition of such proceeding, upon certain representations being made by such indemnified person as to his or her good faith belief that he or she has met the relevant standard of conduct and upon agreement by the person indemnified to repay such payment if he or she shall be adjudicated not entitled to be indemnified under Sections 33-772, 33-774 or 33-775. Section 33-777 provides that the Registrant may purchase and maintain insurance on behalf of an individual who is a director, officer, employee or agent of the corporation, or who, while a director, officer, employee or agent of the corporation, serves at the corporation's request as a director, officer, employee or agent of another entity against liability asserted against or incurred by such person in such capacity, whether or not the corporation would have power to indemnify or advance expenses to him against the same liability under Sections 33-770 to 33-778 inclusive. The Registrant maintains an officer's and director's liability insurance policy. ITEM 21. EXHIBITS. See the Exhibit Index immediately preceding the exhibits attached hereto. ITEM 22. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-1 226 (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (d) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (e) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions of the Connecticut Business Corporation Act and the registrant's certificate of incorporation and by-laws, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or a controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-2 227 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-4 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Waterbury, State of Connecticut, on the 30th day of August, 1999. MACDERMID, INCORPORATED. By: /s/ DANIEL H. LEEVER ---------------------------------- Daniel H. Leever Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below on this Registration Statement hereby constitutes and appoints Daniel H. Leever and John L. Cordani, and each of them, with full power to act without the other, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities (until revoked in writing), to sign any and all amendments (including post-effective amendments and amendments thereto) to this Registration Statement on Form S-4 of the registrant, and to file the same, with all exhibits thereto and other document in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he or she might or could do in person, thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ HAROLD LEEVER Chairman Emeritus August 30, 1999 - ------------------------------------------ Director Harold Leever /s/ DANIEL H. LEEVER Chairman of the Board August 30, 1999 - ------------------------------------------ Chief Executive Officer Daniel H. Leever Director /s/ R. NELSON GRIEBEL President, Chief August 30, 1999 - ------------------------------------------ Operating Officer R. Nelson Griebel Director /s/ DONALD G. OGILVIE Director August 30, 1999 - ------------------------------------------ Donald G. Ogilvie
II-3 228
SIGNATURE TITLE DATE --------- ----- ---- /s/ JAMES C. SMITH Director August 30, 1999 - ------------------------------------------ James C. Smith /s/ THOMAS W. SMITH Director August 30, 1999 - ------------------------------------------ Thomas W. Smith
II-4 229 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ----------- +2.1 Plan and Agreement of Merger dated as of February 18, 1999, by and among MacDermid, Incorporated, MCD Acquisition Corp., PTI, Inc. and Citicorp. Venture Capital, Ltd. ++2.2 First Amendment to Plan and Agreement of Merger dated as of July 27, 1999 by and among MacDermid, Incorporated, MCD Acquisition Corp., PTI, Inc. and Citicorp Venture Capital, Ltd. +++3.1 Restated Certificate of Incorporation of MacDermid, Incorporated amended as of December 1, 1997 +++3.2 By-Laws of MacDermid, Incorporated amended as of February 12, 1997 *5 Opinion of Nutter, McClennen & Fish, LLP *8.1 Opinion of Nutter, McClennen & Fish, LLP with respect to certain tax matters *8.2 Opinion of Kirkland & Ellis with respect to certain tax matters *10.1 Second Amended and Restated Multicurrency Credit Agreement, dated as of October 25, 1998, amended and restated December 15, 1998 and June 15, 1999, among MacDermid, Incorporated, the banks signatory thereto and Chase Manhattan Bank, N.A., as Agent *23.1 Consent of Nutter, McClennen & Fish, LLP (contained in Exhibits 5 and 8.1) *23.2 Consent of Kirkland & Ellis (contained in Exhibit 8.2) *23.3 Consent of KPMG Peat Marwick LLP *23.4 Consent of PricewaterhouseCoopers LLP / Boston *23.5 Consent of PricewaterhouseCoopers LLP / U.K. *24 Power of Attorney (contained in signature page to this Registration Statement) *27 Financial Data Schedule *99.1 Form of MacDermid Proxy Card *99.2 Form of PTI Proxy Card *99.3 Consent of Joseph M. Silvestri
- ------------------------- * Filed herewith. + Incorporated by reference from MacDermid's joint proxy statement -- prospectus, Appendix A-1. ++ Incorporated by reference from MacDermid's joint proxy statement -- prospectus, Appendix B-1. +++ Incorporated by reference from MacDermid's 1999 Annual Report on Form 10-K. EX-5 2 OPINION OF NUTTER, MCCLENNEN & FISH, LLP 1 EXHIBIT 5 (617) 439-2000 August 30, 1999 MacDermid, Incorporated 245 Freight Street Waterbury, CT 06702 Ladies and Gentlemen: Reference is made to the Registration Statement on Form S-4 and the Joint Proxy Statement-Prospectus constituting a part thereof (the "Registration Statement"), which MacDermid, Incorporated, a Connecticut company (the "Company"), has filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"), with respect to up to 7,827,000 shares of the Company's Common Stock, no par value (the "Common Stock"). We have acted as counsel for the Company in connection with the Registration Statement. We have examined original or certified copies of the Restated Certificate of Incorporation of the Company and all amendments thereto, its By-laws, as amended, the corporate records of the Company to the date hereof, certificates of public officials and such other documents, records and materials as we have deemed necessary in connection with this opinion letter. Based upon the foregoing, and in reliance upon information from time to time furnished to us by the Company's officers, directors and agents, we are of the opinion that under Connecticut law the shares of Common Stock to be issued by the Company, when issued upon the terms described in the Registration Statement, will be duly and validly issued, fully paid and non-assessable. It is understood that this opinion letter is to be used in connection with the offer and sale of the aforesaid shares only while the Registration Statement is effective as so amended and as it may be amended from time to time as contemplated by Section 10(a)(3) of the Securities Act. 2 MacDermid, Incorporated August 30, 1999 Page 2 We understand that this opinion letter is to be used in connection with the Registration Statement, as finally amended, and hereby consent to the filing of this opinion letter with and as a part of the Registration Statement as so amended, and to the reference to our firm in the Prospectus under the heading "Legal Matters." In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the SEC thereunder. Very truly yours, /s/ Nutter, McClennen & Fish, LLP Nutter, McClennen & Fish, LLP MKK/AMJ2/DM - ----------- EX-8.1 3 OPINION OF NUTTER, MCCLENNEN & FISH (TAX MATTERS) 1 EXHIBIT 8.1 August 30, 1999 9678-7846 MacDermid, Incorporated 245 Freight Street Waterbury, CT 06702 Re: Registration Statement on Form S-4 Ladies and Gentlemen: We have acted as counsel to MacDermid, Incorporated, a Connecticut corporation ("MacDermid"), in connection with (i) the Merger, as defined and described in the Plan and Agreement of Merger dated as of February 18, 1999 (the "Merger Agreement") by and among MacDermid, MCD Acquisition Corporation, a Delaware corporation ("Merger Subsidiary") and a wholly owned subsidiary of MacDermid, PTI, Inc., a Delaware corporation ("PTI"), and Citicorp Venture Capital, Ltd., a New York corporation ("CVC") and (ii) the preparation and filing of the related Registration Statement on Form S-4 (the "Registration Statement"), which includes the Joint Proxy Statement-Prospectus (the "Proxy Statement"), filed with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended. Unless otherwise indicated, each capitalized term used herein has the meaning ascribed to it in the Merger Agreement. In connection with this opinion, we have examined the Merger Agreement, the Proxy Statement and such other documents as we have deemed necessary or appropriate in order to enable us to render this opinion. For purposes of this opinion, we have assumed (i) the validity and accuracy of the documents that we have examined, (ii) that the Merger will be consummated in the manner described in the Merger Agreement and the Proxy Statement, and (iii) that the representations made and the representations to be made by MacDermid and the Merger Subsidiary pursuant to Section 5 of the Merger Agreement, PTI pursuant to Section 3 of the Merger Agreement, CVC pursuant to Section 4 of the Merger Agreement, and the officers of each of the aforementioned entities pursuant to certain respective officer's certificates, are and will be accurate and complete. In rendering our opinion, we have considered the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Department regulations promulgated thereunder, pertinent judicial authorities, interpretive rulings of the Internal Revenue Service (the "Service") and such other 2 MacDermid, Incorporated August 30, 1999 Page 2 authorities as we have considered relevant. It should be noted that statutes, regulations, judicial decisions and administrative interpretations are subject to change at any time (possibly with retroactive effect). A change in the authorities or the inaccuracy of any of the documents or assumptions on which our opinion is based could affect our conclusions. Based solely upon the foregoing, in our opinion, the Merger will be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code and MacDermid, Merger Subsidiary and PTI will each be a party to the reorganization within the meaning of Section 368(b) of the Code, and accordingly, for Federal income tax purposes: (i) No gain or loss will be recognized by MacDermid or PTI as a result of the Merger; and (ii) There will be no Federal income tax consequences arising from the Merger due solely to status as a MacDermid shareholder prior to the Merger. The preceding are all of the material U.S. Federal income tax consequences of the Merger to MacDermid and shareholders of MacDermid. Our opinion does not address, however, Federal income tax consequences which may vary with, or are contingent upon, a shareholder's individual circumstances. In addition, our opinion does not address any non-income tax or any foreign, state or local tax consequences of the Merger. This opinion is furnished to you solely for use in connection with the Merger, as described in the Merger Agreement and the Proxy Statement, and is not to be used, circulated, quoted or otherwise referred to for any other purpose without our express written permission. In accordance with the requirements of Item 601(b)(23) of Regulation S-K under the Securities Act, we hereby consent to the discussion of this opinion in the Proxy Statement, to the filing of this opinion as an exhibit to the Registration Statement, and to the reference to our firm under the headings "MERGER TRANSACTION - Material Federal Tax Consequences of the Merger to MacDermid Shareholders," "MERGER AGREEMENT - Conditions to the Merger" and "LEGAL MATTERS" in the Proxy Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the SEC thereunder. Very truly yours, /s/ Nutter, McClennen & Fish, LLP NUTTER, MCCLENNEN & FISH, LLP EX-8.2 4 OPINION OF KIRKLAND & ELLIS (TAX MATTERS) 1 To Call Writer Directly: (212) 446-4800 August 30, 1999 PTI, Inc. c/o Polyfibron Technologies, Inc. 900 Middlesex Turnpike Billerica, MA 01821-3946 Re: Registration Statement on Form S-4 Dear Ladies and Gentlemen: We have acted as counsel to PTI, Inc., (the "COMPANY"), a Delaware corporation, with respect to (i) the merger with and into the Company of MCD Acquisition Corp. ("MACDERMID SUB"), a Delaware corporation and direct wholly-owned subsidiary of MacDermid, Incorporated, a Connecticut corporation ("MACDERMID"), pursuant to that certain Agreement and Plan of Merger by and among the Company, Citicorp Venture Capital, Ltd., MacDermid Sub and MacDermid, dated February 18, 1999 (the "MERGER AGREEMENT", and such transaction, the "MERGER"), and (ii) the preparation and filing of the related Registration Statement on Form S-4 (the "REGISTRATION STATEMENT"), which includes the Joint Proxy Statement-Prospectus (the "PROXY STATEMENT"), filed with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and the Securities Exchange Act of 1934, as amended. Defined terms used herein shall have the meaning ascribed to such terms in the Merger Agreement, unless otherwise specified. In connection with rendering our opinion, we have examined the Merger Agreement, the Proxy Statement and such other documents as we have determined to be necessary for purposes of this opinion. In addition, with your permission, we have examined and relied upon certain Officers' Certificates of the Company, MacDermid and MacDermid Sub, copies of which are attached hereto as Exhibits A, B and C (the "OFFICERS' CERTIFICATES"). Our opinion is conditioned on, among other things, the initial and continuing accuracy of the facts, information, covenants and representations set forth in the Merger Agreement and other documents referred to above. We have assumed the genuineness of all signatures, the legal capacity of natural persons, and that the person who affixed such signature to such documents had authority to do so. Moreover, we have assumed the accuracy of all information contained in the documents described above, but have not made any independent inquiry with regard thereto. We have assumed the authenticity of all documents submitted to us as originals, and the 2 PTI, Inc. August 30, 1999 Page 2 conformity to original documents of all documents submitted to us as certified, telecopied or photostatic copies. We also have assumed that the Merger will be consummated in the manner contemplated by the Merger Agreement and as described in the Proxy Statement. In rendering our opinion, we have considered the current provisions of the Internal Revenue Code of 1986, as amended (the "CODE"), Treasury regulations (proposed, temporary and final) promulgated thereunder, judicial decisions and Internal Revenue Service rulings, all of which are subject to change, which changes may be retroactively applied. A change in the authorities upon which our opinion is based could affect our conclusions. Moreover, there can be no assurance that any of the opinions expressed herein will be accepted by the Internal Revenue Service or, if challenged, by a court. Based solely upon the foregoing, in our opinion: 1. The Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code, and MacDermid, MacDermid Sub and the Company will each be a party to the reorganization within the meaning of Section 368(b) of the Code. 2. No gain or loss will be recognized by the Company as a result of the Merger. 3. A shareholder of the Company will not recognize taxable gain or loss on the exchange of stock of the Company for MacDermid common stock in the Merger, except in respect of cash received instead of fractional shares or as a consequence of the exercise of appraisal rights. 4. A shareholder of the Company will recognize gain or loss with respect to cash received instead of a fractional share of MacDermid common stock, measured by the difference between the amount of cash received and the portion of the tax basis of the shareholder's share(s) of Company stock allocable to the fractional share. Such gain or loss will be capital gain or loss if the holder of Company stock holds such stock as a capital asset within the meaning of Section 1221 of the Code, and such capital gain or loss will be long-term if the shareholder's holding period in the Company stock exchanged for cash in lieu of the fractional share is more than one year at the time of the Merger. 5. A shareholder of the Company who, as a result of exercising appraisal 3 PTI, Inc. August 30, 1999 Page 3 rights, receives solely cash in exchange for the shareholder's shares of Company stock will recognize gain or loss with respect to the cash received, measured by the difference between the amount of cash received and the tax basis of the shareholder's shares of Company stock surrendered. Such gain or loss will be capital gain or loss if the shareholder holds such shares as a capital asset within the meaning of Section 1221 of the Code, and such capital gain or loss will be long-term if the shareholder's holding period in such shares is more than one year at the time of the Merger. 6. The tax basis of MacDermid common stock received by a Company shareholder in the Merger will be the same as the tax basis of the Company stock surrendered by the shareholder in the Merger, reduced by any portion of such basis allocable to a fractional share interest for which cash is received. 7. The holding period of the MacDermid common stock that a Company shareholder receives in the Merger will include the holding period of the Company stock exchanged therefor, provided that the shareholder holds the Company common stock as a capital asset at the time of the Merger. You have not requested, and we do not express, an opinion concerning any other tax consequences of the Merger, including without limitation any tax consequences of the Merger under state, local or foreign law. Our opinion also does not address U.S. federal income tax consequences which may vary with, or are contingent upon, a shareholder's individual circumstances (including as a result of a Company shareholder or certain related persons owning MacDermid common stock other than as a result of the Merger). This opinion is furnished to you solely for use in connection with the Merger, as described in the Merger Agreement and the Proxy Statement, and is not to be used, circulated, quoted or otherwise referred to for any other purpose without our express written permission. In accordance with the requirements of Item 601(b)(23) of Regulation S-K under the Securities Act, we hereby consent to the discussion of this opinion in the Proxy Statement, to the filing of this opinion as an exhibit to the Proxy Statement, and to the reference to our firm under the headings "MERGER TRANSACTION - Material Federal Tax Consequences of the Merger to PTI Shareholders", "MERGER AGREEMENT - Conditions to the Merger", and "LEGAL MATTERS" in the Proxy Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the SEC thereunder. 4 PTI, Inc. August 30, 1999 Page 4 Very Truly Yours, /s/ Kirkland & Ellis Kirkland & Ellis EX-10.1 5 2ND AMEND.& RESTATED MULTICURRENCY CREDIT AGREE. 1 EXHIBIT 10.1 SECOND AMENDED AND RESTATED MULTICURRENCY CREDIT AGREEMENT DATED AS OF OCTOBER 25, 1998, AMENDED AND RESTATED AS OF DECEMBER 15, 1998, AND FURTHER AMENDED AND RESTATED AS OF JUNE 15, 1999 AMONG MACDERMID, INCORPORATED, NATIONSBANK, N.A., AS ADMINISTRATIVE AGENT, LETTER OF CREDIT ISSUING BANK AND SWING LINE LENDER, BANKBOSTON, N.A., AS DOCUMENTATION AGENT, FLEET NATIONAL BANK, AS SYNDICATION AGENT, THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO AND BANC OF AMERICA SECURITIES LLC AS LEAD ARRANGER AND BOOK MANAGER 2 TABLE OF CONTENTS
Section Page ARTICLE I DEFINITIONS.......................................................... 2 1.01 Certain Defined Terms................................................ 2 1.02 Other Interpretive Provisions........................................ 30 1.03 Accounting Principles................................................ 31 ARTICLE II THE CREDITS.......................................................... 32 2.01 Amounts and Terms of Commitment...................................... 32 (a) Term Loan................................................... 32 (b) Sterling Acquisition Loan................................... 32 (c) The Revolving Credit........................................ 32 (d) Swing Line Loans............................................ 34 (e) PTI Term Loan............................................... 37 2.02 Loan Accounts........................................................ 37 2.03 Procedure for Borrowing.............................................. 37 2.04 Conversion and Continuation Elections for Revolving Loans............ 39 2.05 Voluntary Termination or Reduction of Commitments.................... 41 2.06 Optional Prepayments of Loans........................................ 41 2.07 Termination of Commitments; Mandatory Prepayments of Loans; Mandatory Commitment Reductions............................... 42 2.08 Repayment of Loans................................................... 45 2.09 Interest............................................................. 45 2.10 Fees................................................................. 46 (a) Agency Fees................................................. 46 (b) Revolving Loan Commitment Fee............................... 46 (c) Term Loan Commitment Fee.................................... 47 (d) Sterling Acquisition Loan Commitment Fee.................... 47 (e) PTI Term Loan Commitment Fee................................ 48 (f) Amendment Fee............................................... 48 2.12 Payments by a Borrower............................................... 49 2.13 Payments by the Lenders to the Administrative Agent.................. 50 2.14 Sharing of Payments, Etc............................................. 50 2.15 Utilization of Commitments in Offshore Currencies.................... 51 ARTICLE III THE LETTERS OF CREDIT FACILITY...................................... 53 3.01 The Letter of Credit Facility........................................ 53 3.02 Issuance, Amendment and Renewal of Letters of Credit................. 54
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Section Page 3.03 Risk Participations, Drawings, Revolving Loans and Reimbursements.... 56 3.04 Repayment of Participations.......................................... 57 3.05 Role of the Issuing Bank............................................. 58 3.06 Obligations Absolute................................................. 59 3.07 Cash Collateral Pledge............................................... 60 3.08 Letter of Credit Fees................................................ 60 3.09 Existing Letters of Credit........................................... 60 3.10 Uniform Customs and Practice......................................... 61 ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY............................... 61 4.01 Taxes................................................................ 61 4.02 Illegality........................................................... 62 4.03 Increased Costs and Reduction of Return.............................. 63 4.04 Funding Losses....................................................... 64 4.05 Inability to Determine Rates......................................... 65 4.06 Reserves on Offshore Rate Loans...................................... 65 4.07 Certificates of Lenders.............................................. 66 4.08 Substitution of Lenders.............................................. 66 4.09 Survival............................................................. 66 ARTICLE V CONDITIONS PRECEDENT................................................. 66 5.01 Conditions to Announcement Date...................................... 66 (a) Prior Loan Document......................................... 67 (b) Resolutions; Incumbency..................................... 67 (c) Organization Documents; Good Standing....................... 67 (d) Legal Opinions.............................................. 67 (e) Payment of Fees............................................. 67 (f) Certificate................................................. 68 (g) Press Release............................................... 68 (h) Consent to Existing Credit Agreement........................ 68 (i) Currency Fluctuations Protection............................ 68 (j) Environment Review.......................................... 69 (k) Pro Forma Balance Sheet; Projections; and Financials........ 69 (l) Solvency Certificates....................................... 69 (m) Collateral Documents........................................ 69 (n) Other Documents............................................. 70 5.02 Conditions of Initial Funding Date................................... 70 (a) First Amended and Restated Credit Agreement and the promissory notes contemplated thereby................... 70 (b) Bring Down Certificate...................................... 70
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Section Page (c) Lender Payoff Letter........................................ 70 (d) Solvency Certificates....................................... 71 (e) Resolutions; Incumbency..................................... 71 (f) Organization Documents; Good Standing....................... 71 (g) Collateral Documents........................................ 71 (h) Completion of Offer......................................... 72 (i) Legal Opinion............................................... 72 (j) Applicable Margin Certificate............................... 73 (k) Application of Swap Contract Proceeds....................... 73 (l) Payment of Fees............................................. 73 (m) Other Documents............................................. 73 5.03 Conditions to All Credit Extensions.................................. 73 (a) Notice, Application......................................... 74 (b) Continuation of Representations and Warranties.............. 74 (c) No Existing Default......................................... 74 5.04 First Borrowing by Each Eligible Borrower............................ 75 5.05 Conditions to PTI Effective Date..................................... 76 (a) Credit Agreement............................................ 76 (b) PTI Merger Documents........................................ 76 (c) Resolutions; Incumbency..................................... 76 (d) Organization Documents; Good Standing....................... 77 (e) Legal Opinion............................................... 77 (f) Payment of Fees............................................. 77 (g) Certificate................................................. 77 (h) Environmental Review........................................ 78 (i) Pro Forma Balance Sheet; Projections; and Financials........ 78 (j) Solvency Certificates....................................... 79 (k) Collateral Documents........................................ 79 (l) Updated Disclosure Schedules................................ 79 (m) Other Documents............................................. 79 5.06 Conditions of PTI Funding Date....................................... 79 (a) Notes....................................................... 79 (b) Bring Down Certificate for Disclosure Schedules............. 79 (c) Applicable Margin Certificate............................... 80 (d) Lender Payoff Letters....................................... 80 (e) Certificate................................................. 80 (f) Solvency Certificates....................................... 81 (g) Resolutions; Incumbency..................................... 81 (h) Organization Documents; Good Standing....................... 82 (i) Collateral Documents........................................ 82 (j) Completion of PTI Merger.................................... 83 (k) Approval of Pro Forma Balance Sheet and Delivery of Updated PTI Financial Statements......................... 84 (l) Legal Opinions.............................................. 84
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Section Page (m) Y2K Problem Review.......................................... 85 (n) Payment of Fees............................................. 85 (o) Other Documents............................................. 85
ARTICLE VI REPRESENTATIONS AND WARRANTIES....................................... 85 6.01 Incorporation, Good Standing and Due Qualification................... 85 6.02 Corporate Power and Authority; No Conflicts.......................... 85 6.03 Legally Enforceable Agreements....................................... 86 6.04 Litigation........................................................... 86 6.05 Financial Statements; SEC Filings.................................... 86 6.06 Taxes................................................................ 87 6.07 ERISA................................................................ 88 6.08 Subsidiaries and Ownership of Stock.................................. 88 6.09 Credit Arrangements.................................................. 88 6.10 No Default on Outstanding Judgments or Orders........................ 88 6.11 Governmental Regulation.............................................. 88 6.12 Environmental Matters................................................ 88 6.13 Margin Stock......................................................... 89 6.14 Full Disclosure...................................................... 89 6.15 Collateral Documents................................................. 89 6.16 Solvency............................................................. 90 6.17 Labor Relations...................................................... 90 6.18 Copyrights, Patents, Trademarks and Licenses, etc.................... 90 6.19 Broker's; Transaction Fees........................................... 90 6.20 Insurance............................................................ 90 6.21 Swap Obligations..................................................... 91 6.22 Transaction Agreements and PTI Merger Documents...................... 91 6.23 Governmental Authorization........................................... 92 6.24 Year 2000 Compliance................................................. 93 6.25 Representations of Eligible Borrowers................................ 93 ARTICLE VII AFFIRMATIVE COVENANTS................................................ 94 7.01 Reporting Requirements............................................... 94 7.02 Payment of Obligations............................................... 96 7.03 Maintenance of Property; Insurance................................... 96 7.04 Conduct of Business and Maintenance of Existence..................... 97 7.05 Compliance with Laws................................................. 97 7.06 Inspection of Property, Books and Records............................ 97 7.07 Maintenance of Ownership of Subsidiaries............................. 97 7.08 Use of Proceeds...................................................... 98
iv 6
Section Page 7.09 Solvency............................................................. 99 7.10 Further Assurances................................................... 99 7.11 Foreign Subsidiaries Security........................................ 99 7.12 The Offer............................................................ 100 7.13 Bidco Capitalization................................................ 102 7.14 The PTI Merger...................................................... 102 ARTICLE VIII NEGATIVE COVENANTS................................................. 102 8.01 Debt................................................................ 103 8.02 Restricted Payments................................................. 104 8.03 Investments......................................................... 104 8.04 Negative Pledge..................................................... 105 8.05 Consolidations, Mergers and Sales of Assets......................... 106 8.06 Transactions with Affiliates........................................ 106 8.07 Change in Business.................................................. 107 8.08 Accounting Changes.................................................. 108 8.09 Target Operations................................................... 108 ARTICLE IX FINANCIAL COVENANTS................................................. 108 9.01 EBIT to Interest Expense Ratio...................................... 109 9.02 Minimum Consolidated Net Worth...................................... 109 9.03 Maximum Total Debt to Consolidated EBITDA........................... 109 ARTICLE X EVENTS OF DEFAULT................................................... 109 10.01 Event of Default.................................................... 109 10.02 Relevant Events of Default with respect to Offer.................... 112 10.03 Remedies............................................................ 113 10.04 Rights Not Exclusive................................................ 114 10.05 Permitted Swap Contract Remedies.................................... 114 ARTICLE XI THE ADMINISTRATIVE AGENT............................................ 115 11.01 Appointment and Authorization; "Administrative Agent"............... 115 11.02 Delegation of Duties................................................ 115 11.03 Liability of Administrative Agent................................... 116 11.04 Reliance by Administrative Agent.................................... 116 11.05 Notice of Default................................................... 116
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Section Page 11.06 Credit Decision..................................................... 117 11.07 Indemnification of Administrative Agent............................. 117 11.08 Administrative Agent in Individual Capacity......................... 118 11.09 Successor Administrative Agent...................................... 118 11.10 Withholding Tax..................................................... 119 11.11 Collateral Matters.................................................. 120 11.12 Administrative Agent as English Trustee............................. 121 11.13 Assignment under Dutch Law.......................................... 121 ARTICLE XII MISCELLANEOUS....................................................... 122 12.01 Amendments and Waivers.............................................. 122 12.02 Notices............................................................. 123 12.03 No Waiver; Cumulative Remedies...................................... 124 12.04 Costs and Expenses.................................................. 124 12.05 Company Indemnification............................................. 125 12.06 Payments Set Aside.................................................. 126 12.07 Successors and Assigns.............................................. 126 12.08 Assignments, Participations, etc.................................... 126 12.09 Confidentiality..................................................... 128 12.10 Set-off............................................................. 129 12.11 Notification of Addresses, Lending Offices, etc..................... 129 12.12 Counterparts........................................................ 129 12.13 Severability........................................................ 129 12.14 No Third Parties Benefited.......................................... 129 12.15 Governing Law and Jurisdiction...................................... 129 12.16 Waiver of Jury Trial................................................ 130 12.17 Entire Agreement.................................................... 131 12.18 Judgment Currency................................................... 131
vi 8 SCHEDULES Schedule 1(a) Reserve Asset Costs Schedule 2.01 Commitments Schedule 2.08(d) Term Loan, PTI Term Loan and Sterling Acquisition Loan Amortization Schedule 3.09 Existing Letters of Credit Schedule 5.02 Specified Foreign Subsidiaries Schedule 6.04 Litigation Schedule 6.05(a) Company Financial Statements Schedule 6.05(b) Target Financial Statements Schedule 6.05(c) PTI Financial Statements Schedule 6.08 Subsidiaries Schedule 6.09 Existing Debt Schedule 6.12 Environmental Matters Schedule 6.18 Exceptions to Title for Intellectual Property Schedule 6.19 Brokers' and Transaction Fees Schedule 6.21 Existing Swap Contracts Schedule 8.03(a) Existing Investments Schedule 8.03(b) Existing ViaTek Investments Schedule 8.04 Existing Liens Schedule 12.02 Lending Offices; Addresses for Notices
EXHIBITS Exhibit A-1 Form of Notice of Borrowing (Certain Funds Period) Exhibit A-2 Form of Notice of Borrowing Exhibit B Form of Notice of Conversion/Continuation Exhibit C Form of Compliance Certificate Exhibit D-1 Form of Legal Opinion of Nutter, McClennen & Fish LLP Exhibit D-2 Form of Legal Opinion of Simmons & Simmons Exhibit D-3 Form of Legal Opinion of Allen & Overy Exhibit D-4 Form of Legal Opinion Nutter, McClennen & Fish, LLP (as of PTI Effective Date) Exhibit E Form of Assignment and Acceptance Exhibit F-1(A) Form of Revolving Loan Note Exhibit F-1(B) Form of Revolving Loan Note Exhibit F-2 Form of Term Loan Note Exhibit F-3 Form of Sterling Acquisition Loan Note Exhibit F-4 Form of Swing Line Loan Note Exhibit F-5 Form of PTI Term Loan Note Exhibit G Form of Election to Participate Exhibit H Form of Election to Terminate Exhibit I-1 Form of Company Pledge Agreement Exhibit I-2 Form of US Holdco Pledge Agreement Exhibit I-3 Form of Subsidiary Guarantor Pledge Agreement
vii 9 Exhibit J-1 Form of Company Guaranty Exhibit J-2 Form of Subsidiary Guaranty Exhibit K-1 Form of Solvency Certificate - Company, US Holdco#1 and US Holdco#2 Exhibit K-2 Form of Solvency Certificate - Bidco Exhibit L Form of Solvency Certificate - Target Exhibit M Form of Announcement Date Notice Exhibit N Form of Authorization Letter Exhibit O Press Release
viii 10 SECOND AMENDED AND RESTATED MULTICURRENCY CREDIT AGREEMENT This SECOND AMENDED AND RESTATED MULTICURRENCY CREDIT AGREEMENT is entered into as of October 25, 1998, amended and restated as of December 15, 1998 and as further amended and restated as of June 15, 1999 among MacDERMID, INCORPORATED, a Connecticut corporation (the "Company"), the several financial institutions from time to time party to this Agreement (collectively, the "Lenders"; individually, a "Lender"), and NationsBank, N.A., as letter of credit issuing bank, swing line lender and administrative agent for the Lenders. RECITALS WHEREAS, the Company (such term and each other capitalized term used but not defined in these recitals having the meaning assigned to such terms in Article I), through MacDermid (UK) Limited, a private limited liability company incorporated under the laws of England and Wales and an indirect Wholly-Owned Subsidiary of the Company ("Bidco"), acquired W. Canning plc, a public limited liability company incorporated under the laws of England and Wales ("Target"), pursuant to a recommended cash offer by Bidco for all the outstanding shares of Target's capital stock, followed by a compulsory squeeze out of the remaining shareholders of Target pursuant to Section 428-430F of the Companies Act (the "Squeeze-Out") pursuant to which (i) Target became a Wholly-Owned Subsidiary of Bidco and (ii) all holders of shares of capital stock of Target (other than those acquired pursuant to the Offer) received cash consideration for their shares; WHEREAS, in connection therewith, the Company amended and restated the terms and provisions of the Multicurrency Credit Agreement, dated as of October 25, 1998 (the "Prior Loan Document"), among the Company, the existing lenders thereunder and the Agent, to facilitate the funding and consummation of the Offer and the Transaction and to provide for the Loans permitted thereby and the Lenders agreed to make available to the Company and, in certain circumstances, Eligible Borrowers, additional financing pursuant to that certain Amended and Restated Multicurrency Credit Agreement, dated as of December 15, 1998 (the "First Amended and Restated Credit Agreement") comprising a multicurrency revolving credit facility, with a letter of credit subfacility and, with respect to the Company, a swing line subfacility, a term loan facility and an acquisition loan facility upon the terms and conditions set forth in the First Amended and Restated Credit Agreement; WHEREAS, the Company, (i) through MCD Acquisition Corp., a Delaware corporation and a Wholly-Owned Subsidiary of the Company ("PTI MergeCo"), intends to acquire all of the capital stock of PTI, Inc., a Delaware corporation ("PTI") in exchange for (x) the issuance of 7.7 million shares of Company Capital Stock and (y) the refinancing of PTI's existing debt in an amount not to exceed $180,000,000 and (ii) intends to cause PTI MergeCo to merge with and into PTI causing PTI to become a Wholly-Owned Subsidiary of the Company (collectively, the "PTI Merger"); WHEREAS, in connection with the PTI Merger and the various transactions related thereto, the Company has requested that (i) the Lenders agree to (a) an increase in the Aggregate Revolving 1 11 Loan Commitment by $50,000,000 (from $75,000,000 to $125,000,000) (the "PTI Revolver Increase Commitment"); and (b) the Company incurring the PTI Term Loans in the aggregate principal amount of $115,000,000, subject to certain restrictions set forth herein; and (ii) the PTI Term Loan Lenders agree to make the PTI Term Loans in the aggregate principal amount of $115,000,000, subject to the terms and conditions set forth herein; and WHEREAS, the Company, the Lenders and Administrative Agent now desire to further amend and restate the First Amended and Restated Credit Agreement to, among other things, set forth the terms and conditions under which each Lender with a PTI Term Loan Commitment hereafter will make the PTI Term Loans to the Company, to set forth the terms and conditions under which the PTI Revolver Increase Commitment shall occur and to amend and restate the First Amended and Restated Credit Agreement to reflect the amendments thereto; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.01 Certain Defined Terms. The following terms have the following meanings: "Acquisition" means any transaction or series of related transactions (other than the Transaction or the PTI Merger) for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests, membership interests or other equity interests of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary) provided that the Company or a Subsidiary is the surviving entity. "Administrative Agent" means NationsBank in its capacity as agent for the Lenders hereunder, or any successor agent arising under Section 11.09. "Administrative Agent-Related Persons" means NationsBank (solely in its capacities as administrative agent, letter of credit issuing bank or swing line lender hereunder) and any successor administrative agent arising under Section 11.09 or any successor letter of credit issuing bank or swing line lender hereunder, together with their respective Affiliates, and the officers, directors, employees, agents and attorneys-in-fact of such Persons and its Affiliates. "Administrative Agent's Payment Office" means the address for payments set forth on Schedule 12.02 or such other address as the Administrative Agent may from time to time specify. 2 12 "Affiliate" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, membership interests, partnership interests or other equity interests, by contract or otherwise, but shall with respect to the Company or any of its Subsidiaries specifically exclude NationsBank. "Agreed Alternative Currency" has the meaning specified in Section 2.15(e). "Aggregate Commitment" means the sum of (a) the Aggregate Revolving Loan Commitment, (b) the Aggregate Term Loan Commitment; (c) the Aggregate Sterling Acquisition Loan Commitment; and (d) the Aggregate PTI Term Loan Commitment. "Aggregate PTI Term Loan Commitment" means the aggregate PTI Term Loan Commitments of the Lenders equal to One Hundred Fifteen Million Dollars ($115,000,000). "Aggregate Revolving Loan Commitment" means (i) at all times prior to the PTI Funding Date, the aggregate Revolving Loan Commitments of the Lenders equal to Seventy-Five Million Dollars ($75,000,000), as such amount is increased pursuant to Section 2.01(c)(ii) or decreased pursuant to Section 2.05; and (ii) at all times on or after the PTI Funding Date, the aggregate Revolving Loan Commitments of the Lenders equal to One Hundred Twenty-Five Million Dollars ($125,000,000), subject to any increase or decrease in such commitment effected under clause (i) above as of the PTI Funding Date, as such amount is further increased pursuant to Section 2.01(c)(ii) or further decreased pursuant to Section 2.05. "Aggregate Sterling Acquisition Loan Commitment" means the aggregate Sterling Acquisition Loan Commitments of the Lenders equal to Forty-Five Million Sterling (pound sterling45,000,000). "Aggregate Term Loan Commitment" means the aggregate Term Loan Commitments of the Lenders equal to Two Hundred Million Three Hundred Thousand Dollars ($200,300,000). "Agreement" means this Second Amended and Restated Multicurrency Credit Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Agreement Currency" has the meaning specified in Section 12.18. "Amendment Fee" has the meaning specified in Section 2.10(f). "Announcement Date" means the date on which all of the conditions precedent set forth in Section 5.01 are satisfied or waived by the Administrative Agent as evidenced by its delivery of a notice in the form of Exhibit M hereto. "Applicable Currency" means, as to any particular payment, with respect to any Loan or Letter of Credit, Dollars or, with respect to Revolving Loans and Letters of Credit, the Offshore Currency in which it is denominated or is payable. 3 13 "Applicable Margin" means on any date the applicable percentage per annum set forth below based upon the Level as shown in the Compliance Certificate then most recently delivered to the Lenders:
Commitment Level Base Rate Loans Offshore Rate Loans Fee - -------------------------------------------------------------------------------------------------------------- I 0.75% 1.75% 0.375% - -------------------------------------------------------------------------------------------------------------- II 0.50% 1.50% 0.375% - -------------------------------------------------------------------------------------------------------------- III 0.25% 1.25% 0.275% - -------------------------------------------------------------------------------------------------------------- IV 0.00% 1.00% 0.250% - -------------------------------------------------------------------------------------------------------------- V 0.00% 0.75% 0.250% - --------------------------------------------------------------------------------------------------------------
;provided, however, that for the period from (i) the Announcement Date until the Initial Funding Date, the Applicable Margin shall be deemed to be Level II, (ii) the Initial Funding Date until the date which is the 180th day following the Initial Funding Date, the Applicable Margin shall be deemed to be the Level which is the higher of (x) Level II and (y) the Applicable Margin as determined pursuant to the most recent Compliance Certificate delivered to the Lenders pursuant to Section 7.01(c) and (iii) thereafter, the Applicable Margin as determined pursuant to the most recent Compliance Certificate; and provided further that, if the Company shall have failed to deliver the Applicable Margin certificate referred to in Section 5.02(j) or any Compliance Certificate pursuant to Section 7.01(c), in each case by the date required, or if any other Event of Default shall have occurred and be continuing, then from the date such Applicable Margin certificate or Compliance Certificate was required to be delivered until the date of such delivery or the cure or waiver in writing of such other Event of Default, as the case may be, the Applicable Margin shall be deemed to be Level I. Each change in the Applicable Margin shall take effect with respect to all outstanding Loans and fees on the first Business Day immediately succeeding the day on which such Compliance Certificate is received by the Administrative Agent. Notwithstanding the foregoing, no reduction in the Applicable Margin shall be effected if an Event of Default shall have occurred and be continuing on the date when such change would otherwise occur, it being understood that on the first Business Day immediately succeeding the day on which such Event of Default is either waived or cured (assuming no other Event of Default shall be then pending), the Applicable Margin shall be reduced (on a prospective basis) in accordance with the then most recently delivered Compliance Certificate. "Asset Disposition" means the direct or indirect sale, assignment, conveyance, transfer or other disposition (whether in one or a series of transactions) of any property or assets (including accounts and notes receivable, with or without recourse), or the entering into of an agreement to do any of the foregoing; provided, however, that the Company and Qualified Subsidiaries shall at all times be permitted to effect such sales, assignments, conveyances, transfers and other dispositions among such Persons, and such permitted dispositions shall be specifically excluded from the definition of Asset Disposition. "Assignee" has the meaning specified in Section 12.08(a). 4 14 "Attorney Costs" means and includes all reasonable and customary fees and disbursements of any law firm or other external counsel and, without duplication, the reasonable allocated cost of internal legal services and all reasonable disbursements of internal counsel. "Authorization Letter" means the letter agreement executed by an Eligible Borrower in the form of Exhibit N. "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101, et seq.). "Base Rate" means, for any day, the higher of: (a) 0.50% per annum above the latest Federal Funds Rate; and (b) the rate of interest in effect for such day as publicly announced from time to time by NationsBank in Charlotte, North Carolina as its "reference rate." The "reference rate" is a rate set by NationsBank based upon various factors including NationsBank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in the reference rate announced by NationsBank shall take effect at the opening of business on the day specified in the public announcement of such change. "Base Rate Loan" means a Loan or an L/C Advance that bears interest based on the Base Rate. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Bidco" has the meaning set forth in the recitals. "Borrower" means the Company or any Eligible Borrower, as the context may require, and their respective successors and assigns, and "Borrowers" means all of the foregoing. "Borrowing" means a borrowing hereunder consisting of Loans of the same Type and in the same Applicable Currency made to a Borrower on the same day by the Lenders under Article II, and, in the case of Offshore Rate Loans, having the same Interest Period. "Borrowing Date" means any date on which a Borrowing occurs under Section 2.03. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in New York or Charlotte, North Carolina are authorized or required by law to close and (i) with respect to disbursements and payments in Dollars with respect to any Loan bearing interest based upon the Offshore Rate, a day on which dealings are carried on in the applicable offshore Dollar interbank market, and (ii) with respect to any disbursements and payments in and calculations pertaining to any Offshore Currency Loan, a day on which commercial banks are open for foreign exchange business in London, England, and on which dealings in the relevant Offshore Currency are carried on in the applicable offshore foreign exchange interbank market in which disbursements or payment in such Offshore Currency will be made or received hereunder. 5 15 "Capital Adequacy Regulation" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Cash Collateralize" means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the Administrative Agent, the Issuing Bank and the Lenders, as additional collateral for the Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Administrative Agent. Derivatives of such term shall have corresponding meaning. "Cash Equivalents" means: (a) securities issued or fully guaranteed or insured by the United States Government or any agency thereof and backed by the full faith and credit of the United States having maturities of not more than one year from the date of acquisition; (b) certificates of deposit, time deposits, Eurocurrency time deposits, repurchase agreements, reverse repurchase agreements, or bankers' acceptances, having in each case a tenor of not more than one year, issued by any Lender, or by any commercial bank having combined capital and surplus of not less than $100,000,000 and either located in the U.S. or with respect to Foreign Subsidiaries organized under the laws of an Approved Country (as defined in clause (d) below) whose short term securities are rated at least A-1 by S&P and P-1 by Moody's, or with respect to banks located in an Approved Country the equivalent thereof; (c) commercial paper of an issuer rated at least A-1 by S&P or P-1 by Moody's, and in either case having a tenor of not more than six months; and (d) with respect to Foreign Subsidiaries organized under the laws of an Approved Country, government obligations of the United Kingdom and of any other country approved by the Administrative Agent or whose debt securities are rated by S&P and Moody's A-1 or P-1, respectively, or the equivalent thereof (if a short-term debt rating is provided by either) or at least AA or AA2, respectively, or the equivalent thereof (if a long-term unsecured debt rating is provided by either (each such country, an "Approved Country"), in each case with maturities of less than 12 months. "Certain Funds Period" means the period commencing on the first day after the Announcement Date and ending on whichever is the earlier of (a) the date on which the Aggregate Commitment is terminated pursuant to Section 2.07(a), (b) the Business Day following the Squeeze- Out Date and (c) the date which is six (6) calendar months after the Announcement Date; provided, however, that the date set forth in clause (c) above shall be extended by an additional one (1) month and two weeks if Bidco has initiated the Squeeze-Out during the initial six months after the Announcement Date. "Change in Control" means (a) the acquisition by any Person (other than a Plan, the MacDermid, Incorporated Employee Pension Plan, the MacDermid, Incorporated Employee Profit 6 16 Sharing Plan, the MacDermid, Incorporated Employee Stock Ownership Plan or other qualified ERISA plan (other than a Multiemployer Plan)), or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended) of 30% or more of the outstanding shares of voting stock of the Company, or (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the Company's board of directors (together with any new directors whose election by the Company's board of directors or whose nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reasons other than death or disability to constitute a majority of the directors then in office. "Chase" means The Chase Manhattan Bank, in its individual capacity. "City Code" means The City Code on Take-overs and Mergers as issued by the Panel on Take-overs and Mergers in the United Kingdom. "Code" means the Internal Revenue Code of 1986, and regulations promulgated thereunder. "Collateral" means all property and interests in property and proceeds thereof now owned or hereafter acquired by a Borrower or any Subsidiary Guarantor in or upon which a Lien now or hereafter exists in favor of the Lenders, or the Administrative Agent on behalf of itself, the Issuing Bank and the Lenders, whether under this Agreement or under any other document executed by any of such Persons and delivered to the Administrative Agent. "Collateral Documents" means, collectively (if and when each such document is required to be executed and delivered hereunder), (a) each Credit Agreement Guaranty, the Pledge Agreements and all other pledge agreements, guarantees and other similar agreements between a Borrower or its Subsidiaries and the Lenders or the Administrative Agent, for the benefit of itself, the Issuing Bank and the Lenders, now or hereafter delivered to the Lenders or the Administrative Agent pursuant to or in connection with the transactions contemplated hereby, and all financing statements (or comparable documents now or hereafter filed in accordance with the Uniform Commercial Code or comparable law) against a Borrower or any of its Subsidiaries as debtor in favor of the Lenders or the Administrative Agent, for the benefit of itself, the Issuing Bank and the Lenders, as secured party, and (b) any amendments, supplements, modifications, renewals, replacements, consolidations, substitutions and extensions of any of the foregoing. "Commitments" means, collectively, the Revolving Loan Commitment (including the L/C Commitment and Swing Line Loan Commitment thereunder), the Term Loan Commitment, the Sterling Acquisition Loan Commitment and the PTI Term Loan Commitment. "Commitment Fee" means, collectively, the Revolving Loan Commitment Fee, the Term Loan Commitment Fee, the Sterling Acquisition Loan Commitment Fee and the PTI Term Loan Commitment Fee. 7 17 "Companies Act" means the Companies Act of 1985 of the United Kingdom. "Company" means MacDermid, Incorporated, a Connecticut corporation. "Company Common Stock" means the authorized common stock of the Company which is publicly traded on the New York Stock Exchange. "Company Guaranty" means the Guaranty to be executed and delivered by the Company in the form attached to this Agreement as Exhibit J-1. "Company Pledge Agreement" means the Pledge Agreement to be executed and delivered by the Company in the form attached to this Agreement as Exhibit I-1. "Compliance Certificate" means a certificate substantially in the form of Exhibit C. "Computation Date" has the meaning specified in Section 2.15(a). "Consolidated EBIT" means, for any period the sum of (a) Consolidated Net Income of the Company and its Consolidated Subsidiaries for such period, plus (b) to the extent deducted in determining Consolidated Net Income, the sum of (i) Consolidated Interest Expense and (ii) consolidated taxes of the Company and its Consolidated Subsidiaries for such period; provided, however, that for all purposes for any businesses acquired (whether by purchase accounting or pooling accounting) during the period of determination (including Target and its Subsidiaries), Consolidated EBIT for such period shall be determined on a pro forma basis as if such acquisition had occurred as of the beginning of such period (including synergies agreed to by the Administrative Agent in its reasonable discretion); provided, further, that without the consent of the Administrative Agent and the Majority Lenders, the Consolidated EBIT being added as a result of any such acquisition shall not exceed (i) in the case that only unaudited financial statements are available with respect to the assets, Person or division being acquired (whether by merger, stock or asset purchase, or otherwise), the amount of Consolidated EBIT of the acquiree on a stand alone basis being added from such acquisition shall not exceed 15% of the otherwise applicable amount of Consolidated EBIT of the Company and its Subsidiaries (other than the acquiree) taken as a whole, or (ii) the instance that unqualified audited financial statements in accordance with GAAP are available for the acquiree, then 100% of the Consolidated EBIT of the acquiree. "Consolidated EBITDA" means, for any period, the sum of (a) Consolidated Net Income of the Company and its Consolidated Subsidiaries for such period, plus (b) to the extent deducted in determining such Consolidated Net Income, the sum of (i) Consolidated Interest Expense, (ii) consolidated depreciation and amortization expense and (iii) consolidated taxes of the Company and its Consolidated Subsidiaries for such period; provided, however, that for all purposes for any businesses acquired (whether by purchase accounting or pooling accounting) during the period of determination (including Target and its Subsidiaries), Consolidated EBITDA for such period shall be determined on a pro forma basis as if such acquisition had occurred as of the beginning of such period (including synergies agreed to by the Administrative Agent in its reasonable discretion); provided, further, that without the consent of the Administrative Agent and the Majority Lenders, the Consolidated EBITDA being added as a result of any such acquisition shall not exceed (i) in the 8 18 case that only unaudited financial statements are available with respect to the assets, Person or division being acquired (whether by merger, stock or asset purchase, or otherwise), the amount of Consolidated EBITDA of the acquiree on a stand alone basis being added from such acquisition shall not exceed 15% of the otherwise applicable amount of Consolidated EBITDA of the Company and its Subsidiaries (other than the acquiree) taken as a whole, or (ii) the instance that unqualified audited financial statements in accordance with GAAP are available for the acquiree, then 100% of the Consolidated EBITDA of the acquiree. "Consolidated Interest Expense" means, for any period, the interest expense of the Company and its Consolidated Subsidiaries determined on a consolidated basis for such period. "Consolidated Net Income" means, for any period, the net income of the Company and its Consolidated Subsidiaries for such period as adjusted to exclude the following: (a) the effect of each change in accounting principles; (b) any gain, together with any related provisions for taxes on such gain, realized upon the sale or other disposition of any asset of the Company or any Consolidated Subsidiary (including pursuant to any sale/leaseback transaction) which is not sold or otherwise disposed of in the ordinary course of business; (c) any gain or loss, together with any related provision for taxes on such gain, realized in connection with the extinguishment of any Debt of the Company or any of its Consolidated Subsidiaries; (d) all extraordinary gains and losses determined in accordance with generally accepted accounting principles; (e) subject to the proviso below, the net income (to the extent not distributed to the Company in cash) or loss of any Person that is not a Consolidated Subsidiary of the Company or that the Company accounts for by the equity method of accounting; and (f) the net income or loss of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition; provided, however, that to the extent deducted in determining net income at any time during the nine month period following the Initial Funding Date, and without duplication, Consolidated Net Income shall be adjusted to include the following: (i) non-cash charges relating to the Transaction; (ii) cash charges relating to the Transaction in an aggregate amount not to exceed $5,000,000; and (iii) cash charges (other than as provided in clause (ii)) relating to the Transaction and reasonably acceptable to the Administrative Agent. 9 19 "Consolidated Net Worth" means at any date the consolidated stockholders' equity of the Company and its Consolidated Subsidiaries as at such date. "Consolidated Subsidiary" means any Subsidiary whose accounts are, or are required to be, consolidated with the accounts of the Company. "Consolidated Total Debt" means with respect to the Company and its Subsidiaries (on a consolidated basis) at any date the sum of (i) total Debt of the type described in clauses (a), (b) and (d) contained in the definition of Debt, (ii) all standby letters of credit, other than at any time that Galvanevet s.r.l. is not a Consolidated Subsidiary, Existing Letters of Credit related to or given in connection with the Galvanevet acquisition, and (y) standby letters of credit backing trade obligations incurred in the ordinary course of business in an aggregate Stated Amount up to $5,000,000, and (iii) Guarantees of Debt of any Person other than the Company or any of its Consolidated Subsidiaries. "Conversion/Continuation Date" means any date on which, under Section 2.04, the Company (a) converts Loans (other than Swing Line Loans) of one Type to another Type, or (b) continues as Loans (other than Swing Line Loans) of the same Type, but with a new Interest Period, Loans having Interest Periods expiring on such date. "Credit Agreement Guaranty" means, collectively, if and when each such document is executed and delivered (a) the Company Guaranty, (b) the Subsidiary Guaranty and (c) each guaranty required to be delivered by a Foreign Subsidiary pursuant to Section 7.11, in each case in favor of the Administrative Agent, on behalf of itself, the Issuing Bank and the Lenders, as each of the same may be amended, supplemented or otherwise modified from time to time. "Credit Extension" means and includes (a) the making of any Loans hereunder, and (b) the Issuance of any Letters of Credit hereunder. "Debt" means, with respect to any Person at any date, without duplication: (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (d) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (e) all obligations of such Person to reimburse or prepay any bank or other Person in respect of amounts paid under a letter of credit, banker's acceptance or similar instrument, whether drawn or undrawn (provided, however, if the Company provides standby letters of credit or bank guarantees in support of obligations of a Subsidiary, only the underlying obligation and not the contingent liability created by the letter of credit or bank guaranty shall be treated as Debt of the Company and such Subsidiary), (f) all Debt of other Persons secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, (g) all obligations of such Person under a synthetic lease transaction and (h) all Guarantees. "Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. 10 20 "Deutschemarks" and the sign "DM" each mean the national currency unit for the time being of Germany. "Dollars", "dollars" and the symbol "$" each mean the lawful currency of the United States. "Dollar Equivalent" means, at any time, (a) as to any amount denominated in Dollars, the amount thereof at such time and (b) as to any amount denominated in an Offshore Currency, the equivalent amount in Dollars as determined by the Administrative Agent at such time on the basis of the Spot Rate for the purchase of Dollars with such Offshore Currency on the most recent Computation Date. "Domestic Subsidiary" means each Subsidiary that is organized under the laws of the United States or any state thereof. "Effective Amount" means: (a) with respect to any Revolving Loans on any date, the Dollar Equivalent of the aggregate outstanding principal amount thereof after giving effect to any Borrowing and prepayments or repayments of Revolving Loans occurring on such date; (b) with respect to any outstanding L/C Obligations on any date, the Dollar Equivalent of the aggregate amount of such L/C Obligations on such date after giving effect to the Issuance of any Letter of Credit occurring on such date and any other changes in the amount of the L/C Obligations as of such date, including as a result of any reimbursements of outstanding unpaid drawings under Letters of Credit or any reductions in the maximum amount available for drawing under the Letters of Credit taking effect on such date; (c) with respect to any Swing Line Loan on any date, the aggregate outstanding principal amount thereof after giving effect to any Borrowing and prepayments or repayments of Swing Line Loans occurring on such date; (d) with respect to any Term Loan on any date, the aggregate outstanding principal amount thereof after giving effect to any Borrowing and prepayments or repayments of Term Loans occurring on such date; (e) with respect to any Sterling Acquisition Loan on any date, the aggregate outstanding principal amount thereof after giving effect to any Borrowing and prepayments or repayments of Sterling Acquisition Loans occurring on such date; and (f) with respect to any PTI Term Loan on any date, the aggregate outstanding principal amount thereof after giving effect to any Borrowing and prepayments or repayments of PTI Term Loans occurring on such date. For purposes of Section 2.07, the Effective Amount shall be determined without giving effect to any mandatory prepayments to be made under said Section. 11 21 "Election to Participate" means an Election to Participate executed by an Eligible Borrower and substantially in the form of Exhibit G. "Election to Terminate" means an Election to Terminate executed by an Eligible Borrower and substantially in the form of Exhibit H. "Eligible Assignee" means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States; (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which a Lender is a Subsidiary, or (iii) a Person of which a Lender is a Subsidiary; (d) a commercial finance company or finance subsidiary of a corporation organized under the laws of the United States of America, or any State thereof, and having total assets in excess of $100,000,000; (e) a savings bank or savings and loan association organized under the laws of the United States of America, or any State thereof, and having total assets in excess of $100,000,000; (f) as to the Term Loans, an "accredited investor" as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (other than the Company or an Affiliate of the Company); and (g) any other entity approved by the Company and the Administrative Agent. "Eligible Borrower" means any (a) Wholly-Owned Consolidated Subsidiary that is a Domestic Subsidiary the capital stock of which has been delivered to the Administrative Agent pursuant to a Pledge Agreement and (b) Wholly-Owned Consolidated Subsidiary that is a Foreign Subsidiary whose ultimate non-U.S. parent's capital stock has been delivered to the Administrative Agent pursuant to a Pledge Agreement, and in each case as to which an Election to Participate shall have been delivered to the Administrative Agent and as to which an Election to Terminate shall not have been delivered to the Administrative Agent. Each such Election to Participate and Election to Terminate shall be duly executed on behalf of such Wholly-Owned Consolidated Subsidiary and the Company in such number of copies as the Administrative Agent may request. The delivery of an Election to Terminate shall not affect any obligation of an Eligible Borrower theretofore incurred. The Administrative Agent shall promptly give notice to the Lenders of the receipt of any Election to Participate or Election to Terminate. "EMU" means European Economic and Monetary Union. "EMU Legislation" means legislative measures of the European Council in relation to EMU. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, injunctions, permits, conversions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, to the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment, including ambient air, surface water, ground water or land, or otherwise relating to the manufacture, 12 22 processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor statute including any rules and regulations promulgated thereunder. "ERISA Group" means the Company, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company or any Subsidiary, are treated as a single employer under Section 414(c) of the Code. "euro" means the single currency of the Participating Member States. "euro unit" means a currency unit of the euro. "Eurocurrency Reserve Percentage" has the meaning specified in the definition of "Offshore Rate". "Event of Default" means any of the events or circumstances specified in Section 10.01. "Existing Credit Agreement" means the Amended and Restated Credit Agreement, dated as of August 23, 1996, as amended by the First Amendment, dated as of March 30, 1998, the Second Amendment, dated as of April 24, 1998, the Third Amendment, dated as of June 26, 1998 and the Fourth Amendment, dated as of August 5, 1998, among the Company, the financial institutions from time to time party thereto and The Chase Manhattan Bank, as agent. "Existing Letters of Credit" shall mean each letter of credit listed on Schedule 3.09. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Administrative Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Administrative Agent. "Fee Letter" has the meaning specified in Section 2.10(a). "First Amended and Restated Credit Agreement" has the meaning specified in the Recitals hereto. 13 23 "First Amended and Restated Credit Agreement Lenders" has the meaning specified in Section 12.19(b). "Foreign Subsidiary" means each Subsidiary that is not a Domestic Subsidiary. "Francs" and the symbol "FF" each mean the national currency unit for the time being of France. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "FTC" means the Federal Trade Commission of the United States. "Further Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges (including, without limitation, net income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to Section 4.01. "FX Trading Office" means the Foreign Exchange Trading Center Charlotte, North Carolina of NationsBank, or such other foreign exchange trading center of NationsBank as it may designate from time to time. "GAAP" means U.S. generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination; provided, however, that for purposes of all computations required to be made with respect to compliance by the Company with Sections 9.01, 9.02 and 9.03, such term shall mean generally accepted accounting principles as in effect on the date of this Agreement, applied in a manner consistent with those used in preparing the financial statements referred to in Section 6.05(a). "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Debt or other obligation of any Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for the purpose of assuring in any other manner the 14 24 obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guilders" means the national currency unit for the time being of the Netherlands. "Hazardous Substances" means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydro-carbons, or any substance having any constituent elements displaying any of the foregoing characteristics and any other element, compound, mixture, solution or substance which poses a present or potential hazard to human health or the environment. "Honor Date" shall mean the date that any amount is paid by the Issuing Bank under any Letter of Credit. "Indemnified Liabilities" has the meaning specified in Section 12.05. "Indemnified Party" has the meaning specified in Section 12.05. "Initial Funding Date" means the date on which all of the conditions precedent set forth in Section 5.02 are satisfied in all material respects or waived by the Majority Lenders and the initial Loans are made by the Lenders hereunder to the Company to facilitate the purchase by Bidco of the Target Shares pursuant to the Offer. "Insolvency Proceeding" means, with respect to any Person, (a) any case, action or proceeding with respect to such Person before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code or any foreign equivalent. "Intercompany Debt" means Debt representing loans from the Company or any Qualified Subsidiary to a Non-Qualified Subsidiary. "Interest Payment Date" means, as to any (i) Offshore Rate Loan, the last day of each Interest Period applicable to such Offshore Rate Loan, (ii) Base Rate Loan, the last Business Day of each March, June, September and December and (iii) any Swing Line Loan bearing interest at the Quoted Rate, the date such Swing Line Loan is to be repaid; provided, however, that if any Interest Period exceeds three months, the date that falls three months after the beginning of such Interest Period and after each Interest Payment Date thereafter is also an Interest Payment Date. "Interest Period" means, as to any Offshore Rate Loan, the period commencing on the Borrowing Date of such Offshore Rate Loan or on the Conversion/Continuation Date on which the relevant Loan is converted into or continued as an Offshore Rate Loan, and ending (x) with respect 15 25 to any Offshore Rate Loan made on the Initial Funding Date or on the Business Day following the Initial Funding Date, on March 31, 1999 and (y) with respect to all other Offshore Rate Loans, on the date one, two, three or six months thereafter as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: (a) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; (c) no Interest Period for any Term Loan, PTI Term Loan or Sterling Acquisition Loan shall extend beyond the Maturity Date and no Interest Period for any Revolving Loan shall extend beyond the Revolving Loan Termination Date; and (d) no Interest Period applicable to a Term Loan, PTI Term Loan or Sterling Acquisition Loan or portion thereof shall extend beyond any Principal Payment Date unless the aggregate principal amount of such Term Loans, PTI Term Loans and Sterling Acquisition Loans represented by Base Rate Loans or Offshore Rate Loans having Interest Periods that will expire on or before such date, equals or exceeds the amount of the principal payment due on such Principal Payment Date. "Investment" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. "IRS" means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code. "Issuance Date" means the date upon which the Issuing Bank Issues a Letter of Credit. "Issue" means, with respect to any Letter of Credit, to issue or to extend the expiry of, or to renew or increase the amount of, such Letter of Credit; and the terms "Issued," "Issuing" and "Issuance" have corresponding meanings. "Issuing Bank" means (x) NationsBank in its capacity as issuer of the Letters of Credit (other than Existing Letters of Credit) hereunder, together with any replacement letter of credit issuer arising under Section 11.01(b) or Section 11.09 and (y) Chase in its capacity as issuer of the Existing Letters of Credit hereunder. 16 26 "Joint Venture" means a single-purpose corporation, partnership, limited liability company, joint venture or other similar legal arrangement (whether created by contract or conducted through a separate legal entity) now or hereafter formed by the Company or any of its Subsidiaries with another Person in order to conduct a common venture or enterprise with such Person. "Judgment Currency" has the meaning specified in Section 12.18. "L/C Advance" means each Revolving Lender's participation in any L/C Borrowing in accordance with its Pro Rata Revolving Share. "L/C Amendment Application" means an application form for amendment of outstanding Letters of Credit as shall at any time be in use at the Issuing Bank, as the Issuing Bank shall request. "L/C Application" means an application form for issuances of Letters of Credit as shall at any time be in use at the Issuing Bank, as the Issuing Bank shall request. "L/C Borrowing" means an extension of credit resulting from a drawing under any Letter of Credit which shall not have been reimbursed on the date when made or converted into a Borrowing of Revolving Loans under Section 3.03(b). "L/C Commitment" means the commitment of the Issuing Bank to Issue, and the commitment of the Revolving Lenders severally to participate in, Letters of Credit from time to time Issued or outstanding under Article III, in an aggregate amount not to exceed on any date the Effective Amount of $38,000,000 (of which amount (x) no more than the Effective Amount of $15,000,000 shall be attributable to Letters of Credit issued on and after the Initial Funding Date not relating to Existing Letters of Credit and (y) no more than the Effective Amount of $23,000,000 shall be attributable to Existing Letters of Credit), as the same shall be reduced as a result of a reduction in the L/C Commitment pursuant to Section 2.05; provided that the L/C Commitment is a part of the combined Revolving Loan Commitments, rather than a separate, independent commitment. "L/C-Related Documents" means the Letters of Credit, the L/C Applications, the L/C Amendment Applications and any other document relating to any Letter of Credit, including any of the Issuing Bank's standard form documents for letter of credit issuances. "L/C Obligations" means the sum of (i) the aggregate undrawn amount of all Letters of Credit then outstanding, plus (ii) the amount of all unreimbursed drawings under all Letters of Credit, including all outstanding L/C Borrowings. "Lender" has the meaning specified in the introductory clause hereto. References to the "Lenders" shall include NationsBank, including in its capacity as Issuing Bank and Swing Line Lender and any other Lender assuming such capacity in the future, and for purposes of clarification only, to the extent that NationsBank may have any rights or obligations in addition to those of the Lenders due to its status as Issuing Bank or Swing Line Lender, its status as such will be specifically referenced. 17 27 "Lending Office" means, as to any Lender, the office or offices of such Lender specified as its "Lending Office" or "Domestic Lending Office" or "Offshore Lending Office", as the case may be, on Schedule 12.02, or such other office or offices as such Lender may from time to time notify the Company and the Administrative Agent. "Letters of Credit" means any letter of credit issued by Issuing Bank hereunder, and any amendments thereto or replacements thereof, pursuant to Article III, and each Existing Letter of Credit. "Level" means, and includes, Level I, Level II, Level III, Level IV or Level V, whichever is in effect at the relevant time. "Level I" shall exist at any time the Leverage Ratio is greater than 3.50:1.0. "Level II" shall exist at any time the Leverage Ratio is equal to or less than 3.50:1.0 but greater than 3.00:1.0. "Level III" shall exist at any time the Leverage Ratio is equal to or less than 3.00:1.0 but greater than 2.50:1.0. "Level IV" shall exist at any time the Leverage Ratio is equal to or less than 2.50:1.0 but greater than 2.00:1.0. "Level V" shall exist at any time the Leverage Ratio is equal to or less than 2.00:1.0. "Leverage Ratio" means, with respect to any period, the ratio of Consolidated Total Debt to Consolidated EBITDA tested as of the end of each fiscal quarter for the preceding four fiscal quarters. "LIBOR" has the meaning specified in the definition "Offshore Rate". "Lien" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law) and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an operating lease. "Lira" means the national currency unit for the time being of Italy. "Loan" means an extension of credit by a Lender to a Borrower under Article II or Article III in the form of a Revolving Loan, a Term Loan, a PTI Term Loan, a Sterling Acquisition Loan, a Swing Line Loan or a L/C Borrowing. 18 28 "Loan Documents" means this Agreement, any Notes, the Fee Letter, the L/C-Related Documents, the Collateral Documents, each Election to Participate, each Authorization Letter and all other documents delivered to the Administrative Agent or any Lender in connection herewith. "Majority Lenders" means as of the date of determination thereof, the Lenders having at least 51% of the sum of (i) the aggregate principal amount of loans and other extensions of credit then outstanding under any of the Loan Documents plus (ii) the aggregate amount of the remaining available commitments of the Lenders under any of the Loan Documents; provided, however, that for purposes of determining the amount of a Revolving Lender's Loans, each Revolving Lender shall be deemed to hold the principal amount of Swing Line Loans and the amount L/C Obligations equal to its Revolving Loan Pro Rata Share of the Swing Line Loans and L/C Obligations then outstanding. "Mandatory Cost" means the cost imputed to the Lender(s) of compliance with: (a) the Mandatory Liquid Assets requirements of the Bank of England and/or the banking supervision or other costs of the Financial Services Authority as determined in accordance with Schedule 1(a); and (b) any other applicable regulatory or central bank requirement relating to any Loan made through a branch in the jurisdiction of the currency of that Loan including any reserve asset requirements of the European Central Bank. "Margin Stock" means "margin stock" as such term is defined in Regulation T, U or X of the FRB. "Material Debt" means Debt (other than the Notes) of the Company and/or one or more of its Subsidiaries, in an aggregate principal amount, individually or in the aggregate, exceeding $5,000,000. "Material Plan" means at any time a Plan or Plans having an aggregate amount of Unfunded Liabilities in excess of $1,000,000. "Material Subsidiary" means US Holdco #1, US Holdco #2, Bidco, Target, each Eligible Borrower, PTI MergeCo, PTI and any other Subsidiary of the Company whose assets constitute 5% or more of the total assets of the Company and its Subsidiaries taken as a whole. "Moody's" means Moody's Investors Service, Inc., and any successor thereto. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five (5) plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. 19 29 "national currency unit" means the lawful currency unit (other than a euro unit) of a Participating Member State, being a sub-denomination of the euro unit. "NationsBank" means NationsBank, N.A., a national banking association, individually. "Net Proceeds" means proceeds in cash, checks or other cash equivalent financial instruments (including Cash Equivalents) as and when received by the Person making an Asset Disposition, net of: (a) the direct costs relating to such Asset Disposition (excluding amounts payable to the Company or any Affiliate of the Company), (b) all taxes paid or payable as a result thereof and (c) amounts required to be applied to repay principal, interest and prepayment premiums and penalties on Debt secured by a Lien on the asset which is the subject of such Asset Disposition. "Non-Qualified Subsidiary" means any Subsidiary that is not a Qualified Subsidiary. "Note" means a promissory note executed by a Borrower in favor of a Lender pursuant to Section 2.02(b), in substantially the form of Exhibit F-1(A), with respect to Revolving Loans before the PTI Effective Date, Exhibit F-1(B) with respect to Revolving Loans after the PTI Funding Date, Exhibit F-2, with respect to Term Loans, Exhibit F-3, with respect to Sterling Acquisition Loans, Exhibit F-4, with respect to Swing Line Loans and Exhibit F-5 with respect to PTI Term Loans. "Notice of Borrowing" means a notice in substantially the form of (a) Exhibit A-1 with respect to a Borrowing of Sterling Acquisition Loans or Term Loans on a Business Day during the Certain Funds Period and (b) Exhibit A-2 with respect to any other Borrowing. "Notice of Conversion/Continuation" means a notice in substantially the form of Exhibit B. "Obligations" means all advances, debts, liabilities, obligations, covenants and duties arising under any Loan Document owing by the Company to any Lender, the Administrative Agent or any Indemnified Party, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "Offer" means the cash offer, recommended by the Directors of the Target, for the Target Shares made or to be made by Bidco on the terms and conditions contained in the Press Release, as such offer may be amended, varied or waived in compliance with Section 7.12. "Offer Document" means the document to be issued to the shareholders of Target containing the Offer outlined in the Press Release. "Offshore Currency" means, at any time, Sterling, Deutschemarks, Guilders, Pesetas, Yen, Francs, Lira, Swiss Francs, euros and/or euro units or such other currency as is acceptable to the Administrative Agent and the Lenders in accordance with Section 2.15(e). "Offshore Currency Loan" means any Revolving Loan that is an Offshore Rate Loan denominated in an Offshore Currency and any Sterling Acquisition Loan. 20 30 "Offshore Rate" means, for any Interest Period, with respect to Offshore Rate Loans comprising part of the same Borrowing, the rate of interest per annum (rounded upward to the next 1/100th of 1%) determined by the Administrative Agent as follows: Offshore Rate = LIBOR -------------------------------------- 1.00 - Eurocurrency Reserve Percentage Where, "Eurocurrency Reserve Percentage" means for any day for any Interest Period the maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to any bank or Lender) under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency Liabilities"); and "LIBOR" means the rate of interest per annum determined by the Administrative Agent to be the rate of interest per annum at which deposits, in the Applicable Currency in the approximate amount of the Loan to be made or continued as, or converted into, an Offshore Rate Loan by the entity that is the Administrative Agent and having a maturity comparable to such Interest Period, would be offered to major banks in the London interbank market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period rounded upwards to the next 1/100th of 1%. The Offshore Rate shall be adjusted automatically as to all Offshore Rate Loans then outstanding as of the effective date of any change in the Eurocurrency Reserve Percentage. In the case of Offshore Currency Loans, the cost to the Lenders of complying with any Mandatory Costs will be added to the interest rate computed in the manner set forth in Schedule 1(a). "Offshore Rate Loan" means a Loan (other than Swing Line Loans) that bears interest based on the Offshore Rate. "Organization Documents" means, for any corporation, partnership, limited liability company or other similar organization or business entry, the certificate or articles of incorporation, partnership agreement, limited liability company agreement, memorandum or articles of association, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation or other entity, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation or other entity. "Other Taxes" means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. 21 31 "Overnight Rate" means, for any day, the rate of interest per annum at which overnight deposits in the Applicable Currency, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day by NationsBank's London Branch to major banks in the London or other applicable offshore interbank market. "Participant" has the meaning specified in Section 12.08(d). "Participating Member State" means a member state of the European Union that adopts the euro as its currency in accordance with legislation of the European Union relating to European Economic and Monetary Union. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Permitted Liens" means: (a) in the case of real properties, easements, restrictions, exceptions, reservations or defects which, in the aggregate, do not interfere materially with the continued use of such properties for the purposes for which they are used and do not affect materially the value thereof; (b) liens, if contested in good faith by appropriate proceedings and appropriate reserves are maintained, in accordance with generally accepted accounting principles, with respect thereto; (c) pledges or deposits to secure obligations under workmen's compensation laws or similar legislation or to secure performance in connection with bids, tenders and contracts (other than contracts for the payment of borrowed money) to which the Company or any of its Subsidiaries is a party; (d) deposits to secure public or statutory obligations of the Company or any of its Subsidiaries; (e) materialmen's, mechanics', carriers', workmen's or other like liens arising in the ordinary course of business, or deposits of cash or United States obligations to obtain the release of such liens; (f) deposits to secure surety or appeal bonds in proceedings to which the Company or any of its Subsidiaries is a party; (g) existing leases by the Company or its Subsidiaries of real and personal property; (h) liens for taxes not yet due and payable; 22 32 (i) liens on the assets of Target and its Subsidiaries to the extent such liens were in effect prior to the Announcement Date and are otherwise acceptable to the Administrative Agent in the Administrative Agent's reasonable discretion; and (j) liens on the assets of PTI and its Subsidiaries to the extent such liens were in effect prior to the PTI Effective Date and are otherwise acceptable to the Administrative Agent in the Administrative Agent's reasonable discretion. "Permitted Swap Obligations" means all obligations (contingent or otherwise) of the Company or any Subsidiary existing or arising under Swap Contracts, provided that each of the following criteria is satisfied: (I) (a) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments or assets held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person in conjunction with a securities repurchase program not otherwise prohibited hereunder, and not for purposes of speculation or taking a "market view" and (b) such Swap Contracts do not contain (i) any provision ("walk-away" provision) exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party, or (ii) any provision creating or permitting the declaration of an event of default, termination event or similar event upon the occurrence of an Event of Default (other than an Event of Default under Section 10.01(a)) or (II) such Swap Contract was entered into prior to the Announcement Date and is listed on Schedule 6.21. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "Pesetas" means the national currency unit for the time being of Spain. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards set forth in Section 412 of the Code and either (a) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (b) has at any time within the preceding five (5) years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Pledge Agreements" means, collectively, if and when each such document is executed and delivered, (a) the Company Pledge Agreement, (b) each US Holdco Pledge Agreement, (c) the Subsidiary Guarantor Pledge Agreement and (d) each pledge agreement required to be delivered by a Foreign Subsidiary pursuant to Section 7.11, in each case pledging the stock of their respective Subsidiaries and (other than with respect to Foreign Subsidiaries) intercompany notes to the Administrative Agent, for the benefit of itself, the Issuing Bank and the Lenders, as each of the same may be amended, supplemented or otherwise modified from time to time. "Pledged Collateral" has the meaning specified in the relevant Pledge Agreement. 23 33 "Principal Payment Date" has the meaning specified in Section 2.08(d). "Prior Loan Document" has the meaning specified in the Recitals. "Prior Loan Document Lender" has the meaning specified in Section 12.19(a). "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code. "Press Release" means the form of press release agreed between the Company and the Administrative Agent, which has been initialed by or on behalf of the Company and the Administrative Agent for the purpose of identification, a true and correct copy of which is attached as Exhibit O hereto. "Projections" means the Company's forecasted consolidated: (a) balance sheets; (b) income statements; and (c) cash flow statements, all prepared on a basis consistent with the Company's historical financial statements. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. "Pro Rata Revolving Share" means, as to any Revolving Lender, (a) at any time at which the Aggregate Revolving Loan Commitment remains outstanding, the percentage equivalent (expressed as a decimal rounded to the ninth decimal place) at such time of such Lender's Revolving Loan Commitment divided by the Aggregate Revolving Loan Commitment, and (b) after the termination of the Aggregate Revolving Loan Commitment, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of the principal amount of such Lender's outstanding Revolving Loans (other than Swing Line Loans) divided by the aggregate principal amount of the outstanding Revolving Loans (other than Swing Line Loans) of all the Lenders. "Pro Rata Share" means, as to any Lender, (a) in respect of a particular Loan and/or Commitment, (i) at any time at which the Commitments in respect of such Loan remain outstanding, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Lender's Commitment in respect of such Loan divided by the combined Commitments in respect of such Loan, and (ii) after the termination of the Commitments in respect of such Loan, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of the principal amount outstanding of such Loans held by such Lender divided by the aggregate principal amount outstanding of such Loans held by all Lenders, and (b) in respect of all Loans and/or Commitments, (i) at any time at which the Aggregate Commitment (or any portion thereof) remains outstanding, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Lender's Commitments in respect of all Loans divided by the Aggregate Commitment, and (b) after the termination of the Aggregate Commitment, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of the principal amount of such Lender's outstanding Loans (including such Lender's ratable share of outstanding Swing Line Loans and L/C Obligations) divided by the aggregate principal amount of the outstanding Loans and L/C Obligations of all of the Lenders. 24 34 "PTI" means PTI, Inc. a Delaware corporation. "PTI Effective Date" means the date on which all of the conditions precedent set forth in Section 5.05 are satisfied or waived by the Lenders. "PTI Funding Date" means the date on which all of the conditions precedent set forth in Section 5.06 are satisfied or waived by the Lenders or the Administrative Agent, as the case may require, and the initial PTI Term Loans are made by the Lenders holding PTI Term Loan Commitments hereunder to the Company to facilitate the purchase by PTI MergeCo of all of the outstanding capital stock of PTI pursuant to the PTI Merger. "PTI MergeCo" has the meaning specified in the Recitals hereto. "PTI Merger" has the meaning specified in the Recitals hereto. "PTI Merger Documents" has the meaning specified in Section 6.22(b). "PTI Revolver Increase Commitment" has the meaning specified in the Recitals hereto. "PTI Subsidiaries" means each Subsidiary of PTI. "PTI Term Loan" has the meaning specified in Section 2.01(e). "PTI Term Loan Commitment" means, as to each Lender, such Lender's PTI Term Loan Commitment, as specified on Schedule 2.01. "PTI Term Loan Commitment Fee" has the meaning specified in Section 2.10(e). "Qualified Subsidiary" means any Subsidiary Guarantor and any Eligible Borrower. "Quoted Rate" means the rate of interest per annum with respect to a Swing Line Loan as agreed to between the Company and the Swing Line Lender at the time such Swing Line Loan is made to the Company. "Relevant Event of Default" has the meaning specified in Section 10.02. "Relevant Representations and Warranties" means each of the matters represented in Section 6.01(a) (with respect to the Company, US Holdco #1, US Holdco #2 and Bidco) and Sections 6.02(b), 6.03, 6.15(a) and 6.16. "Relevant Undertakings" means each of the undertakings and covenants of the Company contained in Sections 7.04(a), 7.08(d), 7.09, 7.12(a), (c), (f) and (j) and 8.02. "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case 25 35 applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" means (i) the chief executive officer or the president of the Company, or any other officer having substantially the same authority and responsibility; or, with respect to compliance with financial covenants, the chief financial officer or the treasurer of the Company, or any other officer having substantially the same authority and responsibility or (ii) with respect to PTI or PTI MergeCo, the chief executive officer or the president of such Person, or any other officer having substantially the same authority and responsibility; or, with respect to compliance with financial covenants, the chief financial officer or the treasurer of such Person, or any other officer having substantially the same authority and responsibility. Unless otherwise qualified, "Responsible Officer" means a Responsible Officer of the Company. "Restricted Payment" means (a) any dividend or other distribution on any shares of the Company's or any of its Subsidiaries' capital stock (except dividends payable solely in shares of such Person's capital stock) or (b) any payment on account of the purchase, redemption, retirement or acquisition of (i) any shares of the Company's or any of its Subsidiaries' capital stock or (ii) any option, warrant or other right to acquire shares of the Company's or any of its Subsidiaries' capital stock; provided, that any Subsidiary of the Company shall at all times be permitted to make payments, distributions or dividends of the type referenced in clauses (a) and (b) above to the Company or any Wholly-Owned Consolidated Subsidiary of the Company and such payments, distributions or dividends shall be excluded under the definition of Restricted Payments. "Revolving Lender" means a Lender having a Revolving Loan Commitment. "Revolving Loan" has the meaning specified in Section 2.01(c). "Revolving Loan Commitment" has the meaning specified in Section 2.01(c). "Revolving Loan Commitment Fee" has the meaning specified in Section 2.10(b). "Revolving Loan Termination Date" means the earlier to occur of: (a) the date which is the fifth anniversary of the Announcement Date; and (b) the date on which the Revolving Loan Commitments terminate and are reduced to zero in accordance with Section 2.05(a), 2.07(a) or 10.03. "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill Companies, and any successor thereto. "Same Day Funds" means (a) with respect to disbursements and payments in Dollars, immediately available funds, and (b) with respect to disbursements and payments in an Offshore Currency, same day or other funds as may be reasonably determined by the Administrative Agent to be customary in the place of disbursement or payment for the settlement of international banking transactions in the relevant Offshore Currency. 26 36 "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. "Solvent" means, when used with respect to (A) a Person (other than subject to clause (B)), that (a) the fair saleable value of the assets of such Person (including goodwill) is in excess of the total amount of the present value of its liabilities (including for purposes of this definition all liabilities (including loss reserves as determined by such Person), whether or not reflected on a balance sheet prepared in accordance with GAAP), (b) such Person is able to pay its debts or obligations in the ordinary course as they mature and (c) such Person does not have unreasonably small capital to carry out its business as conducted and as proposed to be conducted and (B) for any Person incorporated in England and Wales, on a particular date, on that date such Person has the ability to pay its debts as and when they fall due and could not be deemed to be insolvent for the purposes of the Insolvency Act 1986 of the United Kingdom. "Solvency" shall have a correlative meaning. "Specified Foreign Subsidiary" has the meaning specified in Section 5.02(g). "Spot Rate" for a currency means the rate generally quoted by NationsBank as the spot rate for the purchase by NationsBank of such currency with another currency through its FX Trading Office on the date two Business Days prior to the date as of which the foreign exchange computation is made. "Squeeze-Out" has the meaning specified in the second paragraph of this Agreement. "Squeeze-Out Date" means the Business Day after the Business Day following the last date upon which Bidco becomes obliged to pay any consideration for the purchase of the Target Shares. "Squeeze-Out Period" means the period from the Initial Funding Date to and including the last day of the Certain Funds Period. "Stated Amount" means the stated or face amount of a Letter of Credit to the extent available at the time for drawing (subject to presentment of all requested documents), as the same may be increased or decreased from time to time in accordance with the terms of such Letter of Credit "Sterling" and the symbol "pound sterling" each mean the lawful currency of the United Kingdom. "Sterling Acquisition Loan" has the meaning specified in Section 2.01(b). "Sterling Acquisition Loan Commitment" means, as to each Lender, such Lender's Sterling Acquisition Loan Commitment, as specified on Schedule 2.01. "Sterling Acquisition Loan Commitment Fee" has the meaning specified in Section 2.10(d). "Subsidiary" of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity (A) of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations), is 27 37 owned or controlled directly or indirectly by the such Person, or one or more of the Subsidiaries of such Person, or a combination thereof and (B) with respect to any Person incorporated in England and Wales, a subsidiary within the meaning of Section 736 of the Companies Act or, unless the context otherwise requires, a subsidiary undertaking within the meaning of Section 258 of the Companies Act. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company; provided, that for purposes of this Agreement, neither Target nor any Target Subsidiary shall be a Subsidiary until the occurrence of the Initial Funding Date after giving effect to the Transaction completed on such date. "Subsidiary Guarantor" means, collectively, (a) US Holdco #1, US Holdco #2, each Domestic Subsidiary identified as a Subsidiary Guarantor on the Announcement Date on Schedule 6.08 and each other Domestic Subsidiary created or acquired after the Announcement Date and (b) to the extent required pursuant to Section 7.11, each Foreign Subsidiary. "Subsidiary Guarantor Pledge Agreement" means the Pledge Agreement to be executed and delivered by the Subsidiary Guarantors (other than US Holdco #1 and US Holdco #2) in the form attached to this Agreement as Exhibit I-3. "Subsidiary Guaranty" means the Guaranty to be executed and delivered by the Subsidiary Guarantors in the form attached to this Agreement as Exhibit J-2. "Surety Instruments" means all letters of credit (including standby and documentary), banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments. "Swap Contract" means any agreement, whether or not in writing, relating to any transaction that is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond, note or bill option, interest rate option, forward foreign exchange transaction, cap, collar or floor transaction, currency swap, cross-currency rate swap, swaption, currency option or any other, similar transaction (including any option to enter into any of the foregoing) or any combination of the foregoing, and, unless the context otherwise clearly requires, any master agreement relating to or governing any or all of the foregoing. "Swap Termination Value" means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined by the Company based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include any Lender). "Swing Line Loan Commitment" has the meaning specified in Section 2.01(d). "Swing Line Lender" means NationsBank, in its capacity as provider of the Swing Line Loans. With respect to Swing Line Loans, NationsBank may cause a local affiliate to make such 28 38 Swing Line Loans and such local affiliate shall be deemed to be the Swing Line Lender for the purposes of this Agreement. "Swing Line Loan" means a Loan made by the Swing Line Lender, denominated in Dollars, pursuant to Section 2.01(d). "Swing Line Termination Date" means the earlier to occur of: (a) the date which is the fifth Business Day prior to the fifth anniversary of the Announcement Date; and (b) the date on which the Revolving Loan Commitment terminates in accordance with the provisions of this Agreement. "Swiss Francs" means the lawful currency of Switzerland. "Take Out Debt" has the meaning specified in Section 8.01(g). "Target" has the meaning ascribed thereto in the recitals. "Target Shares" means the issued shares of each class of the capital of the Target (including any shares of the Target issued while the Offer remains open for acceptance). "Target Subsidiaries" means each Subsidiary of the Target. "Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, respectively, taxes imposed on or measured by its net income by the jurisdiction (or any political subdivision thereof) under the laws of which such Lender or the Administrative Agent, as the case may be, is organized or maintains a lending office. "Term Loan" has the meaning specified in Section 2.01(a). "Term Loan Commitment" means, as to each Lender, such Lender's Term Loan Commitment, as specified on Schedule 2.01. "Term Loan Commitment Fee" has the meaning specified in Section 2.10(c). "Transaction" shall include (a) the Offer, (b) the purchase of Target Shares by Bidco (c) the Credit Extensions made on the Initial Funding Date and (d) the refinancing of certain Debt of the Company and its Subsidiaries (including Target and certain Target Subsidiaries) on the Initial Funding Date. "Transaction Agreements" has the meaning specified in Section 6.22. 29 39 "Type" means, with respect to any Borrowing of Loans (other than Swing Line Loans), its nature as a Base Rate Loan or an Offshore Rate Loan. "Unconditional Date" means the date upon which the Offer becomes or is declared unconditional in all respects. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (a) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (b) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), but only to the extent that such excess represents a potential liability of any member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "United States" and "U.S." each means the United States of America. "US Holdco #1" means MacDermid Tower, Inc., a Delaware corporation, a Wholly-Owned Consolidated Subsidiary of the Company and 50% shareholder of Bidco. "US Holdco #2" means MacDermid Tartan, Inc., a Delaware corporation, a Wholly-Owned Consolidated Subsidiary of the Company and 50% shareholder of Bidco. "US Holdco Pledge Agreement" means the Pledge Agreement to be executed and delivered by each of US Holdco #1 and US Holdco #2 in the form attached as Exhibit I-2 hereto. "Wholly-Owned Consolidated Subsidiary" means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Company. "Y2K Problem" means any significant risk that computer hardware, software or equipment containing embedded microchips essential to the business or operations of a Person will not, in the case of dates or time periods occurring after December 31, 1999, function at least as efficiently and reliably in all material respects as in the case of times or time periods occurring before January 1, 2000, including the making of accurate leap year calculations. "Yen" means the lawful currency of Japan. 1.02 Other Interpretive Provisions (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof", "herein", "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. 30 40 (c) (i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. (ii) The term "including" is not limiting and means "including without limitation." (iii) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including." (d) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such statute or regulation. (e) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (f) This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. Unless otherwise expressly provided, any reference to any action of the Administrative Agent or the Lenders by way of consent, approval or waiver shall be deemed modified by the phrase "in its/their sole discretion." (g) This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Administrative Agent, the Company and the other parties, and are the products of all parties. Accordingly, they shall not be construed against the Lenders or the Administrative Agent merely because of the Administrative Agent's or Lenders' involvement in their preparation. (h) Any test, threshold, item, limit or other measurement expressed in Dollars herein shall also mean and include the Dollar Equivalent of such amount from time to time should the test, threshold, item, limit or other measurement be used in respect of any item expressed in a currency other than Dollars. (i) To the extent that any provision of this Agreement relates to any currency of a state which is not a Participating Member State on the date of this Agreement, that provision shall take effect as though the reference to that currency were a reference to euro on the date on which that country becomes a Participating Member State. 1.03 Accounting Principles 31 41 (a) Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied. (b) References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Company. ARTICLE II THE CREDITS 2.01 Amounts and Terms of Commitment. (a) Term Loan Each Lender with a Term Loan Commitment severally agrees, on the terms and conditions set forth herein, to make loans to the Company (each such loan, a "Term Loan") on the Initial Funding Date, in an amount not to exceed such Lender's Term Loan Commitment as set forth on Schedule 2.01. Amounts borrowed as a Term Loan which are repaid or prepaid by the Company may not be reborrowed. (b) Sterling Acquisition Loan Each Lender with a Sterling Acquisition Loan Commitment severally agrees, on the terms and conditions set forth herein, to make loans to the Company (each such loan, a "Sterling Acquisition Loan") on the Business Day following the Initial Funding Date, in an amount not to exceed such Lender's Sterling Acquisition Loan Commitment as set forth on Schedule 2.01. Amounts borrowed as a Sterling Acquisition Loan which are repaid or prepaid by the Company may not be reborrowed. (c) The Revolving Credit (i) Subject to Section 2.01(d), each Revolving Lender severally agrees, on the terms and conditions set forth herein, to make loans to a Borrower (each such loan, a "Revolving Loan") from time to time on any Business Day during the period from the Initial Funding Date to the Revolving Loan Termination Date, in an aggregate amount not to exceed at any time outstanding the amount set forth on Schedule 2.01 (such amount, as the same may be increased pursuant to Section 2.01(c)(ii), reduced under Section 2.05 or 2.07 or reduced or increased as a result of one or more assignments under Section 12.08, such Revolving Lender's "Revolving Loan Commitment"); provided, however, that, after giving effect to any Borrowing of Revolving Loans, the Effective Amount of Revolving Loans, Swing Line Loans and L/C Obligations at such time shall not at any time exceed the Aggregate Revolving Loan Commitment; and provided further, that the Effective Amount of Revolving Loans of any Revolving Lender plus the participation of such Revolving Lender in the Effective Amount of all L/C Obligations and such Revolving Lender's Pro Rata 32 42 Revolving Share of the Effective Amount of Swing Line Loans shall not at any time exceed such Revolving Lender's Revolving Loan Commitment. Within the limits of each Revolving Lender's Commitment, and subject to the other terms and conditions hereof, a Borrower may borrow under this Section 2.01(c), prepay under Section 2.06 and reborrow under this Section 2.01(c). (ii) On and after the date upon which the Administrative Agent and any co-arrangers have notified the Company that they are satisfied with the initial syndication of the Commitments and Loans, the Company may, at its option at any time on a single occasion, seek to increase the Revolving Loan Commitment by up to $50,000,000 (after giving effect to which the Aggregate Revolving Loan Commitment shall not exceed an amount equal to $125,000,000 (provided, however, in the event that the Aggregate Revolving Loan Commitment has been increased on the PTI Funding Date pursuant to the PTI Revolver Increase Commitment, such amount shall not exceed $175,000,000 and provided, further, that each Revolving Lender hereby agrees to make the necessary adjustments or payments as determined by the Administrative Agent on the PTI Funding Date (including the wiring of funds to other Revolving Lenders) to properly reflect such Revolving Lender's Pro Rata Share of the outstanding Revolving Loans after taking into account the PTI Revolver Increase Commitment and any Revolving Loan borrowings on the PTI Funding Date) less the aggregate amount of reductions to the Revolving Loan Commitment effected on or prior to the date of such increase) upon at least 30 days (but not more than 45 days) written notice to the Administrative Agent (which notice the Administrative Agent shall promptly deliver to the Lenders), which notice shall specify the date upon which such increase is to occur and shall be delivered at a time when no Default or Event of Default has occurred and is continuing. The Company shall, after giving such notice, offer the increase in the Revolving Loan Commitment (A) (i) first on a pro-rata basis to the Lenders, which Lenders may in their individual sole discretion decline such offer, and (ii) then on a non pro-rata basis to Lenders and/or (B) to other lenders or entities constituting Eligible Assignees and otherwise reasonably acceptable to the Administrative Agent and the Company, provided that the minimum final allocated Revolving Loan Commitment of each such lender or other entity is equal to or in excess of $10,000,000 in the case of any new lender and $5,000,000 in the case of an existing Lender. No increase in the Revolving Loan Commitments shall become effective until the existing or new Lenders extending such incremental commitment amount shall have delivered to the Administrative Agent a writing in form reasonably satisfactory to the Administrative Agent pursuant to which such existing Lenders state the amount of their Revolving Loan Commitment increase and any such new Lenders state their Revolving Loan Commitment amount and agree to assume and accept the obligations and rights of a Lender hereunder and any such new and increasing Lenders agree to make a Revolving Loan such that the outstandings of such new Lender or increasing Lender constitute a proportionate amount of the aggregate outstanding Revolving Loans based on the Revolving Loan Commitment of such new or increasing Lender. Any Borrowing as a result of an increase to the Revolving Loan Commitment pursuant to this Section 2.01(c)(ii) shall be subject to the terms and conditions contained in this Agreement. (iii) (A) On and after the third anniversary of the Announcement Date, the Company may make a written request to the Administrative Agent, who shall 33 43 forward a copy of each such request to each of the Lenders, that the Revolving Loan Termination Date then in effect be extended to the date which is one year after such existing Revolving Loan Termination Date; provided, however, that the Borrower shall not be permitted to obtain more than one extension pursuant to this clause (iii). Such request shall be accompanied by a certificate of a Responsible Officer of the Company stating that no Default or Event of Default has occurred and is continuing. If, by the date (a "Response Date") which is 60 days after the date of such request, Lenders holding at least 85% of the Revolving Loan Commitments then outstanding agree thereto in writing (each such Lender, a "Continuing Lender"), the Revolving Loan Termination Date of each Continuing Lender shall be automatically extended to the first anniversary of the then existing Revolving Loan Termination Date, and the Revolving Loan Termination Date with respect to any non-Continuing Lender (a "Non-Continuing Lender") shall, subject to the following clause (B), remain the then existing Revolving Loan Termination Date. In the event that the Company has not obtained agreement to the requested extension from the requisite percentage of Lenders to permit an extension by the Response Date, the Revolving Loan Termination Date shall not be extended. If the Borrower obtains agreement from the requisite percentage of the Lenders during such 60 day period, the Revolving Loan Termination Date shall be extended as provided in the second preceding sentence. The Administrative Agent shall notify the Company and each Lender of the effectiveness of any such extension. No Lender shall be obligated to agree to any extension pursuant to this clause (iii), and the extension of the Revolving Loan Termination Date as to any Lender shall be in its sole discretion; provided, however, that as to any extension by a Lender pursuant to this Section 2.01(c)(iii), the definition of Revolving Loan Termination Date as to such Lender shall be construed so as to take into account the extension of such Lender's Revolving Loan Commitment. (B) In the case of a Non-Continuing Lender, the Company, after giving notice to the Administrative Agent and such Non-Continuing Lender, may request such Non-Continuing Lender to assign its entire Revolving Loan Commitment (and upon receipt of such notice such Non-Continuing Lender hereby agrees to take such action as reasonably requested by the Company to effect such assignment pursuant to Section 12.08) (i) to the Continuing Lenders, (x) first on a pro-rata basis, which the Continuing Lenders may in their individual sole discretion decline to accept such offer, and (y) then on a non pro-rata basis to Continuing Lenders and/or (ii) to other lenders or entities constituting Eligible Assignees and otherwise reasonably acceptable to the Administrative Agent and the Company, provided that any such new lender shall agree that its Revolving Loan Commitment will terminate on the date applicable to the Revolving Loan Commitment of the Continuing Lenders, and all then outstanding Obligations owing to such Non- Continuing Lender shall be repaid in full on the date of any such assignment. (d) Swing Line Loans 34 44 (i) Subject to the terms and conditions hereof, the Swing Line Lender agrees to make Swing Line Loans to the Company from time to time prior to the Swing Line Termination Date in an aggregate principal amount at any one time outstanding not to exceed $15,000,000 (the "Swing Line Loan Commitment"); provided, that after giving effect to any such Swing Line Loan, the Effective Amount of Revolving Loans, Swing Line Loans and L/C Obligations at such time would not exceed the Aggregate Revolving Loan Commitment at such time. Prior to the Swing Line Termination Date, the Company may use the Swing Line Commitment by borrowing, prepaying the Swing Line Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. (ii) The Company may borrow under the Swing Line Commitment on any Business Day after the Initial Funding Date but on or prior to the Swing Line Termination Date; provided, that the Company shall deliver to the Swing Line Lender a Notice of Borrowing signed by a Responsible Officer (which notice must be received by the Swing Line Lender prior to 1:00 p.m. (New York time)) with a copy to the Administrative Agent specifying the amount of the requested Swing Line Loan, which shall be in a minimum amount of $500,000 or a whole multiple of $100,000 in excess thereof. The proceeds of the Swing Line Loan will be made available by the Swing Line Lender to the Company in immediately available funds at the office of the Swing Line Lender by 2:00 p.m. (New York time) on the date of such notice. The Company may at any time and from time to time, prepay the Swing Line Loans, in whole or in part, without premium or penalty, by notifying the Swing Line Lender prior to 1:00 p.m. (New York time) on any Business Day of the date and amount of prepayment with a copy to the Administrative Agent. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. Partial prepayments shall be in an aggregate principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. (iii) The Swing Line Lender, at any time in its sole and absolute discretion, may on behalf of the Company (which hereby irrevocably directs the Swing Line Lender to so act on its behalf) notify the Administrative Agent to notify each Revolving Lender (including the Swing Line Lender) to make a Revolving Loan to the Company in a principal amount equal to such Lender's Pro Rata Revolving Share of the amount of such Swing Line Loan, and such Revolving Lender shall be obligated, pursuant to Section 2.01(c), to make Same Day Funds available to the Administrative Agent on the date such notice is given in an aggregate amount equal to or in excess of such Swing Line Loan, in which case such funds shall be applied by the Administrative Agent first to repay such Swing Line Loan and any remaining funds shall be made available to the Company in accordance with Section 2.01(c); provided, however, that such notice shall be deemed to have automatically been given upon the occurrence of an Event of Default under Section 10.01(g) or (h). Upon notice from the Administrative Agent, each Revolving Lender (other than the Swing Line Lender) will immediately transfer to the Administrative Agent, for transfer to the Swing Line Lender, in immediately available funds, an amount equal to such Revolving Lender's Pro Rata Revolving Share of the amount of such Swing Line Loan so repaid. So long as no notice has been delivered to the Swing Line Lender pursuant to Section 2.01(d)(iv)(ii) prior to the making of each relevant Swing Line Loan, each Revolving Lender's obligation to transfer the amount of such Revolving Loan to the Administrative Agent shall be absolute and 35 45 unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set- off, counterclaim, recoupment, defense or other right which such Revolving Lender or any other Person may have against the Swing Line Lender, (ii) the occurrence or continuance of a Default or an Event of Default or the termination of the Revolving Loan Commitments, (iii) any adverse change in the condition (financial or otherwise) of the Company or any other Person, (iv) any breach of this Agreement by the Company or any other Person or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. (iv) Notwithstanding anything herein to the contrary, the Swing Line Lender (i) shall not be obligated to make any Swing Line Loan if the conditions set forth in Article V have not been satisfied and (ii) shall not make any requested Swing Line Loan if, prior to 11:00 a.m. (New York time) on the date two (2) days preceding the date of such requested Swing Line Loan, it has received a written notice from the Administrative Agent or any Revolving Lender directing it not to make further Swing Line Loans because one or more of the conditions specified in Article V are not then satisfied. (v) If prior to the making of a Revolving Loan required to be made by Section 2.01(d)(iii) an Event of Default described in Section 10.01(g) or (h) shall have occurred, each Revolving Lender will, on the date such Revolving Loan was to have been made pursuant to the notice described in Section 2.01(d)(iii), purchase an undivided participating interest in the Effective Amount of Swing Line Loans in an amount equal to its Pro Rata Revolving Share of the Effective Amount of Swing Line Loans then outstanding. Each Revolving Lender will immediately transfer to the Administrative Agent for the benefit of the Swing Line Lender, in immediately available funds, the amount of its participation. (vi) Whenever, at any time after a Revolving Lender has purchased a participating interest in a Swing Line Loan, the Swing Line Lender receives any payment on account thereof, the Swing Line Lender will distribute to the Administrative Agent for delivery to such Revolving Lender the amount of its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Revolving Lender's participating interest was outstanding and funded); provided, however, that in the event that such payment received by the Swing Line Lender is required to be returned, such Revolving Lender will return to the Administrative Agent for delivery to the Swing Line Lender any portion thereof previously distributed by the Swing Line Lender to it. (vii) So long as no notice has been delivered to the Swing Line Lender pursuant to Section 2.01(d)(iv)(ii) prior to the making of each relevant Swing Line Loan, each Revolving Lender's obligation to make the Revolving Loans referred to in Section 2.01(d)(iii) and to purchase participating interests pursuant to Section 2.01(d)(v) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (I) any set-off, counterclaim, recoupment, defense or other right which such Revolving Lender or a Borrower may have against the Swing Line Lender, a Borrower or any other Person for any reason whatsoever, (II) the occurrence or continuance of a Default or an Event of Default, (III) any adverse change in the condition (financial or otherwise) of 36 46 the Company or any Subsidiary Guarantor, (IV) any breach of this Agreement or any other Loan Document by the Company or any of its Subsidiaries or any other Lender or (V) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. (e) PTI Term Loan Each Lender with a PTI Term Loan Commitment severally agrees, on the terms and conditions set forth herein, to make loans to the Company (each such loan, a "PTI Term Loan") on the PTI Funding Date, in an amount not to exceed such Lender's PTI Term Loan Commitment as set forth on Schedule 2.01. Amounts borrowed as a PTI Term Loan which are repaid or prepaid by the Company may not be reborrowed. 2.02 Loan Accounts. (a) The Loans made by each Lender and the Letters of Credit Issued by the Issuing Bank shall be evidenced by one or more accounts or records maintained by such Lender or Issuing Bank, as the case may be, in the ordinary course of business. The accounts or records maintained by the Administrative Agent, the Issuing Bank and each Lender shall be prima facie evidence of the amount of the Loans made by the Lenders to a Borrower and the Letters of Credit Issued by the Issuing Bank for the account of the Company, and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of a Borrower hereunder to pay any amount owing with respect to the Loans or any Letter of Credit. (b) Upon the request of any Lender made through the Administrative Agent, the Loans made by such Lender may be evidenced by one or more Notes, instead of or in addition to loan accounts. Each such Lender may record on the schedules annexed to its Note(s) the date, amount and maturity of each Loan made by it and the amount of each payment of principal made by the applicable Borrower with respect thereto. Each such Lender is irrevocably authorized by each Borrower to make such recordations on its Note(s) and each Lender's record shall be deemed prima facie correct; provided, however, that the failure of a Lender to make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations any Borrower hereunder or under any such Note to such Lender. 2.03 Procedure for Borrowing. (a) Each Borrowing (other than a Borrowing of Swing Line Loans or a L/C Borrowing) shall be made upon a Borrower's irrevocable written notice delivered to the Administrative Agent in the form of a Notice of Borrowing (which notice must be received by the Administrative Agent prior to (i) 11:30 a.m. (New York time) three Business Days prior to the requested Borrowing Date, in the case of Offshore Rate Loans denominated in Dollars, (ii) 1:00 p.m. (New York time) four Business Days prior to the requested Borrowing Date, in the case of Offshore Rate Loans in an Offshore Currency and (iii) 11:30 a.m. (New York time) on the date of the requested Borrowing, in the case of Base Rate Loans, specifying: 37 47 (i) the amount of the Borrowing, which shall be in an aggregate minimum amount of $1,000,000, or any multiple of $100,000 in excess thereof, in the case of Base Rate Loans, and $2,00,000, or any multiple of $100,000 in excess thereof, in the case of Offshore Rate Loans; (ii) the requested Borrowing Date, which shall be a Business Day; (iii) whether such Loan shall be a Revolving Loan, a Term Loan, PTI Term Loan or a Sterling Acquisition Loan; (iv) the Type of Loans comprising the Borrowing; (v) if a Revolving Loan comprised of Offshore Currency Loans, the Applicable Currency; (vi) if the Loan then requested is to be an Offshore Rate Loan, the duration of the Interest Period applicable to such Loans included in such notice, provided, however, that in the event the Notice of Borrowing fails to specify the duration of the Interest Period for any Borrowing comprised of Offshore Rate Loans, such Interest Period shall be three months; and (vii) if a Revolving Loan, the identity of the Borrower. (b) Upon receipt of the Notice of Borrowing, the Administrative Agent will promptly notify each Lender thereof and of the amount of such Lender's Pro Rata Share of the related Borrowing. In the case of a Borrowing of Revolving Loans comprised of Offshore Currency Loans, such notice will provide the amount of each Lender's Pro Rata Revolving Share of such Borrowing, and the Administrative Agent will, upon the determination of the Dollar Equivalent amount of such Borrowing as specified in the Notice of Borrowing, promptly notify each Lender of the exact Dollar Equivalent amount of such Lender's Pro Rata Revolving Share of such Borrowing. The Dollar Equivalent amount of any Borrowing in an Offshore Currency will be determined by the Administrative Agent for such Borrowing on the Computation Date therefor in accordance with Section 2.15(a). (c) Each Lender will make the amount of its Pro Rata Share of each Borrowing available to the Administrative Agent for the account of the requesting Borrower at the Administrative Agent's Payment Office on the Borrowing Date requested in Same Day Funds and in the requested currency (i) in the case of a Borrowing comprised of Loans in Dollars, by 2:00 p.m. (New York time) and (ii) in the case of a Borrowing comprised of Offshore Currency Loans, by such time as the Administrative Agent may specify. The proceeds of all such Loans will then be made available to the requesting Borrower by the Administrative Agent at such office by crediting the account of the requesting Borrower on the books of NationsBank with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. 38 48 (d) After giving effect to any Borrowing, unless the Administrative Agent shall otherwise consent, there may not be more than six (6) different Interest Periods in effect with respect to Offshore Rate Loans. (e) After the occurrence of an Event of Default (other than a Relevant Event of Default) during the Certain Funds Period, the Company hereby requests that any Sterling Acquisition Loans being made to facilitate the purchase of Target Shares be funded (on behalf of the Company) as a loan to the Company directly to the receiving agent for the Offer pursuant to wire transfer information as provided by the Company and subject to (i) compliance with all laws and (ii) the satisfaction of any other borrowing conditions by the Company hereunder. 2.04 Conversion and Continuation Elections for Revolving Loans (a) A Borrower may, upon irrevocable written notice to the Administrative Agent in accordance with Section 2.04(b): (i) elect, as of any Business Day, in the case of Base Rate Loans, or as of the last day of the applicable Interest Period, in the case of Offshore Rate Loans (other than Sterling Acquisition Loans), to convert any such Loans (or any part thereof in an aggregate minimum amount of $1,000,000, or any multiple of $100,000 in excess thereof, in the case of Base Rate Loans, and $2,000,000, or any multiple of $100,000 in excess thereof, in the case of Offshore Rate Loans) into Loans of any other Type; or (ii) elect as of the last day of the applicable Interest Period with respect of any Offshore Rate Loan, to continue any Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than the Dollar Equivalent of $2,000,000, or that is in an integral multiple of the Dollar Equivalent of $100,000 in excess thereof) as Loans of the same Type; provided, that if at any time the aggregate amount of Offshore Rate Loans in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than $2,000,000, such Offshore Rate Loans shall automatically convert into Base Rate Loans as of the last day of the Interest Period applicable thereto, and on and after such date the right of the Company to continue such Revolving Loans as, and convert such Revolving Loans into, Offshore Rate Loans shall terminate. (b) A Borrower shall deliver a Notice of Conversion/Continuation to be received by the Administrative Agent not later than 11:00 a.m. (New York time) at least (i) three Business Days in advance of the Conversion/Continuation Date, if the Loans (x) are to be converted into or continued as Offshore Rate Loans denominated in Dollars or (y) are Sterling Acquisition Loans, (ii) four Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as Offshore Rate Loans in an Offshore Currency and (iii) on the Conversion/Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (i) the proposed Conversion/Continuation Date; 39 49 (ii) the aggregate amount of Loans to be converted or continued; (iii) the Type of Loans resulting from the proposed conversion or continuation; (iv) the Applicable Currency; (v) other than in the case of conversions into Base Rate Loans, the duration of the requested Interest Period; and (vi) the identity of the Borrower. (c) If upon the expiration of any Interest Period applicable to Offshore Rate Loans (other than Offshore Currency Loans), the relevant Borrower has failed to select a new Interest Period to be applicable to such Offshore Rate Loans by the time specified in Section 2.04(b), or if any Default or Event of Default then exists, such Borrower shall be deemed to have elected to convert such Offshore Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period. If the Company has failed to select a new Interest Period to be applicable to Sterling Acquisition Loans by the time specified in Section 2.04(b), or if any Default or Event of Default then exists, the Company shall be deemed to have elected to continue such Sterling Acquisition Loan on the basis of a one month Interest Period. If the relevant Borrower has failed to select a new Interest Period to be applicable to Offshore Currency Loans (other than Sterling Acquisition Loans) prior to the fourth Business Day in advance of the expiration date of the current Interest Period applicable thereto as provided in Section 2.04(b), or if any Default or Event of Default shall then exist, such Borrower shall be deemed to have elected to continue such Offshore Currency Loans on the basis of a one month Interest Period. (d) The Administrative Agent will promptly notify each Lender of its receipt of a Notice of Conversion/Continuation, or, if no timely notice is provided by the relevant Borrower, the Administrative Agent will promptly notify each Lender of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans, with respect to which the notice was given, held by each Lender. (e) Unless the Majority Lenders otherwise consent, during the existence of a Default or Event of Default, a Borrower may not elect to have (i) a Loan converted into or continued as an Offshore Rate Loan or (ii) an Offshore Currency Loan continued on the basis of an Interest Period exceeding one month. (f) After giving effect to any conversion or continuation of Loans, unless the Administrative Agent shall otherwise consent, there may not be more than six (6) different Interest Periods in effect with respect to Offshore Rate Loans. (g) Notwithstanding anything else to the contrary in this Agreement, Swing Line Loans may only bear interest at the Base Rate or the Quoted Rate. 40 50 (h) Upon the delivery of an Election to Participate, each Eligible Borrower hereby appoints the Company as its agent, and authorizes the Company to deliver any Notice of Borrowing or Notice of Conversion/Continuation to the Administrative Agent on behalf of such Eligible Borrower. 2.05 Voluntary Termination or Reduction of Commitments (a) The Company may, upon not less than three Business Days' prior notice to the Administrative Agent (which notice the Administrative Agent shall promptly deliver to Lenders), terminate the Commitments of all Lenders ratably, or permanently reduce the Commitments of all Lenders ratably by an aggregate minimum amount of the Dollar Equivalent of $5,000,000 or any multiple of the Dollar Equivalent of $1,000,000 in excess thereof; unless, after giving effect thereto and to any prepayments of Loans plus Swing Line Loans plus L/C Obligations made on the effective date thereof, (a) the Effective Amount of all Revolving Loans, Swing Line Loans and L/C Obligations would exceed the amount of the combined Revolving Loan Commitments of all Revolving Lenders then in effect, (b) the Effective Amount of all L/C Obligations would exceed the amount of the L/C Commitment then in effect or (c) the Effective Amount of all Swing Line Loans would exceed the Swing Line Loan Commitment then in effect. Once reduced in accordance with this Section, the Commitments may not be increased. Any reduction of the Commitments shall be applied to each Lender according to its Pro Rata Share. All accrued commitment and letter of credit fees and interest, if applicable, to, but not including, the effective date of any reduction or termination of the Commitments shall be paid on the effective date of such reduction or termination. (b) At no time shall the Swing Line Commitment exceed the Aggregate Revolving Loan Commitment, and any reduction of the Aggregate Revolving Loan Commitment which reduces the Aggregate Revolving Loan Commitment below the then-current amount of the Swing Line Commitment shall result in an automatic corresponding reduction of the Swing Line Commitment to the amount of the Aggregate Revolving Loan Commitment, as so reduced, without any action on the part of the Swing Line Lender. Any reduction of the Aggregate Revolving Loan Commitment below the then-current amount of the Swing Line Commitment shall result in an automatic corresponding reduction of the Swing Line Commitment to the amount of the Aggregate Revolving Loan Commitment as so reduced, without any action on the part of the Swing Line Lender. 2.06 Optional Prepayments of Loans Subject to Section 4.04, any Borrower, may, at any time or from time to time, upon irrevocable notice to the Administrative Agent, prepay (but not permanently reduce the Revolving Loan Commitments to the extent of prepayments on the Revolving Loans unless otherwise expressly requested in writing by the Company) the Loans in whole or in part, in minimum amounts of $1,000,000, or any multiple of $100,000 in excess thereof, in the case of Base Rate Loans, and the Dollar Equivalent of $2,000,000, or any multiple of the Dollar Equivalent of $100,000 in excess thereof (or such other amount necessary to repay any Offshore Currency Loan in full), in the case of Offshore Rate Loans. The relevant Borrower may designate whether such prepayments shall be applied to prepay Revolving Loans, Term Loans, PTI Term Loans or Sterling Acquisition Loans provided that such prepayments shall be applied ratably among the Lenders holding such Loans. A 41 51 Borrower shall deliver a notice of prepayment in accordance with Section 12.02 to be received by the Administrative Agent not later than 11:00 a.m. (New York time) (a) at least three Business Days in advance of the prepayment date if the Loans to be prepaid are Offshore Currency Loans, (b) at least two Business Days in advance of the prepayment date if the Loans to be prepaid are Offshore Rate Loans in Dollars, and (iii) on the date of the prepayment date if the Loans to be prepaid are Base Rate Loans. Such notice of prepayment shall specify the date and amount of such prepayment, the Loans being prepaid and whether such prepayment is of Base Rate Loans or Offshore Rate Loans, or any combination thereof, the Applicable Currency and the identity of the Borrower. The Administrative Agent will promptly notify each Lender of its receipt of any such notice, and of such Lender's Pro Rata Share of such prepayment. If such notice is given by a Borrower, such Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and any amounts required pursuant to Section 4.04. 2.07 Termination of Commitments; Mandatory Prepayments of Loans; Mandatory Commitment Reductions (a) The Aggregate Commitment shall be terminated and reduced to zero in the event that: (i) the Offer is not posted on or prior to the thirtieth (30th) day following the Announcement Date; (ii) the Company and/or Bidco withdraws the Offer or the Offer lapses; (iii) the Offer has not gone wholly unconditional within six (6) calendar months after the Announcement Date; (iv) the Initial Funding Date has not occurred within sixteen (16) days after the Offer has gone wholly unconditional; or (v) the consent relating to the Existing Credit Agreement delivered pursuant to Section 5.01(h) fails for any reason to remain in full force and effect, or is not extended before December 31, 1998 to April 30, 1999 or a date thereafter. (b) Subject to Section 4.04, if on any date the Effective Amount of Revolving Loans, Swing Line Loans and L/C Obligations exceeds the Aggregate Revolving Loan Commitment, the Company shall immediately, and without notice or demand, prepay the outstanding principal amount of the Swing Line Loans, Revolving Loans and L/C Advances by an amount equal to the applicable excess and the Lenders shall apply such amounts first to repay Base Rate Loans and thereafter to repay Offshore Rate Loans. (c) If on any date the Effective Amount of L/C Obligations exceeds the L/C Commitment, the Company shall Cash Collateralize on such date the outstanding Letters of Credit in an amount equal to the excess of the maximum amount then available to be drawn under all outstanding Letters of Credit over the L/C Commitment. Subject to Section 4.04, if on any date 42 52 after giving effect to any Cash Collateralization made on such date pursuant to the preceding sentence, the Effective Amount of Revolving Loans, Swing Line Loans and L/C Obligations exceeds the Aggregate Revolving Loan Commitment, the Company shall immediately, and without notice or demand, prepay the outstanding principal amount of the Swing Line Loans, Revolving Loans and L/C Advances by an amount equal to the applicable excess. Each Borrower, effective as of the Initial Funding Date, hereby grants to the Administrative Agent, for the benefit of the Administrative Agent, the Issuing Bank and the Lenders, a security interest in all cash and deposit account balances subject to Cash Collateralization. Cash collateral subject to Cash Collateralization shall be maintained in blocked deposit accounts at NationsBank. NationsBank shall invest any and all available funds deposited in such deposit account, promptly upon the relevant funds becoming available, in securities issued or fully guaranteed or insured by the United States Government or any agency thereof backed by the full faith and credit of the United States having maturities of no greater than three months from the date of acquisition thereof (collectively, "Government Obligations"). Each Borrower hereby acknowledges and agrees that NationsBank shall not have any liability with respect to, and each Borrower hereby indemnifies NationsBank against, any loss resulting from the acquisition of the Government Obligations and NationsBank shall not have any obligation to monitor the trading activity of any such Governmental Obligations on and after the acquisition thereof for the purpose of obtaining the highest possible return with respect thereto, NationsBank's responsibility being limited to acquiring such Governmental Obligations. (d) If on any Computation Date the Administrative Agent shall have determined that the aggregate Dollar Equivalent principal amount of all Revolving Loans and Swing Line Loans then outstanding and the aggregate amount of outstanding L/C Obligations exceeds the Aggregate Revolving Loan Commitment, due to a change in applicable rates of exchange between Dollars and Offshore Currencies, then the Administrative Agent shall give notice to the Company that a prepayment is required under Section 2.07(b), and the Company agrees thereupon to make prepayments of Revolving Loans, subject to Section 4.04, such that, after giving effect to such prepayment, the aggregate Dollar Equivalent amount of all Revolving Loans, Swing Line Loans and aggregate outstanding L/C Obligations does not exceed the Aggregate Revolving Loan Commitment. (e) The Company shall prepay Loans in an amount equal to 100% of the insurance proceeds received by the Company or any Subsidiary following a casualty involving such Person's Property, to the extent not applied (or intended to be applied) within 90 days after the consummation or receipt thereof, as applicable, to the purchase of replacement assets or repair of damaged assets. Such prepayment shall be made on the 90th day after receipt of such insurance proceeds and the amount of such prepayment shall be applied (i) first, to prepay Term Loans, PTI Term Loans and Sterling Acquisition Loans on a ratable basis among the then outstanding Term Loans, PTI Term Loans and Sterling Acquisition Loans (based on the Dollar Equivalent thereof on the date of such prepayment), applied on a ratable basis among all remaining payments in respect of each such Loan, (ii) second, to prepay the then outstanding Swing Line Loans (without a corresponding reduction in the Swing Line Loan Commitment), and (iii) third, to prepay the then outstanding Revolving Loans (without a corresponding reduction in the Aggregate Revolving Loan Commitment). Such proceeds shall be applied first, to the extent possible, to prepay Base Rate Loans and then to prepay Offshore Rate Loans. The Company shall use its commercially reasonable efforts to notify the Administrative Agent of the amount of any required prepayment at least three (3) Business Days before it is made. 43 53 (f) The Company shall prepay Loans in an amount equal to 100% of the sum of the Net Proceeds realized upon all Asset Dispositions (other than an Asset Disposition pursuant to Section 8.05(ii)(y)) made by the Company or any Subsidiary, aggregating in excess of $3,000,000 during any calendar year, within one hundred eighty (180) Business Days after the date of such Asset Disposition or, if later, the date of the receipt of the proceeds therefrom to the extent not applied (or committed to be applied) within such period to the purchase of other assets that are not classified as current assets under GAAP and are used or useful in the business of the Company and its Subsidiaries. The amount of such prepayment shall be applied (i) first, to prepay Term Loans, PTI Term Loans and Sterling Acquisition Loans on a ratable basis among the then outstanding Term Loans, PTI Term Loans and Sterling Acquisition Loans (based on the Dollar Equivalent thereof on the date of such prepayment), applied on a ratable basis among all remaining payments in respect of each such Loan, (ii) second, to prepay the then outstanding Swing Line Loans (without a corresponding reduction in the Swing Line Loan Commitment), and (iii) third, to prepay the then outstanding Revolving Loans (without a corresponding reduction in the Aggregate Revolving Loan Commitment). Such proceeds shall be applied first, to the extent possible, to prepay Base Rate Loans and then to prepay Offshore Rate Loans. The Company shall use its commercially reasonable efforts to notify the Administrative Agent of the amount of any required prepayment at least three (3) Business Days before it is made. (g) The relevant Borrower shall pay, together with each prepayment under this Section 2.07, accrued interest on the amount prepaid through the date of such prepayment. (h) The Aggregate Term Loan Commitment and the Aggregate Sterling Acquisition Loan Commitment, and the Term Loan Commitment and Sterling Acquisition Loan Commitment of each Lender, shall be reduced on the Initial Funding Date or the Business Day occurring after the Initial Funding Date (after giving effect to any Term Loan and/or Sterling Acquisition Loan, as the case may be, made on the Initial Funding Date) in an amount equal to the unutilized Aggregate Term Loan Commitment and the unutilized Aggregate Sterling Acquisition Loan Commitment, and the unutilized Term Loan Commitment and unutilized Sterling Acquisition Loan Commitment of each Lender, as of such date. (i) The Aggregate PTI Term Loan Commitment and the PTI Revolver Increase Commitment shall be terminated and reduced to zero in the event that: (I) the PTI Merger has not been consummated on or prior to September 30, 1999; and (II) the PTI Funding Date has not occurred on or prior to September 30, 1999. (j) The Aggregate PTI Term Loan Commitment and the PTI Term Loan Commitment of each Lender shall be reduced on the PTI Funding Date (after giving effect to any PTI Term Loan made on the PTI Funding Date) in an amount equal to the unutilized Aggregate PTI Term Loan Commitment and the unutilized PTI Term Loan Commitment of each Lender, as of such date. 44 54 (k) The Company shall prepay Loans in an amount equal to 100% of the sum of the net proceeds (meaning gross proceeds less reasonable transaction expenses) realized upon the issuance of any Take Out Debt substantially simultaneously with the receipt of the proceeds therefrom. The amount of such prepayment shall be applied (i) first, to prepay Term Loans and PTI Term Loans on a ratable basis among the then outstanding Term Loans and PTI Term Loans, applied on a ratable basis among all remaining payments in respect of each such Loan, (ii) second, to prepay the then outstanding Swing Line Loans (without a corresponding reduction in the Swing Line Loan Commitment), and (iii) third, to prepay the then outstanding Revolving Loans (without a corresponding reduction in the Aggregate Revolving Loan Commitment). Such proceeds shall be applied first, to the extent possible, to prepay Base Rate Loans and then to prepay Offshore Rate Loans. The Company shall use its commercially reasonable efforts to notify the Administrative Agent of the amount of any required prepayment at least three (3) Business Days before it is made. 2.08 Repayment of Loans (a) Each Borrower shall repay to the Revolving Lenders on the Revolving Loan Termination Date the aggregate principal amount of Revolving Loans of such Borrower outstanding on such date. (b) The Company shall repay Swing Line Loans (other than with proceeds of a Swing Line Loan) in full on the thirtieth (30th) day following the incurrence of any such Swing Line Loan. (c) The Company shall repay to the Swing Line Lender on the Swing Line Termination Date the aggregate principal amount of Swing Line Loans outstanding on such date. (d) The Company shall repay the Term Loans, PTI Term Loans and Sterling Acquisition Loans on each date and in the amount set forth on Schedule 2.08(d) (each a "Principal Payment Date"). 2.09 Interest (a) Each (i) Loan (other than a Sterling Acquisition Loan or a Swing Line Loan) shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to the Offshore Rate or the Base Rate, as the case may be (and subject to the Company's right to convert to other Types of Loans under Section 2.04), plus the Applicable Margin, (ii) Sterling Acquisition Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to the Offshore Rate, plus the Applicable Margin and (iii) Swing Line Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to the Base Rate, plus the Applicable Margin for Revolving Loans maintained as Base Rate Loans or the Quoted Rate. (b) Interest on each Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of the conversion of an Offshore Rate Loan into a Base Rate Loan, on the date of any prepayment of any Loans under Section 2.06 or 2.07 for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, during the existence 45 55 of any Event of Default, interest shall be paid on demand of the Administrative Agent at the request or with the consent of the Majority Lenders. (c) Notwithstanding Section 2.09(a), while any Event of Default exists or after acceleration, each Borrower shall pay interest or additional fees (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding Obligations, at a rate per annum which is determined by adding 2% per annum to the Applicable Margin or rate then in effect for such Obligations; provided, however, that, on and after the expiration of any Interest Period applicable to any Offshore Rate Loan outstanding on the date of occurrence of such Event of Default or acceleration, the principal amount of such Offshore Rate Loan shall, during the continuation of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Base Rate plus the Applicable Margin plus 2%. (d) Anything herein to the contrary notwithstanding, the obligations of each Borrower to any Lender hereunder shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by such Lender would be contrary to the provisions of any law applicable to such Lender limiting the highest rate of interest that may be lawfully contracted for, charged or received by such Lender, and in such event each Borrower shall pay such Lender interest at the highest rate permitted by applicable law. 2.10 Fees In addition to certain fees described in Section 3.08: (a) Agency Fees The Company shall pay the fees to the Administrative Agent for the Administrative Agent's own account, as required by the letter agreements (as amended from time to time, collectively, the "Fee Letter") between the Company and the Administrative Agent, dated as of October 16, 1998 and March 23, 1999. (b) Revolving Loan Commitment Fee The Company shall pay to the Administrative Agent for the account of each Revolving Lender a commitment fee ("Revolving Loan Commitment Fee") on the actual daily unused portion of such Revolving Lender's Revolving Loan Commitment computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the daily utilization for that quarter as calculated by the Administrative Agent, equal to (x) for the period from and including the Announcement Date and to but excluding the sixtieth (60th) day following the Announcement Date, 0.20% per annum and (y) thereafter, the Applicable Margin per annum applicable to the Commitment Fee. For purposes of calculating utilization under this clause (b), the Revolving Loan Commitments shall be deemed used to the extent of the Effective Amount of Revolving Loans then outstanding and the Effective Amount of all L/C Obligations then outstanding. Such commitment fee shall accrue from the Announcement Date to the Revolving Loan Termination Date and shall be 46 56 due and payable quarterly in arrears on the last Business Day of each March, June, September and December through the Revolving Loan Termination Date, with the final payment to be made on the Revolving Loan Termination Date. The commitment fees provided in this clause (b) shall accrue at all times after the Announcement Date, including at any time during which one or more conditions in Article V are not met. Notwithstanding anything herein to the contrary, for purposes of the PTI Revolver Increase Commitment amount, the Company shall pay to the Administrative Agent for the account of each Revolving Lender a commitment fee equal to 0.20% per annum on the PTI Revolver Increase Commitment for the period from and including the PTI Effective Date and to but excluding the PTI Funding Date (provided, however, in the event that the PTI Funding Date has not occurred on or before July 31, 1999, such commitment fee shall equal the Applicable Margin per annum applicable to the Commitment Fee for the period on and including August 1, 1999 to and excluding the PTI Funding Date). (c) Term Loan Commitment Fee The Company shall pay to the Administrative Agent for the account of each Lender with a Term Loan Commitment a commitment fee ("Term Loan Commitment Fee") on the actual daily unused portion of such Lender's Term Loan Commitment computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the daily utilization for that quarter as calculated by the Administrative Agent, equal to (x) for the period from and including the Announcement Date and to but excluding the sixtieth (60th) day following the Announcement Date, 0.20% per annum and (y) thereafter, the Applicable Margin per annum applicable to the Commitment Fee. For purposes of calculating utilization under this clause (c), the Term Loan Commitments shall be deemed used to the extent of the Effective Amount of Term Loans then outstanding. Such Term Loan Commitment Fee shall accrue from the Announcement Date to the Initial Funding Date and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December through the Initial Funding Date, with the final payment to be made on the Initial Funding Date; provided, that in connection with any reduction or termination of Term Loan Commitments, as the case may be, under Section 2.05 or 2.07(a), the accrued Term Loan Commitment Fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to such quarterly payment date. The Term Loan Commitment Fee shall accrue at all times after the above-mentioned commencement date until the Initial Funding Date. (d) Sterling Acquisition Loan Commitment Fee The Company shall pay to the Administrative Agent for the account of each Lender with a Sterling Acquisition Loan Commitment a commitment fee ("Sterling Acquisition Loan Commitment Fee") on the actual daily unused portion of such Lender's Sterling Acquisition Loan Commitment computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the daily utilization for that quarter as calculated by the Administrative Agent, equal to (x) for the period from and including the Announcement Date and to but excluding the sixtieth (60th) day following the Announcement Date, 0.20% per annum and (y) thereafter, the Applicable Margin per annum applicable to the Commitment Fee. For purposes of calculating utilization under this clause (d), the Sterling Acquisition Loan Commitments shall be deemed used 47 57 to the extent of the Effective Amount of Sterling Acquisition Loans then outstanding. Such Sterling Acquisition Loan Commitment Fee shall be paid in Dollars and shall accrue from the Announcement Date to the Business Day following the Initial Funding Date and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December through the Business Day following the Initial Funding Date with the final payment to be made on the Squeeze Out Date; provided, that in connection with any reduction or termination of Sterling Acquisition Loan Commitments, as the case may be, under Section 2.05 or 2.07(a), the accrued Sterling Acquisition Loan Commitment Fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to such quarterly payment date. The Sterling Acquisition Loan Commitment Fee shall accrue at all times after the above-mentioned commencement date until the Business Day following the Initial Funding Date. (e) PTI Term Loan Commitment Fee The Company shall pay to the Administrative Agent for the account of each Lender with a PTI Term Loan Commitment a commitment fee ("PTI Term Loan Commitment Fee") on the actual daily unused portion of such Lender's PTI Term Loan Commitment computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the daily utilization for that quarter as calculated by the Administrative Agent, equal to 0.20% per annum for the period from and including the PTI Effective Date and to but excluding the PTI Funding Date; provided, however, in the event that the PTI Funding Date has not occurred on or before July 31, 1999, such commitment fee shall equal the Applicable Margin per annum applicable to the Commitment Fee for the period on and including August 1, 1999 to and excluding the PTI Funding Date. For purposes of calculating utilization under this clause (e), the PTI Term Loan Commitments shall be deemed used to the extent of the Effective Amount of PTI Term Loans then outstanding. Such PTI Term Loan Commitment Fee shall accrue from the PTI Effective Date to but excluding the PTI Funding Date and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December through the day preceding the PTI Funding Date, with the final payment to be made on the PTI Funding Date; provided, that in connection with any reduction or termination of PTI Term Loan Commitments, as the case may be, under Section 2.05 or 2.07(i), the accrued PTI Term Loan Commitment Fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to such quarterly payment date. The PTI Term Loan Commitment Fee shall accrue at all times after the above-mentioned commencement date until the PTI Funding Date. (f) Amendment Fee. The Company shall pay to the Administrative Agent for the account of each consenting Lender party hereto immediately prior to the effectiveness of this Agreement an amendment fee ("Amendment Fee") in an amount equal to $5,000 for each such consenting Lender party to the First Amended and Restated Credit Agreement on the PTI Effective Date. 2.11 Computation of Fees and Interest 48 58 (a) All computations of interest for Base Rate Loans when the Base Rate is determined by NationsBank's "reference rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) Each determination of an interest rate or a Dollar Equivalent amount by the Administrative Agent shall be conclusive and binding on each Borrower and the Lenders in the absence of manifest error. The Administrative Agent will, at the request of a Borrower or any Lender, deliver to such Borrower or such Lender, as the case may be, a statement showing the quotations used by the Administrative Agent in determining any interest rate and the resulting interest rate or any Dollar Equivalent Amount. (c) Without prejudice and in addition to any method of conversion or rounding prescribed by any EMU Legislation, any amount translated from a national currency unit to a euro unit under this Agreement (or under any EMU Legislation) may be rounded up or down by the Administrative Agent acting reasonably. 2.12 Payments by a Borrower (a) All payments to be made by a Borrower shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by a Borrower shall be made to the Administrative Agent for the account of the Lenders at the Administrative Agent's Payment Office, and, with respect to principal of, interest on, and any other amounts relating to, any Offshore Currency Loan, shall be made in the Offshore Currency in which such Loan is denominated or payable, and, with respect to all other amounts payable hereunder, shall be made in Dollars. Such payments shall be made in Same Day Funds, and (i) in the case of Offshore Currency payments, no later than such time on the dates specified herein as may be reasonably determined by the Administrative Agent to be necessary for such payment to be credited on such date in accordance with normal lending procedures in the place of payment, and (ii) in the case of any Dollar payments, no later than 12:00 noon (New York time) on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Pro Rata Share (or other applicable share as expressly provided herein) of such principal, interest, fees or other amounts, in like funds as received. Any payment which is received by the Administrative Agent later than 12:00 noon (New York time) in the case of Dollar payments, or later than the time specified by the Administrative Agent as provided in clause (i) above (in the case of Offshore Currency payments), shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. 49 59 (c) Unless the Administrative Agent receives notice from the Company prior to the date on which any payment is due to the Lenders that a Borrower will not make such payment in full as and when required, the Administrative Agent may assume that such Borrower has made such payment in full to the Administrative Agent on such date in Same Day Funds and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent such Borrower has not made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent on demand such amount distributed to such Lender, together with interest thereon at the Federal Funds Rate or, in the case of a payment in an Offshore Currency, the Overnight Rate, for each day from the date such amount is distributed to such Lender until the date repaid. 2.13 Payments by the Lenders to the Administrative Agent (a) Unless the Administrative Agent receives notice from a Lender at least one Business Day prior to the date of any Borrowing, that such Lender will not make available as and when required hereunder to the Administrative Agent for the account of the relevant Borrower the amount of that Lender's Pro Rata Share of such Borrowing, the Administrative Agent may assume that each Lender has made such amount available to the Administrative Agent in Same Day Funds on the relevant Borrowing Date and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, make available to the relevant Borrower on such date a corresponding amount. If and to the extent any Lender shall not have made its full amount available to the Administrative Agent in Same Day Funds and the Administrative Agent in such circumstances has made available to the Company such amount, that Lender shall on the Business Day following such Borrowing Date make such amount available to the Administrative Agent, together with interest at the Federal Funds Rate or, in the case of any Borrowing consisting of Offshore Currency Loans, the Overnight Rate, for each day during such period. A notice of the Administrative Agent submitted to any Lender with respect to amounts owing under this Section 2.13(a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Administrative Agent shall constitute such Lender's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Administrative Agent on the Business Day following the relevant Borrowing Date, the Administrative Agent will notify the relevant Borrower of such failure to fund and, upon demand by the Administrative Agent, the relevant Borrower shall pay such amount to the Administrative Agent for the Administrative Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. (b) The failure of any Lender to make any Loan on any Borrowing Date shall not relieve any other Lender of any obligation hereunder to make a Loan on such Borrowing Date, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on any Borrowing Date. 2.14 Sharing of Payments, Etc. 50 60 If, other than as expressly provided elsewhere herein, any Lender shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its ratable share (or other share contemplated hereunder), such Lender shall immediately (a) notify the Administrative Agent of such fact, and (b) purchase from the other Lenders such participation in the Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment pro rata with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender, such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender's ratable share (according to the proportion of (i) the amount of such paying Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Each Borrower agrees that any Lender so purchasing a participation from another Lender may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 11.10) with respect to such participation as fully as if such Lender were the direct creditor of the relevant Borrower in the amount of such participation. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Lenders following any such purchases or repayments. 2.15 Utilization of Commitments in Offshore Currencies (a) The Administrative Agent will determine the Dollar Equivalent amount with respect to any (i) Borrowing comprised of Offshore Currency Loans (other than Sterling Acquisition Loans) as of the requested Borrowing Date, (ii) outstanding Offshore Currency Loans denominated in a currency other than Dollars as of the last Business Day of each month, (iii) outstanding Offshore Currency Loans denominated in a currency other than Dollars as of any redenomination date pursuant to this Section 2.15 or Section 4.05, (iv) L/C Obligations denominated in a currency other than Dollars, on the date of Issuance and thereafter as of the last Business Day of each month and (v) Offshore Currency Loans or L/C Obligations, as of any date specified for determining the Dollar Equivalent of any amount (each such date under clauses (i) through (iv) a "Computation Date"). (b) In the case of a proposed Borrowing comprised of Offshore Currency Loans (other than Sterling Acquisition Loans), the Lenders shall be under no obligation to make Offshore Currency Loans in the requested Offshore Currency as part of such Borrowing if the Administrative Agent has received notice from any of the Lenders by 5:00 p.m. (New York time) four Business Days prior to the day of such Borrowing that such Lender cannot provide Loans in the requested Offshore Currency, in which event the Administrative Agent will give notice to the Company no later than 12:00 noon (New York time) on the third Business Day prior to the requested date of such Borrowing that the Borrowing in the requested Offshore Currency (other than Sterling Acquisition Loans) is not then available, and notice thereof also will be given promptly by the Administrative Agent to the Lenders. If the Administrative Agent shall have so notified the Company that any such Borrowing in a requested Offshore Currency is not then available, the Company may, by notice to the Administrative Agent not later than 5:00 p.m. (New York time) two Business Days prior to the requested date of such Borrowing, withdraw the Notice of Borrowing relating to such requested Borrowing. If the Company does so withdraw such Notice of Borrowing, the Borrowing requested 51 61 therein shall not occur and the Administrative Agent will promptly so notify each Lender. If the Company does not so withdraw such Notice of Borrowing, the Administrative Agent will promptly so notify each Lender and such Notice of Borrowing shall be deemed to be a Notice of Borrowing that requests a Borrowing comprised of Offshore Rate Loans (other than Sterling Acquisition Loans) for the same Interest Period previously applicable in an aggregate amount equal to the amount of the originally requested Borrowing as expressed in Dollars in the Notice of Borrowing; and in such notice by the Administrative Agent to each Lender the Administrative Agent will state such aggregate amount of such Borrowing in Dollars and such Lender's Pro Rata Share thereof. (c) In the case of a proposed continuation of Offshore Currency Loans (other than Sterling Acquisition Loans) for an additional Interest Period pursuant to Section 2.04, the Lenders shall be under no obligation to continue such Offshore Currency Loans if the Administrative Agent has received notice from any of the Lenders by 5:00 p.m. (New York time) four Business Days prior to the day of such continuation that such Lender cannot continue to provide Loans in the relevant Offshore Currency, in which event the Administrative Agent will give notice to the Company not later than 12:00 noon (New York time) on the third Business Day prior to the requested date of such continuation that the continuation of such Offshore Currency Loans in the relevant Offshore Currency is not then available, and notice thereof also will be given promptly by the Administrative Agent to the Lenders. If the Administrative Agent shall have so notified the Company that any such continuation of Offshore Currency Loans (other than Sterling Acquisition Loans) is not then available, any Notice of Continuation/Conversion with respect thereto shall be deemed withdrawn and such Offshore Currency Loans shall be redenominated into Offshore Rate Loans in Dollars for the same Interest Period previously applicable with effect from the last day of the Interest Period with respect to any such Offshore Currency Loans. The Administrative Agent will promptly notify the Company and the Lenders of any such redenomination and in such notice by the Administrative Agent to each Lender the Administrative Agent will state the aggregate Dollar Equivalent amount of the redenominated Offshore Currency Loans (other than Sterling Acquisition Loans) as of the Computation Date with respect thereto and such Lender's Pro Rata Share thereof. (d) Notwithstanding anything herein to the contrary, during the existence of a payment default or an Event of Default, upon the request of the Majority Lenders, all or any part of any outstanding Offshore Currency Loans (other than Sterling Acquisition Loans) shall be redenominated and converted into Base Rate Loans in Dollars with effect from the last day of the Interest Period with respect to any such Offshore Currency Loans. The Administrative Agent will promptly notify the Company and the Lenders of any such redenomination and conversion request. (e) The Company shall be entitled to request that Revolving Loans and Swing Line Loans hereunder also be permitted to be made in any other lawful currency (other than Dollars), in addition to the currencies specified in the definition of "Offshore Currency" herein, that in the opinion of the Administrative Agent, the Swing Line Lender and the Lenders is at such time freely traded in the offshore interbank foreign exchange markets and is freely transferable and freely convertible into Dollars (an "Agreed Alternative Currency"). The Company shall deliver to the Administrative Agent any request for designation of an Agreed Alternative Currency in accordance with Section 12.02, to be received by the Administrative Agent not later than 12:00 noon (New York time) at least 10 Business Days in advance of the date of any Borrowing hereunder proposed to be made in such Agreed Alternative Currency. Upon receipt of any such request the Administrative 52 62 Agent will promptly notify the Lenders thereof, and each Lender will use its commercially reasonable efforts to respond to such request within five (5) Business Days of receipt thereof. Each Lender may grant or accept such request in its sole discretion. The Administrative Agent will promptly notify the Company and the Lenders of the acceptance or rejection of any such request. ARTICLE III THE LETTERS OF CREDIT FACILITY 3.01 The Letter of Credit Facility (a) On the terms and conditions set forth herein (i) the Issuing Bank agrees, (A) from time to time on any Business Day during the period from the Initial Funding Date to the day which is thirty (30) days prior to the Revolving Loan Termination Date, to issue standby or trade Letters of Credit for the account of a Borrower and to amend or renew Letters of Credit previously issued by it under this clause (a) in accordance with Section 3.02(b), and (B) to honor drafts under the Letters of Credit issued under this clause (a); and (ii) the Revolving Lenders severally agree to participate in Letters of Credit issued for the account of the relevant Borrower under this clause (a); provided, that the Issuer shall not be obligated to Issue any Letter of Credit under this clause (a), if as of the Issuance Date of such Letter of Credit (1) the Effective Amount of all L/C Obligations exceeds the combined L/C Commitments of all Revolving Lenders or (2) the participation of any Revolving Lender in the Effective Amount of all L/C Obligations and participation in Swing Line Loans of such Revolving Lender exceeds such Lender's Revolving Loan Commitment less the Effective Amount of Revolving Loans of such Revolving Lender. Within the foregoing limits, and subject to the other terms and conditions hereof, the relevant Borrower's ability to obtain standby and trade Letters of Credit under this clause (a) shall be fully revolving, and, accordingly, the relevant Borrower may, during the forgoing period, obtain under this clause (a) new Letters of Credit, or replacement Letters of Credit for Letters of Credit which have expired or which have been drawn upon and reimbursed, provided all such Letters of Credit are issued in compliance with this Agreement. (b) The Issuing Bank is under no obligation to Issue, amend or renew any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from Issuing such Letter of Credit, or any Requirement of Law applicable to the Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the Issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Bank is not otherwise compensated hereunder) not in effect on the Initial Funding Date, or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Initial Funding Date and which the Issuing Bank in good faith deems material to it; 53 63 (ii) the Issuing Bank has received written notice from any Revolving Lender, the Administrative Agent or any Borrower, on or prior to the Business Day prior to the requested Issuance Date of such Letter of Credit, that one or more of the applicable conditions contained in Article V is not then satisfied; (iii) the expiry date of any requested Letter of Credit is after the Revolving Loan Termination Date; (iv) any requested Letter of Credit does not provide for drafts, or is not otherwise in form and substance acceptable to the Issuing Bank, or the Issuance of a Letter of Credit shall violate any applicable policies of the Issuing Bank; or (v) such Letter of Credit (x) is in a face amount less than $250,000, unless such lesser amount is approved by the Administrative Agent and the Issuing Bank, and (y) is to be denominated in a currency other than Dollars or an Offshore Currency. 3.02 Issuance, Amendment and Renewal of Letters of Credit (a) Each Letter of Credit shall be issued upon the irrevocable written request of the relevant Borrower received by the Issuing Bank (with a copy sent by the relevant Borrower to the Administrative Agent) at least five (5) days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed Issuance Date. Each such request for issuance of a Letter of Credit shall be in writing or by facsimile, confirmed immediately in an original writing, in the form of an L/C Application, and shall specify in form and detail satisfactory to the Issuing Bank: (i) the proposed Issuance Date of such Letter of Credit (which shall be a Business Day); (ii) the face amount of such Letter of Credit; (iii) the expiry date of such Letter of Credit; (iv) the name and address of the beneficiary thereof; (v) the documents to be presented by the beneficiary of such Letter of Credit in case of any drawing thereunder; (vi) the full text of any certificate to be presented by the beneficiary in case of any drawing thereunder; (vii) the denomination of the Stated Amount in Dollars or an Offshore Currency, and (viii) such other matters as the Issuing Bank may require. (b) Prior to the Issuance of any Letter of Credit, the Issuing Bank will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of the L/C Application or L/C Amendment Application from the relevant Borrower and, if not, the Issuing Bank will provide the Administrative Agent with a copy thereof. Unless the Issuing Bank has received notice on or before the Business Day the Issuing Bank is to issue a requested Letter of Credit (A) from the Administrative Agent directing the Issuing Bank not to issue such Letter of Credit because such issuance is not then permitted under Section 3.01(a) as a result of the limitations set forth in clauses (1) or (2) thereof, or (B) that one or more terms or conditions specified in Section 3.01(b) or in Article V are not then satisfied; then, subject to the terms and conditions hereof, the Issuing Bank shall, with the approval of the Administrative Agent, on the requested date, issue a Letter of Credit for the account of the relevant Borrower in accordance with the Issuing Bank's usual and customary business practices. 54 64 (c) From time to time while a Letter of Credit is outstanding and prior to the Termination Date, the Issuing Bank will, upon the written request of the relevant Borrower received by the Issuing Bank (with a copy sent by the relevant Borrower to the Administrative Agent) at least five (5) days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of amendment, amend any Letter of Credit issued by it. Each such request for amendment of a Letter of Credit shall be made in writing or by facsimile, confirmed immediately in an original writing, made in the form of an L/C Amendment Application and shall specify in form and detail satisfactory to the Issuing Bank: (i) the Letter of Credit to be amended; (ii) such proposed date of amendment of the Letter of Credit (which shall be a Business Day); (iii) the nature of the proposed amendment; and (iv) such other matters as the Issuing Bank may require. The Issuing Bank shall be under no obligation to amend any Letter of Credit if: (A) the Issuing Bank would have no obligation at such time to issue such Letter of Credit in its amended form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed amendment to the Letter of Credit. The Administrative Agent will promptly notify the Lenders of the receipt by it of any L/C Application or L/C Amendment Application. (d) The Issuing Bank and the Lenders agree that, while a Letter of Credit is outstanding and prior to the Revolving Loan Termination Date, at the option of the relevant Borrower and upon the written request of the relevant Borrower received by the Issuing Bank (with a copy sent by the relevant Borrower to the Administrative Agent) at least five (5) days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of notification of renewal, the Issuing Bank shall be entitled to authorize the automatic renewal of any Letter of Credit issued by it. Each such request for renewal of a Letter of Credit shall be made in writing or by facsimile, confirmed immediately in an original writing, in the form of an L/C Amendment Application, and shall specify in form and detail satisfactory to the Issuing Bank: (i) the Letter of Credit to be renewed; (ii) the proposed date of notification of renewal of such Letter of Credit (which shall be a Business Day); (iii) the revised expiry date of such Letter of Credit; and (iv) such other matters as the Issuing Bank may require. The Issuing Bank shall be under no obligation so to renew any Letter of Credit if: (A) the Issuing Bank would have no obligation at such time to issue or amend such Letter of Credit in its renewed form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed renewal of such Letter of Credit. If any outstanding Letter of Credit shall provide that it shall be automatically renewed unless the beneficiary thereof receives notice from the Issuing Bank that such Letter of Credit shall not be renewed, and if at the time of renewal the Issuing Bank would be entitled to authorize the automatic renewal of such Letter of Credit in accordance with this clause (d) upon the request of the relevant Borrower but the Issuing Bank shall not have received any L/C Amendment Application from the relevant Borrower with respect to such renewal or other written direction by the relevant Borrower with respect thereto, the Issuing Bank shall nonetheless be permitted to allow such Letter of Credit to renew, and the relevant Borrower and the Revolving Lenders hereby authorize such renewal, and, accordingly, the Issuing Bank shall be deemed to have received an L/C Amendment Application from the Borrower requesting such renewal. (e) The Issuing Bank may, at its election (or as required by the Administrative Agent at the direction of the Majority Lenders), deliver any notices of termination or other communications to any Letter of Credit beneficiary or transferee, and take any other action as 55 65 necessary or appropriate, at any time and from time to time, in order to cause the expiry date of such Letter of Credit to be a date not later than the Revolving Loan Termination Date. (f) This Agreement shall control in the event of any conflict with any L/C-Related Document (other than any Letter of Credit). (g) The Issuing Bank will also deliver to the Administrative Agent, concurrently or promptly following its delivery of a Letter of Credit, or amendment to or renewal of a Letter of Credit, to an advising bank or a beneficiary, a true and complete copy of each such Letter of Credit or amendment to or renewal of a Letter of Credit. 3.03 Risk Participations, Drawings, Revolving Loans and Reimbursements. (a) Immediately upon the Issuance of each Letter of Credit, each Revolving Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank a participation in such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) the Pro Rata Revolving Share of such Revolving Lender, times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. (b) (i) In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Issuing Bank will promptly notify the relevant Borrower. The Company shall reimburse the Issuing Bank (by an L/C Borrowing or otherwise) prior to 12:00 Noon (New York time), on the Honor Date, in an amount equal to the amount so paid by the Issuing Bank. In the event the relevant Borrower fails to reimburse the Issuing Bank for the full amount of any drawing under any Letter of Credit by 12:00 Noon (New York time) on the Honor Date, the Issuing Bank will promptly notify the Administrative Agent and the Administrative Agent will promptly notify each Revolving Lender thereof, and the relevant Borrower shall be deemed to have requested that Base Rate Loans in an aggregate amount equal to the unreimbursed drawing be made by the Revolving Lenders to be disbursed on the Honor Date under such Letter of Credit, subject to the amount of the unutilized portion of the Revolving Loan Commitment and subject to the conditions set forth in Section 5.03. Any notice given by the Issuing Bank or the Administrative Agent pursuant to this clause (d)(i) may be oral if immediately confirmed in writing (including by facsimile); provided, that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. (ii) Each Revolving Lender shall upon any notice pursuant to Section 3.03(b)(i) make available to the Administrative Agent for the account of the relevant Issuing Bank an amount in Same Day Funds equal to its Pro Rata Revolving Share of the amount of the drawing, whereupon the participating Revolving Lenders shall (subject to Section 3.03(b)(iii)) each be deemed to have made a Revolving Loan consisting of a Base Rate Loan to the relevant Borrower in that amount. If any Revolving Lender so notified fails to make available to the Administrative Agent for the account of the Issuing Bank the amount of such Revolving Lender's Pro Rata Revolving Share of the amount of the drawing by no later than 2:00 p.m. (New York time) on the Honor Date, then interest shall accrue on 56 66 such Revolving Lender's obligation to make such payment, from the Honor Date to the date such Revolving Lender makes such payment, at a rate per annum equal to the Federal Funds Rate in effect from time to time during such period. The Administrative Agent will promptly give notice of the occurrence of the Honor Date, but failure of the Administrative Agent to give any such notice on the Honor Date or in sufficient time to enable any Lender to effect such payment on such date shall not relieve such Lender from its obligations under this Section 3.03(b). (iii) With respect to any unreimbursed drawing that is not converted into Revolving Loans consisting of Base Rate Loans to the relevant Borrower in whole or in part, because of the relevant Borrower's failure to satisfy the conditions set forth in Section 5.03 or for any other reason, the relevant Borrower shall be deemed to have incurred from the Issuing Bank an L/C Borrowing in the amount of such drawing which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at a rate per annum equal to the Base Rate plus the Applicable Margin for Revolving Loans maintained as Base Rate Loans plus 2% per annum, and each Revolving Lender's payment to the Issuing Bank pursuant to Section 3.03(b)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Revolving Lender in satisfaction of its participation obligation under this Section 3.03(b). (c) Each Lender's obligation in accordance with this Agreement to make an L/C Advance or Revolving Loans as contemplated by this Section 3.03 as a result of a drawing under a Letter of Credit, shall be absolute and unconditional and without recourse to the Issuing Bank and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Lender or any Borrower may have against the Issuing Bank, a Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default, an Event of Default, a Material Adverse Effect or any failure to satisfy the conditions under Article V; or (iii) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 3.04 Repayment of Participations (a) Upon (and only upon) receipt by the Administrative Agent for the account of the Issuing Bank of immediately available funds from the relevant Borrower (i) in reimbursement of any payment made by the Issuing Bank under any Letter of Credit with respect to which any Lender has paid the Administrative Agent for the account of the Issuing Bank for such Lender's participation in such Letter of Credit pursuant to Section 3.03 or (ii) in payment of interest thereon, the Administrative Agent will pay to each Revolving Lender, in the same funds as those received by the Administrative Agent for the account of the Issuing Bank, the amount of such Revolving Lender's Pro Rata Revolving Share of such funds, and the Issuing Bank shall receive the amount of the Pro Rata Revolving Share of such funds of any Revolving Lender that did not so pay the Administrative Agent for the account of the Issuing Bank. (b) If the Administrative Agent or the Issuing Bank is required at any time to return to a Borrower, or to a trustee, receiver, liquidator, custodian, or any official in any Insolvency Proceeding, any portion of the payments made by such Borrower to the Administrative Agent for 57 67 the account of the Issuing Bank pursuant to Section 3.04(a) in reimbursement of a payment made under a Letter of Credit or interest or fee thereon, each Revolving Lender shall, on demand of the Administrative Agent, forthwith return to the Administrative Agent or the Issuing Bank the amount of its Pro Rata Revolving Share of any amounts so returned by the Administrative Agent or the Issuing Bank plus interest thereon from the date such demand is made to the date such amounts are returned by such Revolving Lender to the Administrative Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds Rate in effect from time to time. 3.05 Role of the Issuing Bank (a) Each Lender and each Borrower agree that, in paying any drawing under a Letter of Credit, the Issuing Bank shall not have any responsibility to obtain any document (other than any sight draft and certificates or documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. (b) No Administrative Agent-Related Person nor any of the respective correspondents, participants or assignees of the Issuing Bank shall be liable to any Lender for: (i) any action taken or omitted in connection herewith at the request or with the approval of the Revolving Lenders (including the Majority Lenders, as applicable); (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any L/C-Related Document. (c) Each Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude a Borrower's pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. No Administrative Agent-Related Person, nor any of the respective correspondents, participants (including the Revolving Lenders) or assignees of the Issuing Bank, shall be liable or responsible for any of the matters described in clauses (i) through (vii) of Section 3.06; provided, however, anything in such clauses to the contrary notwithstanding, that a Borrower may have a claim against the Issuing Bank, and the Issuing Bank may be liable to such Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by such Borrower which such Borrower proves were caused by the Issuing Bank's willful misconduct or gross negligence or the Issuing Bank's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing: (i) the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; and (ii) the Issuing Bank shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. 58 68 3.06 Obligations Absolute The obligations of each Borrower under this Agreement and any L/C-Related Document to reimburse the Issuing Bank for a drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing under a Letter of Credit converted into Revolving Loans, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other L/C-Related Document under all circumstances (unless due to the gross negligence or wilful misconduct of the Issuing Bank), including the following: (i) any lack of validity or enforceability of this Agreement or any L/C-Related Document; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of a Borrower in respect of any Letter of Credit or any other amendment or waiver of or any consent to departure from all or any of the L/C-Related Documents; (iii) the existence of any claim, set-off, defense or other right that a Borrower may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the L/C-Related Documents or any unrelated transaction; (iv) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit; (v) any payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of any Letter of Credit; or any payment made by the Issuing Bank under any Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the obligations of a Borrower in respect of any Letter of Credit; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, a Borrower or a guarantor. 59 69 3.07 Cash Collateral Pledge If, as of the Revolving Loan Termination Date, any Letters of Credit may for any reason remain outstanding and partially or wholly undrawn, or upon the occurrence and continuation of the circumstances described in Section 2.07(c) requiring the relevant Borrower to Cash Collateralize Letters of Credit, then, the relevant Borrower shall immediately Cash Collateralize the L/C Obligations in an amount equal to such L/C Obligations or any excess amount. 3.08 Letter of Credit Fees. (a) The Company shall pay to the Administrative Agent for the account of each of the Revolving Lenders a letter of credit fee with respect to the Letters of Credit equal to the Applicable Margin per annum specified for Revolving Loans maintained as Offshore Rate Loans on the Stated Amount available to be drawn on the outstanding Letters of Credit, computed on a quarterly basis in arrears on the last Business Day of each March, June, September and December based upon Letters of Credit outstanding for that quarter as calculated by the Administrative Agent. Such letter of credit fees shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter during which Letters of Credit are outstanding, commencing on the first such quarterly date to occur after the Initial Funding Date, through the Revolving Loan Termination Date (or such later date upon which the outstanding Letters of Credit shall expire), with the final payment to be made on the Revolving Loan Termination Date (or such later expiration date). (b) The Company shall pay to the relevant Issuing Bank, individually, a fronting fee for each Letter of Credit Issued by such Issuing Bank equal to .125% per annum of the Stated Amount of such Letter of Credit. Such fronting fee shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter during which such Letter of Credit is outstanding, commencing on the first such quarterly date to occur after such Letter of Credit is issued, through the Revolving Loan Termination Date, with the final payment to be made on the Revolving Loan Termination Date. (c) The Company shall pay to the relevant Issuing Bank from time to time on demand the normal issuance, presentation, amendment and other processing fees, and other standard costs and charges, of such Issuing Bank relating to letters of credit as from time to time in effect. 3.09 Existing Letters of Credit. Schedule 3.09 hereto contains a description of all Existing Letters of Credit issued by Chase pursuant to the Existing Credit Agreement outstanding on the Initial Funding Date. Each such Existing Letter of Credit, including any extension thereof issued by Chase in its sole discretion (provided, however, that the Existing Letters of Credit described on items 1 and 2 of Schedule 3.09 may not be extended beyond their current termination date) shall constitute "Letters of Credit" for all purposes of this Agreement, Issued, for purposes of Section 3.01(a), on the Initial Funding Date. The Company, the Administrative Agent and each Lender hereby agree that, from and after the Initial Funding Date, the terms of this Agreement shall apply to the Existing Letters of Credit and that the terms of this Agreement shall supersede the Existing Credit Agreement with respect to the Existing Letters of Credit. 60 70 3.10 Uniform Customs and Practice The Uniform Customs and Practice for Documentary Credits as published by the International Chamber of Commerce most recently at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in the Letters of Credit) apply to the Letters of Credit. ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY 4.01 Taxes (a) Any and all payments by a Borrower to each Lender or the Administrative Agent under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the relevant Borrower shall pay all Other Taxes. (b) If a Borrower shall be required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Agent, then: (i) the sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section), such Lender or the Administrative Agent, as the case may be, receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made; (ii) such Borrower shall make such deductions and withholdings; (iii) such Borrower shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) such Borrower shall also pay to each Lender or the Administrative Agent for the account of such Lender, at the time interest is paid, Further Taxes in the amount that the respective Lender specifies as necessary to preserve the after-tax yield the Lender would have received if such Taxes, Other Taxes or Further Taxes had not been imposed. (c) Each Borrower agrees to indemnify and hold harmless each Lender and the Administrative Agent for the full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes in the amount necessary to preserve the after-tax yield such Lender would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification 61 71 shall be made within 30 days after the date the relevant Lender or the Administrative Agent makes written demand therefor. (d) Within 30 days after the date of any payment pursuant to this Section by a Borrower of Taxes, Other Taxes or Further Taxes, such Borrower shall furnish to each Lender or the Administrative Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to such Lender or the Administrative Agent. (e) If a Borrower is required to pay any amount to any Lender or the Administrative Agent pursuant to clauses (b) or (c) of this Section, then such Lender shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by such Borrower which may thereafter accrue, if such change in the sole judgment of such Lender is not otherwise disadvantageous to such Lender; provided, however, that the Swing Line Lender may in any event continue to make Swing Line Loans out of its Lending Office in London. 4.02 Illegality. (a) If any Lender reasonably determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make Offshore Rate Loans (including Offshore Rate Loans in any Applicable Currency), then, on notice thereof by that Lender to the Company through the Administrative Agent, any obligation of that Lender to make Offshore Rate Loans shall be suspended until that Lender notifies the Administrative Agent and the Company that the circumstances giving rise to such determination no longer exist. (b) If a Lender reasonably determines that it is unlawful to maintain any Offshore Rate Loan, the Company shall, upon its receipt of notice of such fact and demand from such Lender (with a copy to the Administrative Agent), prepay in full such Offshore Rate Loans of that Lender then outstanding, together with interest accrued thereon and amounts required under Section 4.04, either on the last day of the Interest Period thereof, if such Lender may lawfully continue to maintain such Offshore Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Offshore Rate Loan. If the Company is required to so prepay any Offshore Rate Loan, then concurrently with such prepayment, the Company may borrow from the affected Lender, in the amount of such repayment, a Base Rate Loan. (c) If the obligation of any Lender to make or maintain Offshore Rate Loans has been so terminated or suspended, the Company may elect, by giving notice to such Lender through the Administrative Agent that all Loans which would otherwise be made by such Lender as Offshore Rate Loans shall be instead Base Rate Loans. (d) Before giving any notice to the Administrative Agent under this Section, the affected Lender shall designate a different Lending Office with respect to its Offshore Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of such Lender, be illegal or otherwise disadvantageous to the Lender. 62 72 4.03 Increased Costs and Reduction of Return. (a) If any Lender reasonably determines that, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance by that Lender with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any Offshore Rate Loans or participating in Letters of Credit, or, in the case of the Issuing Bank, any increase in the cost to the Issuing Bank of agreeing to issue, issuing or maintaining any Letter of Credit or of agreeing to make or making, funding or maintaining any unpaid drawing under any Letter of Credit, then the relevant Borrower shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Administrative Agent), pay to the Administrative Agent for the account of such Lender, additional amounts as are sufficient to compensate such Lender for such increased costs. (b) If any Lender shall have reasonably determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by such Lender (or its Lending Office) or any corporation controlling such Lender with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy and such 63 73 Lender's customary return on capital) determines that the amount of such capital is increased as a consequence of its Commitment, loans, credits or obligations under this Agreement, then, upon demand of such Lender to the Company through the Administrative Agent, the relevant Borrower shall pay to such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation for such increase. (c) Any provision of this Agreement stated to have effect on, after, or as from, the Commencement Date will, to the extent that the provision relates to any currency of a state which is not a Participating Member State on the Commencement Date, have effect in relation to that currency on the date on which it becomes a Participating Member State. 4.04 Funding Losses (a) Each Borrower shall reimburse each Lender and hold each Lender harmless from any loss or expense which such Lender may sustain or incur (other than as a result of Section 4.05) as a consequence of: (i) the failure of such Borrower to make on a timely basis any payment of principal of any Offshore Rate Loan; (ii) the failure of such Borrower to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/ Continuation; (iii) the failure of such Borrower to make any prepayment in accordance with any notice delivered under Section 2.06; (iv) the prepayment or other payment (including after acceleration thereof) of an Offshore Rate Loan on a day that is not the last day of the relevant Interest Period; (v) the automatic conversion under Section 2.04 of any Offshore Rate Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period; or (vi) in the event that during the 180 day period following the Initial Funding Date, the Borrowers maintain (x) more than one Offshore Rate Loan with different Interest Periods or (y) any Offshore Rate Loan with an Interest Period in excess of one month, any breakage costs, charges or fees incurred by NationsBank or any co-arranger in connection with the assignment of an Offshore Rate Loan; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Offshore Rate Loans or from fees payable to terminate the deposits from which such funds were obtained or from changes relating to any Offshore Currency Loans. For purposes of calculating amounts payable by a Borrower to the Lenders under this Section and under Section 4.03(a), each Offshore Rate Loan made by a Lender (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBOR used in 64 74 determining the Offshore Rate for such Offshore Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Offshore Rate Loan is in fact so funded. (b) Unless otherwise prohibited by law, if more than one currency or currency unit are at the same time recognized by the central bank of any country as the lawful currency of that country, then: (i) any reference in the Loan Documents to, and any obligations arising under the Loan Documents in, the currency of that country shall be translated into, or paid in, the currency or currency unit of that country designated by the Administrative Agent; and (ii) any translation from one currency or currency unit to another shall be at the official rate of exchange recognized by the central bank for the conversion of that currency or currency unit into the other, rounded up or down by the Administrative Agent acting reasonably. (c) If a change in any currency of a country occurs, this Agreement will be amended to the extent the Administrative Agent specifies to be necessary to reflect the change in currency and to put the Administrative Agent, the Issuing Bank and each Lender in the same position, so far as possible, that it would have been in if no change in currency had occurred. 4.05 Inability to Determine Rates If the Administrative Agent determines that for any reason adequate and reasonable means do not exist for determining the Offshore Rate for any requested Interest Period with respect to a proposed Offshore Rate Loan, the Administrative Agent will promptly so notify the Company and each Lender. Thereafter, the obligation of the Lenders to make or maintain Offshore Rate Loans hereunder shall be suspended until the Administrative Agent revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Company does not revoke such notice, the Lenders shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of Offshore Rate Loans. In the case of any Offshore Currency Loans (other than Sterling Acquisition Loans), the Borrowing or continuation shall be in an aggregate amount equal to the Dollar Equivalent amount of the originally requested Borrowing or continuation in the Offshore Currency, and to that end any outstanding Offshore Currency Loans (other than Sterling Acquisition Loans) which are the subject of any continuation shall be redenominated and converted into Base Rate Loans in Dollars with effect from the last day of the Interest Period with respect to any such Offshore Currency Loans. 4.06 Reserves on Offshore Rate Loans The Company shall pay to each Lender, in respect of any Offshore Currency Loans, additional costs arising under any applicable regulations of the central bank or other relevant 65 75 Governmental Authority in the country in which the Offshore Currency of such Offshore Rate Loan circulates on the unpaid principal amount of each Offshore Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), payable on each date on which interest is payable on such Loan; provided the Company shall have received at least 15 days' prior written notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If such Lender fails to give notice 15 days prior to the relevant Interest Payment Date, such additional interest shall be payable 15 days from receipt of such notice. 4.07 Certificates of Lenders Any Lender claiming reimbursement or compensation under this Article IV shall deliver to the Company (with a copy to the Administrative Agent) a certificate setting forth in reasonable detail the amount payable to such Lender hereunder and such certificate shall be conclusive and binding on the Company in the absence of manifest error. 4.08 Substitution of Lenders Upon the receipt by a Borrower from any Lender (an "Affected Lender") of a claim for compensation under this Article IV, such Borrower may: (i) request the Affected Lender to use commercially reasonable efforts to obtain a replacement Lender or financial institution satisfactory to such Borrower to acquire and assume all or a ratable part of all of such Affected Lender's Loans, Commitments and participation in Letters of Credit (a "Replacement Lender"); (ii) request one more of the other Lenders to acquire and assume all or part of such Affected Lender's Loans, Commitment and participation in Letters of Credit; or (iii) designate a Replacement Lender. Any such designation of a Replacement Lender under clause (i) or (iii) above shall be subject to the prior written consent of the Administrative Agent (which consent shall not be unreasonably withheld), and any such substitution shall in any event be effective upon satisfaction of the conditions set forth in Section 12.08 and all then outstanding Obligations owing to such Affected Lender shall be repaid in full on the date of any such assignment. 4.09 Survival The agreements and obligations of the Company in this Article IV shall survive the payment of all other Obligations. ARTICLE V CONDITIONS PRECEDENT 5.01 Conditions to Announcement Date The obligation of each Lender to enter into the Prior Loan Document was subject to the condition that the Administrative Agent received on or prior to the date of the Press Release each 66 76 of the following, in form and substance satisfactory to the Administrative Agent, and in sufficient copies for each Lender: (a) Prior Loan Document The Prior Loan Document was executed by each party thereto. (b) Resolutions; Incumbency With respect to each the Company, US Holdco #1, US Holdco #2 and Bidco: (i) copies of the resolutions of the board of directors of such Person authorizing the Transactions and the transactions contemplated thereby, certified by the Secretary or an Assistant Secretary of such Person; and (ii) a certificate of the Secretary or Assistant Secretary of such Person, dated as of the Announcement Date, and certifying the names and true signatures of the officers of such Person authorized to execute, deliver and perform, as applicable, this Agreement, and all other Loan Documents to be delivered by it hereunder. (c) Organization Documents; Good Standing Each of the following documents with respect to each of the Company, US Holdco #1, US Holdco #2 and Bidco: (i) the articles or certificate of incorporation, memorandum of association, bylaws and board of directors resolutions of such Person as then in effect, certified by the Secretary or Assistant Secretary of such Person; and (ii) a good standing certificate for such Person from the Secretary of State (or similar, applicable Governmental Authority) of its state of incorporation and each state where such Person is qualified to do business as a foreign corporation as of a recent date, together with a bring-down certificate by facsimile. (d) Legal Opinions An opinion addressed to the Administrative Agent and the Lenders, dated as of the Announcement Date, (i) of Nutter, McClennen & Fish LLP, counsel to the Company and US Holdco, substantially in the form of Exhibit D-1, (ii) of Simmons & Simmons, special English counsel to the Company, substantially in the form of Exhibit D-2; and (iii) of Allen & Overy, special English counsel to the Administrative Agent, substantially in the form of Exhibit D-3. (e) Payment of Fees 67 77 Evidence of payment by the Company of all accrued and unpaid fees, costs and expenses to the extent then due and payable, together with Attorney Costs of NationsBank to the extent invoiced prior to or on the Announcement Date, including any such costs, fees and expenses arising under or referenced in Sections 2.10 and 12.04. (f) Certificate A certificate signed by a Responsible Officer of the Company, dated as of the Announcement Date: (i) stating that the representations and warranties contained in Article VI are true and correct on and as of such date, as though made on and as of such date; (ii) stating that no Default or Event of Default exists both before and after giving effect to the Transaction; and (iii) stating that there has occurred (x) since March 31, 1998, with respect to the Company and its Subsidiaries and (y) to the best knowledge of the Company since December 31, 1997 with respect to Target and its Subsidiaries, no event or circumstance that has resulted or could reasonably be expected to result in a material adverse change in the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of such Person. (g) Press Release A true and complete copy of the Press Release, certified as true and correct by a Responsible Officer, which Press Release (including, without limitation, any conditions to the Offer contained therein) shall (i) be in form and substance reasonably satisfactory to the Administrative Agent, and (ii) indicate that the Offer is recommended by the Directors of the Target, and that such Directors are giving personal undertakings, in form and substance acceptable to the Administrative Agent, in favor of Bidco with respect to the Offer, and the Administrative Agent shall have received evidence satisfactory to it that the Press Release has been released for publication at the opening of business in London on October 26, 1998. (h) Consent to Existing Credit Agreement The Administrative Agent shall have received a fully executed consent executed by the requisite lenders party to the Existing Credit Agreement with respect to the Transaction, such consent to be in form and substance satisfactory to the Administrative Agent, and such consent shall be in full force and effect. (i) Currency Fluctuations Protection On or prior to the Announcement Date, the Company shall enter into Swap Contracts providing protection against fluctuations in the rate of exchange between Sterling and Dollars with 68 78 one or more financial institutions each having a combined capital and surplus of at least $100,000,000, which shall hedge against any fluctuations in the exchange rate of Dollars against Sterling the effect of which $160,000,000 will purchase pound sterling 86,614,000, and such Swap Contract shall contain such other terms as are customary and satisfactory to the Administrative Agent. (j) Environment Review Such environmental site assessments with respect to the real property of the Company and its Subsidiaries and the Target and the Target Subsidiaries as shall be requested by the Administrative Agent. (k) Pro Forma Balance Sheet; Projections; and Financials (i) A pro forma consolidated and consolidating balance sheet of the Company and its Subsidiaries, after giving effect to the Transaction and the related financing thereof (based on the interim financial statements of the Company as of September 30, 1998 and of the Target as of June 30, 1998) together with a Compliance Certificate executed by a Responsible Officer, demonstrating compliance by the Company with Sections 9.1, 9.2 and 9.3 as of September 30, 1998 (after giving effect to the Transaction and the related financing thereof), which pro forma balance sheet and Compliance Certificate shall be in form and substance acceptable to the Administrative Agent; and (ii) Projections for the period commencing in 1998 and concluding on the date approximately five years thereafter in form and substance acceptable to the Administrative Agent. (l) Solvency Certificates Each of the Company, US Holdco #1 and US Holdco #2 shall have delivered a Solvency Certificate substantially in the form of Exhibit K-1 hereto. (m) Collateral Documents The Subsidiary Guaranty executed by US Holdco #1 and US Holdco #2 and the Company Pledge Agreement and the US Holdco Pledge Agreements, together with: (i) evidence satisfactory to the Administrative Agent that there has been or will be filed, registered or recorded all filings, registrations and recordings necessary and advisable to perfect the Liens of the Administrative Agent for the benefit of the Lenders in accordance with applicable law; (ii) written advice relating to such Lien and judgment researches as the Administrative Agent shall have requested of the Company, and such termination statements or other documents as may be necessary to confirm that the Collateral is subject to no other Liens in favor of any Persons (other than Permitted Liens); 69 79 (iii) all certificates and instruments representing the Pledged Collateral under the Company Pledge Agreement and the US Holdco Pledge Agreements, together with stock transfer powers and other evidence or transferability executed in blank as the Administrative Agent may specify; and (iv) evidence that all other actions necessary or, in the reasonable opinion of the Administrative Agent, customary to perfect and protect the first priority Lien created by the Collateral Documents. (n) Other Documents Such other customary approvals, opinions, documents or materials as the Administrative Agent may reasonably request. 5.02 Conditions of Initial Funding Date The obligation of each Lender to make its initial Credit Extension under the First Amended and Restated Credit Agreement was subject to the condition that the Administrative Agent received executed originals of each of the following on or before such funding date: (a) First Amended and Restated Credit Agreement and the promissory notes contemplated thereby. The First Amended and Restated Credit Agreement and the promissory notes contemplated thereby executed by the Company. (b) Bring Down Certificate A certificate signed by a Responsible Officer dated as of the Initial Funding Date, proposing any necessary changes to the Disclosure Schedules to this Agreement occurring after the Announcement Date (provided, however, that the Administrative Agent, in its reasonable discretion, may accept or reject such proposed changes, but any rejection of the changes will not mean that this condition has not been satisfied). (c) Lender Payoff Letter A fully executed, valid and binding bank payoff letter, or other customary evidence of satisfaction reasonably acceptable to the Administrative Agent fully executed and delivered by each lender to the Company and each of its Subsidiaries (which must include the lenders under Existing Credit Agreement) being repaid on the Initial Funding Date and of the Target and each of its Subsidiaries being repaid on the Business Day following the Initial Funding Date, in each case stating the total amount due under any credit and loan documents or agreements with such lenders, as the case may be, howsoever due and owing (whether as principal, interest or premium) shall be satisfied (and such agreements terminated) upon payment of an amount certain, together with such lien releases and other customary payoff documents as the Administrative Agent shall reasonably 70 80 require; provided, however, that (x) the aggregate amount of such Debt of the Company and its Subsidiaries (including Target and its Subsidiaries) covered by such payoff letters shall not exceed $205,000,000, and (y) any Debt of the Company or its Subsidiaries or the Target and its Subsidiaries not being repaid must be permitted Debt under Section 8.01. (d) Solvency Certificates A written solvency certificate from a Responsible Officer of the Company in the form of Exhibit K-1, with respect to Bidco in the form of Exhibit K-2, and with respect to Target in the form of Exhibit L, each dated as of the Initial Funding Date, with respect to the Solvency of each such Person on a consolidated basis after giving effect to the Transaction (except that the certification with respect to Target and its Subsidiaries will be as of the Unconditional Date). (e) Resolutions; Incumbency With respect to each Subsidiary Guarantor (other than US Holdco #1 and US Holdco #2): (i) copies of the resolutions of the board of directors of such Person authorizing the Transactions and the transactions contemplated thereby, certified by the Secretary or an Assistant Secretary of such Person; and (ii) a certificate of the Secretary or Assistant Secretary of such Person, dated as of the Initial Funding Date, and certifying the names and true signatures of the officers of such Person authorized to execute, deliver and perform, as applicable, this Agreement, and all other Loan Documents to be delivered by it hereunder. (f) Organization Documents; Good Standing Each of the following documents with respect to each Subsidiary Guarantor (other than US Holdco #1 and US Holdco #2): (i) the articles or certificate of incorporation, memorandum of association, bylaws and board of directors resolutions of such Person as then in effect, certified by the Secretary or Assistant Secretary of such Person; and (ii) a good standing certificate for such Person from the Secretary of State (or similar, applicable Governmental Authority) of its state of incorporation and each state where such Person is qualified to do business as a foreign corporation as of a recent date, together with a bring-down certificate by facsimile. (g) Collateral Documents The Company Guaranty, Subsidiary Guaranty and Subsidiary Guarantor Pledge Agreement, in each case executed by each Subsidiary Guarantor, together with: 71 81 (i) evidence reasonably satisfactory to the Administrative Agent that there has been or will be filed, registered or recorded all filings, registrations and recordings necessary and advisable to perfect the Liens of the Administrative Agent for the benefit of the Lenders in accordance with applicable law; (ii) written advice relating to such Lien and judgment searches as the Administrative Agent shall have reasonably requested of the Company, and such termination statements or other documents as may be necessary to confirm that the Collateral is subject to no other Liens in favor of any Persons (other than Permitted Liens); (iii) all certificates and instruments representing Pledged Collateral under the Pledge Agreements (other than with respect to the Foreign Subsidiaries listed on Schedule 5.02, each a "Specified Foreign Subsidiary"), together with undated stock transfer powers and other evidence of transferability executed in blank as the Administrative Agent may reasonably specify; and (iv) evidence that all other actions necessary or, in the reasonable opinion of the Administrative Agent, customary to perfect and protect the first priority Lien created by the Collateral Documents has been taken; provided, however, that the Lenders hereby acknowledge and agree that their obligations to make any Loan to enable the Company to facilitate the purchase of Target Shares and pay off the Existing Credit Agreement during the Certain Funds Period will not be dependent upon the satisfaction of this clause (iv). (h) Completion of Offer The Administrative Agent shall have received evidence that each of the following has occurred on the Initial Funding Date or will occur on the Business Day following the Initial Funding Date, certified by a Responsible Officer of the Company: (i) evidence that the Offer shall have been declared and/or become unconditional in all respects and that valid acceptances relating to the number of Target Shares to which the Offer relates referred to in Section 7.12(f) have been received and have not (where permitted) been withdrawn; and (ii) a certificate in form and substance acceptable to the Administrative Agent from the Company certifying as to compliance with, and the receipt of any consents or waivers required by, the terms and conditions of Sections 7.12 (a), (c) and (j) and 8.02. (i) Legal Opinion An opinion addressed to the Administrative Agent and the Lenders, dated as of the Initial Funding Date, of Nutter, McClennen & Fish LLP, updating their opinion delivered pursuant to Section 5.01(d)(i) to bring down the opinions therein, expand the coverage of the opinion to include all guarantors and each Collateral Document being executed at such time and cover such other customary matters as the Administrative Agent shall reasonably request, such opinion to be 72 82 in form and substance satisfactory to the Administrative Agent; provided, however, that the Lenders hereby acknowledge and agree that their obligation to make any Loan to enable the Company to facilitate the purchase of Target Shares and pay off the Existing Credit Agreement during the Certain Funds Period will not be dependent upon the satisfaction of this clause (i). (j) Applicable Margin Certificate A certificate delivered to the Administrative Agent on the Initial Funding Date, executed by a Responsible Officer, delineating the Applicable Margin after giving pro forma effect to the Loans to be incurred on the Initial Funding Date and the consummation of the Transaction, the form and substance of such certificate to be satisfactory to the Administrative Agent; provided, however, that the Lenders hereby acknowledge and agree that their obligation to make any Loan to enable the Company to facilitate the purchase of Target Shares and pay off the Existing Credit Agreement during the Certain Funds Period will not be dependent upon the satisfaction of this clause (j). (k) Application of Swap Contract Proceeds Prior to the incurrence of any Loan to purchase Target Shares, the Company shall liquidate the Swap Contract referred to in Section 5.01(i) and utilize 100% of the proceeds thereof, if any, together with any proceeds of any other forward or exchange contracts (as reasonably determined by the Administrative Agent) to effect the Transaction. (l) Payment of Fees. Evidence of payment by each Borrower of all accrued and unpaid fees, costs and expenses to the extent then due and payable on the Initial Funding Date, together with Attorney Costs of NationsBank to the extent invoiced prior to or on the Initial Funding Date; including any such costs, fees and expenses arising under or referenced in Sections 2.10 and 12.04; provided, however, that the Lenders hereby acknowledge and agree that their obligation to make any Loan to the Company to facilitate the purchase of Target Shares and the payoff of the Existing Credit Agreement during the Certain Funds Period will not be dependent upon the satisfaction of this clause (l). (m) Other Documents Such other customary approvals, opinions, documents or materials as in the Administrative Agent may reasonably request; provided, however, that the Lenders hereby acknowledge and agree that their obligation to make any Loan to the Company to facilitate the purchase of Target Shares and the payoff of the Existing Credit Agreement during the Certain Funds Period will not be dependent upon the satisfaction of this clause (m). 5.03 Conditions to All Credit Extensions 73 83 The obligation of each Lender to make any Loan to be made by it (including its initial Loan) or to continue or convert any Loan under Section 2.04 and the obligation of the Issuing Bank to Issue any Letter of Credit (including the initial Letters of Credit) is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date or Issuance Date: (a) Notice, Application The Administrative Agent shall have received (with, in the case of the initial Loans only, a copy for each Lender) a Notice of Borrowing in the form of Exhibit A-1 or, in the case of any Issuance of any Letter of Credit, the Issuing Bank and the Administrative Agent shall have received an L/C Application or L/C Amendment Application, as required under Section 3.02. (b) Continuation of Representations and Warranties The representations and warranties in Article VI shall be true and correct in all material respects on and as of such Borrowing Date or Issuance Date with the same effect as if made on and as of such Borrowing Date, or Issuance Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date); provided, however, that notwithstanding the provisions of this clause (b) (but subject to compliance with Sections 5.01 and 5.02), at any time during the Certain Funds Period the obligations of the Lenders to make any Loan to enable the Company to fund the purchase by Bidco of Target Shares and the repayment of loans under the Existing Credit Agreement are only subject to the condition that, at the time of the making of such Loan, the Relevant Representations and Warranties are true and correct in all material respects; and (c) No Existing Default No Default or Event of Default shall exist or shall result after giving effect to such Borrowing (or continuation or conversion) or Issuance (or amendment or renewal); provided, however, that notwithstanding the provisions of this clause (c) (but subject to compliance with Sections 5.01 and 5.02), at any time during the Certain Funds Period, the obligations of the Lenders to make any Loans to enable the Company to fund the purchase by Bidco of Target Shares and the repayment of loans under the Existing Credit Agreement, are only subject to the condition that, at the time of the making of such Loan, no Relevant Event of Default has occurred and is continuing or would result after giving effect to such Loan. Each Notice of Borrowing, Notice of Continuation/Conversion, L/C Application or L/C Amendment Application submitted by a Borrower hereunder shall constitute a representation and warranty by such Borrower hereunder, as of the date of each such notice or application and as of each Borrowing Date or Issuance Date, as applicable, that the conditions in this Section 5.03 are satisfied and the statements in clause (b) above are deemed remade as of such date. For purposes of the immediately preceding sentence and Section 10.02, each of the representations and warranties contained in Article VI and any obligation to make delivery of documents hereunder shall be deemed to have been made notwithstanding the fact the Lenders may be required to make Loans during the 74 84 Certain Funds Period, and any Default or Event of Default that may exist under Section 10.01(b) on the date such Loan is made shall not be deemed to have been waived as a result of such Loan. 5.04 First Borrowing by Each Eligible Borrower The obligation of each Lender to make a Loan or issue a Letter of Credit on the occasion of the first Borrowing request or first request for issuance of a Letter of Credit by each Eligible Borrower is subject to the satisfaction of the following further conditions: (a) receipt by the Administrative Agent for the account of each Lender of a duly executed Note in the form of Exhibit F-1(A) of such Eligible Borrower dated on or before the date of such Borrowing; (b) receipt by the Administrative Agent of an Authorization Letter duly executed by such Eligible Borrower; (c) receipt by the Administrative Agent of an Election to Participate duly executed by such Eligible Borrower; (d) receipt by the Administrative Agent of a Subsidiary Guaranty duly executed by such Eligible Borrower that is a Domestic Subsidiary; (e) receipt by the Administrative Agent of such certificates, together with executed and undated stock powers, of such Eligible Borrower or where such Eligible Borrower is a Foreign Subsidiary, of the first-tier Foreign Subsidiary parent entity of such Eligible Borrower and, in the case of an Eligible Borrower that is a Domestic Subsidiary, intercompany notes endorsed in blank; (f) receipt by the Administrative Agent of an opinion of counsel for such Eligible Borrower acceptable to the Administrative Agent and covering such matters relating to the transactions contemplated hereby as the Administrative Agent may reasonably request; provided, however, that in the event that such opinion is not delivered on the date of such first Borrowing, then such opinion shall be delivered no later than the 30th day following such date and the aggregate Effective Amount of Revolving Loans and L/C Obligations of all such Eligible Borrowers for which opinions have not been delivered shall not at any time exceed $10,000,000 prior to the date such opinion is delivered in compliance with this clause (e); (g) receipt by the Administrative Agent of all documents which it may reasonably request relating to the existence of such Eligible Borrower, the corporate authority for and the validity of this Agreement, the Authorization Letter, the Election to Participate and the Notes of such Eligible Borrower, and any other matters relevant thereto, all in form and substance satisfactory to the Administrative Agent; (h) receipt by the Administrative Agent of a letter from US Corporation System in New York, New York (or such other agent to receive service of process in New York, New York 75 85 reasonably acceptable to the Administrative Agent), indicating its consent to its appointment by such Eligible Borrower as its agent to receive service of process; and (i) the representations and warranties contained in Section 6.25 shall be true and correct on and as of the date of such Borrowing as though made on and as of such date, and no Default or Event of Default shall have occurred and be continuing, or would result from such Loans. Except as otherwise provided in Section 5.04(f), the opinion referred to in Section 5.04(f) above shall be dated no more than five Business Days before the date of the first Borrowing by such Eligible Borrower hereunder. 5.05 Conditions to PTI Effective Date The obligation of each Lender to enter into this Agreement is subject to (in addition to compliance with Sections 5.03 and 5.04) the condition that the Administrative Agent receives on or prior to the date hereof each of the following, in form and substance satisfactory to the Administrative Agent, and in sufficient copies for each Lender: (a) Credit Agreement This Agreement, executed by each party hereto. (b) PTI Merger Documents (i) The PTI Merger Documents and all transactions contemplated thereby shall be effective pursuant to documentation and agreements in form and substance satisfactory to the Administrative Agent and certified copies of the same shall be delivered to the Administrative Agent. (ii) The Administrative Agent shall have received and reviewed, and shall be reasonably satisfied with the contents thereof, information regarding litigation, tax, accounting, labor, insurance, pension liabilities (actual or contingent), real estate leases, environmental matters, material contracts, debt agreements, property ownership, contingent liabilities and management of PTI and the PTI Subsidiaries. (c) Resolutions; Incumbency With respect to each of the Company and PTI MergeCo: (i) copies of the resolutions of the board of directors of such Person authorizing the PTI Merger and the transactions contemplated thereby, certified by the Secretary or an Assistant Secretary of such Person; and (ii) a certificate of the Secretary or Assistant Secretary of such Person, dated as of the PTI Effective Date, and certifying the names and true signatures of the 76 86 officers of such Person authorized to execute, deliver and perform, as applicable, this Agreement and all other Loan Documents to be delivered by it hereunder. (d) Organization Documents; Good Standing Each of the following documents with respect to each of the Company and PTI MergeCo: (i) the articles or certificate of incorporation, memorandum of association, bylaws and board of directors resolutions of such Person as then in effect, certified by the Secretary or Assistant Secretary of such Person; and (ii) a good standing certificate for such Person from the Secretary of State (or similar, applicable Governmental Authority) of its state of incorporation and each state where such Person is qualified to do business as a foreign corporation as of a recent date, together with a bring-down certificate by facsimile. (e) Legal Opinion An opinion addressed to the Administrative Agent and the Lenders, dated as of the PTI Effective Date, of Nutter, McClennen & Fish LLP, counsel to the Company, substantially in the form of Exhibit D-4 together with such changes as are acceptable to the Administrative Agent. (f) Payment of Fees Evidence of payment by the Company of all accrued and unpaid fees, costs and expenses to the extent then due and payable, together with Attorney Costs of NationsBank to the extent invoiced prior to or on the PTI Effective Date, including (i) any such costs, fees and expenses arising under or referenced in Sections 2.10 and 12.04; and (ii) the payment of the Amendment Fee by the Company to the Administrative Agent for the account of each Lender. (g) Certificate A certificate signed by a Responsible Officer of the Company, dated as of the PTI Effective Date: (i) stating that the representations and warranties contained in Article VI are true and correct on and as of such date as though made on and as of such date; (ii) stating that no Default or Event of Default exists; (iii) stating that there has occurred since March 31, 1998, with respect to the Company and its Subsidiaries on a consolidated basis, no event or circumstance that has resulted or could reasonably be expected to result in a material adverse change in the 77 87 business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of such Person; and (iv) stating that, except for (x) in connection with the required expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and related antitrust laws and regulations and any regulatory or judicial proceeding thereunder, including without limitation the submission of documents by the Company and PTI to the FTC pursuant to a so-called "second request", and (y) any filing or related proceeding under the securities laws of the United States relating to either the solicitation of proxies from Company shareholders or the issuance of up to 7.7 million shares of Company Common Stock and the issuance by the SEC of an order declaring effective the Company's registration statement on Form S-4 pursuant to which the Company will register under the Securities Act of 1933 the issuance of up to 7.7 million shares of Company Common Stock in the PTI Merger, there does not exist (a) any order, decree, judgment, ruling or injunction which restrains the consummation of the PTI Merger and the transactions contemplated thereby in the manner contemplated by the PTI Merger Documents or (b) any pending or threatened action, suit, investigation or proceeding , which, if adversely determined, could materially and adversely affect the Company or its Subsidiaries (including PTI and the PTI Subsidiaries), the PTI Merger, any other transaction contemplated by the PTI Merger or the ability of the Company and its Subsidiaries or any other Subsidiary Guarantor to perform its obligations under the Loan Documents. (h) Environmental Review Such environmental site assessments with respect to the real property of PTI and the PTI Subsidiaries as shall be requested by the Administrative Agent. (i) Pro Forma Balance Sheet; Projections; and Financials (i) A pro forma consolidated and consolidating balance sheet of the Company and its Subsidiaries, after giving effect to the PTI Merger and the related financing thereof together with a Compliance Certificate executed by a Responsible Officer, demonstrating compliance by the Company with Sections 9.1, 9.2 and 9.3 as of March 31, 1999 (after giving effect to the PTI Merger and the related financing thereof), which pro forma balance sheet and Compliance Certificate shall be in form and substance acceptable to the Administrative Agent; (ii) Projections for the period commencing in 1998 and concluding on the date approximately five years thereafter after giving effect to the PTI Merger in form and substance acceptable to the Administrative Agent; and (iii) Financial statements for the first fiscal quarter ended March 31, 1999 for the Company and PTI of a type and kind which satisfy the requests for such financial statements as set forth in Section 7.01(b). 78 88 (j) Solvency Certificates Each of the Company and PTI MergeCo shall have delivered a Solvency Certificate substantially in the form of Exhibit K-1 hereto. (k) Collateral Documents. Evidence in form and substance reasonably satisfactory to the Administrative Agent that all Subsidiary Guarantors under the Subsidiary Guaranty have acknowledged and consented to this Amendment and the obligations created hereunder. (l) Updated Disclosure Schedules A certificate signed by a Responsible Officer dated as of the PTI Effective Date, proposing any necessary changes to the Disclosure Schedules to this Agreement in form and substance reasonably satisfactory to the Administrative Agent occurring after the Initial Funding Date (including changes which the Company in good faith reasonably believes will be required on the PTI Funding Date). (m) Other Documents Such other customary approvals, opinions, documents or materials as the Administrative Agent may reasonably request. 5.06 Conditions of PTI Funding Date The obligation of each Lender to make initial advances under its PTI Term Loan Commitment and the PTI Revolver Increase Commitment is subject to (in addition to compliance with Sections 5.03 and 5.04) the condition that the Administrative Agent shall have received executed originals of each of the following on or before such funding date: (a) Notes (i) Notes with respect to the Revolving Loan Commitment amended to reflect the PTI Revolver Increase Commitment, as applicable, in favor of the Lenders with Revolving Loan Commitments; and Notes with respect to the PTI Term Loan Commitment executed by the Company in favor of the Lenders with PTI Term Loan Commitments. (b) Bring Down Certificate for Disclosure Schedules A certificate signed by a Responsible Officer dated as of the PTI Funding Date, proposing any necessary changes to the Disclosure Schedules to this Agreement (provided, however, that the Administrative Agent on behalf of the Lenders, in its reasonable discretion, may accept or reject such proposed changes, but any rejection of the changes will not mean that this condition has not been satisfied). 79 89 (c) Applicable Margin Certificate A certificate delivered to the Administrative Agent on the PTI Funding Date, executed by a Responsible Officer, delineating the Applicable Margin after giving pro forma effect to the Loans to be incurred on the PTI Funding Date and the consummation of the PTI Merger, the form and substance of such certificate to be satisfactory to the Administrative Agent, which new Applicable Margin shall then be effective as of the fifth business day following the PTI Funding Date and which shall replace the Applicable Margin certificate previously delivered by the Company. (d) Lender Payoff Letters A fully executed, valid and binding bank payoff letter, or other customary evidence of satisfaction reasonably acceptable to the Administrative Agent fully executed and delivered by each lender to PTI and each of its Subsidiaries being repaid on the PTI Funding Date in each case stating that the total amount due under any credit and loan documents or agreements with such lenders, as the case may be, howsoever due and owing (whether as principal, interest or premium) shall be satisfied (and such agreements terminated) upon payment of an amount certain, together with such lien releases and other customary payoff documents as the Administrative Agent shall reasonably require; provided, however, that (x) the aggregate amount of such Debt of PTI and its Subsidiaries covered by such payoff letters shall not exceed $180,000,000, and (y) any Debt of the Company or its Subsidiaries or PTI and its Subsidiaries not being repaid must be permitted Debt under Section 8.01. (e) Certificate A certificate signed by a Responsible Officer of the Company, dated as of the PTI Funding Date: (i) stating that the representations and warranties contained in Article VI are true and correct on and as of such date (both before and after giving effect to the PTI Merger, the making of PTI Term Loans and the PTI Revolver Increase Commitment), as though made on and as of such date; (ii) stating that no Default or Event of Default exists both before and after giving effect to the PTI Merger, the making of PTI Term Loans and the PTI Revolver Increase Commitment; (iii) stating that there has occurred (x) since March 31, 1998, with respect to the Company and its Subsidiaries and (y) since December 31, 1997 with respect to PTI and its Subsidiaries, no event or circumstance that has resulted or could reasonably be expected to result in a material adverse change in the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of such Person; (iv) stating that there does not exist (a) any order, decree, judgment, ruling or injunction which restrains the consummation of the PTI Merger and the transactions 80 90 contemplated thereby in the manner contemplated by the PTI Merger Documents or (b) any pending or threatened action, suit, investigation or proceeding , which, if adversely determined, could materially and adversely affect the Company or its Subsidiaries (including PTI and the PTI Subsidiaries), the PTI Merger, any other transaction contemplated by the PTI Merger or the ability of the Company and its Subsidiaries or any other Guarantor to perform its obligations under the Loan Documents; and (v) stating that all governmental, shareholder and third party consents (including, without limitation, all FTC and other anti-trust clearance and SEC approval of the form of proxy solicitation used to seek approval of the issuance of new shares of Company Common Stock) and approvals necessary or desirable in connection with the PTI Merger and the other transactions contemplated thereby have been obtained; provided, however, that for purposes of clauses (iv) and (v) of this Section 5.06(e), required Asset Dispositions or other changes in the business or assets of PTI which are required by a Governmental Authority as a condition to such Person's consent to or approval of the PTI Merger shall be permitted if reasonably satisfactory to the Administrative Agent and in an amount not to exceed 7.5% of the 1998 consolidated net revenues of PTI (before giving effect to the PTI Merger) as reflected on the most recent audited financial statements of PTI. (f) Solvency Certificates A written solvency certificate from a Responsible Officer of the Company, PTI MergeCo and PTI in the form of Exhibit K-1, each dated as of the PTI Funding Date, with respect to the Solvency of each such Person on a consolidated basis after giving effect to the PTI Merger. (g) Resolutions; Incumbency (a) With respect to PTI: (i) copies of the resolutions of the board of directors of PTI authorizing the PTI Merger and the transactions contemplated thereby, certified by the Secretary or an Assistant Secretary of PTI; and (ii) a certificate of the Secretary or Assistant Secretary of PTI dated as of the PTI Funding Date, and certifying the names and true signatures of the officers of PTI authorized to execute, deliver and perform, as applicable, this Agreement and all other Loan Documents to be delivered by it hereunder. (b) With respect to each new Subsidiary Guarantor: (i) copies of the resolutions of the board of directors of such Person authorizing the execution of the Loan Documents contemplated hereby, certified by the Secretary or an Assistant Secretary of such Person; and 81 91 (ii) a certificate of the Secretary or Assistant Secretary of such Person, dated as of the PTI Funding Date, and certifying the names and true signatures of the officers of such Person authorized to execute, deliver and perform, as applicable, this Agreement and all other Loan Documents to be delivered by it hereunder. (h) Organization Documents; Good Standing Each of the following documents with respect to PTI, PTI MergeCo and each Subsidiary Guarantor (for which such certificates have not been previously delivered, and a bring down as to the continuing validity of all previously provided information by each existing Subsidiary Guarantor): (i) the articles or certificate of incorporation, memorandum of association, bylaws and board of directors resolutions of such Person as then in effect, certified by the Secretary or Assistant Secretary of such Person; and (ii) a good standing certificate for such Person from the Secretary of State (or similar, applicable Governmental Authority) of its state of incorporation and each state where such Person is qualified to do business as a foreign corporation as of a recent date, together with a bring-down certificate by facsimile. (i) Collateral Documents (i) The Subsidiary Guaranty executed by PTI, PTI MergeCo and any other new Subsidiaries required to execute the same and the Subsidiary Guarantor Pledge Agreement, together with: (a) evidence satisfactory to the Administrative Agent that there has been or will be filed, registered or recorded all filings, registrations and recordings necessary and advisable to perfect the Liens of the Administrative Agent for the benefit of the Lenders in accordance with applicable law; (b) written advice relating to such Lien and judgment researches as the Administrative Agent shall have requested of the Company, and such termination statements or other documents as may be necessary to confirm that the Collateral is subject to no other Liens in favor of any Persons (other than Permitted Liens); (c) all certificates and instruments representing the Pledged Collateral under the Company Pledge Agreement and the Subsidiary Guarantor Pledge Agreement, together with undated stock transfer powers and other evidence or transferability executed in blank as the Administrative Agent may specify; (d) evidence that all other actions necessary or, in the reasonable opinion of the Administrative Agent, customary to perfect and protect the first priority Lien created by the Collateral Documents; and 82 92 (e) evidence that all Subsidiary Guarantors under the Subsidiary Guaranty have acknowledged and consented to this Amendment and the obligations created hereunder. (ii) A properly executed agreement (whether pursuant to an amendment, acknowledgment or other joinder agreement in form and substance reasonably acceptable to the Administrative Agent) for each of the Subsidiary Guaranty and Subsidiary Guarantor Pledge Agreement, in each case executed by each Subsidiary Guarantor (after giving effect to the PTI Merger) not yet a party thereto, together with: (a) evidence reasonably satisfactory to the Administrative Agent that there has been or will be filed, registered or recorded all filings, registrations and recordings necessary and advisable to perfect the Liens of the Administrative Agent for the benefit of the Lenders in accordance with applicable law; (b) written advice relating to such Lien and judgment searches as the Administrative Agent shall have reasonably requested of the Company, and such termination statements or other documents as may be necessary to confirm that the Collateral is subject to no other Liens in favor of any Persons (other than Permitted Liens); (c) all certificates and instruments representing Pledged Collateral under the Pledge Agreements, as required from such new Subsidiary Guarantors, together with undated stock transfer powers and other evidence of transferability executed in blank as the Administrative Agent may reasonably specify; provided, however, that with respect to Foreign Subsidiaries (which are not Eligible Borrowers seeking to make a Borrowing and to comply with Section 5.04) of the Company which were formerly Subsidiaries of PTI, the Company shall have 60 days after the PTI Funding Date within which to comply with the delivery requirements of this clause (c); and (d) evidence that all other actions necessary or, in the reasonable opinion of the Administrative Agent, customary to perfect and protect the first priority Lien created by the Collateral Documents has been taken. (j) Completion of PTI Merger The Administrative Agent shall have received evidence in form and substance reasonably satisfactory to it that each of the following has occurred on the PTI Funding Date as certified by a Responsible Officer of the Company: (i) that the PTI Merger has been consummated and is effective in accordance with the PTI Merger Documents and in compliance with applicable law and regulatory approvals; (ii) that the PTI Merger Documents have not been materially altered, amended or otherwise changed or supplemented or any condition therein waived without 83 93 prior written consent of the Administrative Agent which consent shall not be unreasonably withheld or delayed; (iii) that the board of directors of the Company, PTI MergeCo and PTI, and shareholders of the Company, PTI MergeCo and PTI approved the PTI Merger; (iv) a copy of the joint proxy solicitation sent to the shareholders of the Company and PTI in connection with the PTI Merger; and (v) that the Company's shareholders have approved the issuance of new shares of common stock and any other actions required to consummate the transactions contemplated by the PTI Merger. (k) Approval of Pro Forma Balance Sheet and Delivery of Updated PTI Financial Statements (i) The Administrative Agent shall have received and approved the pro forma consolidated and consolidating balance sheet of the Company and its Subsidiaries, after giving effect to the PTI Merger and the related financing thereof together with a Compliance Certificate executed by a Responsible Officer, demonstrating compliance by the Company with Sections 9.1, 9.2 and 9.3 as of March 31, 1999 (after giving effect to the PTI Merger and the related financing thereof); and (ii) if the PTI Funding Date shall have occurred later than August 15, 1999 then the Administrative Agent shall have received financial statements for the fiscal quarter ending June 30, 1999 for the Company and PTI of a type and kind which satisfy the requests for such financial statements as set forth in Section 7.01(b). (l) Legal Opinions (i) An opinion addressed to the Administrative Agent and the Lenders, dated as of the PTI Funding Date, of Nutter, McClennen & Fish, LLP, counsel to the Company and PTI MergeCo, updating their opinion delivered pursuant to Section 5.05(d)(i) to bring down the opinions therein, expand the coverage of the opinion to include all guarantors, including PTI MergeCo, and each Collateral Document being executed at such time and cover such other customary matters as the Administrative Agent shall reasonably request, including, but not limited to, an opinion that (I) the PTI Merger shall qualify as a tax-free reorganization and (II) the PTI Merger is valid, legal and effectively consummated in accordance with law, such opinion to be in form and substance satisfactory to the Administrative Agent; and (ii) Copies of all opinions delivered in connection with the PTI Merger agreement, together with reliance letters addressed to the Administrative Agent and the Lenders, dated as of the PTI Funding Date permitting the Lenders to rely on such opinions, or such other opinions that are reasonably acceptable to the Administrative Agent. 84 94 (m) Y2K Problem Review Administrative Agent shall have received and be satisfied with information confirming that PTI and the PTI Subsidiaries have taken and are taking all necessary steps to quantify and successfully address business and financial risks facing each such Person related to the Y2K Problem. (n) Payment of Fees. Evidence of payment by each Borrower of all accrued and unpaid fees, costs and expenses to the extent then due and payable on the PTI Funding Date, together with Attorney Costs of NationsBank to the extent invoiced prior to or on the PTI Funding Date, including any such costs, fees and expenses arising under or referenced in Sections 2.10 and 12.04. (o) Other Documents Such other customary approvals, opinions, documents or materials as the Administrative Agent may reasonably request. ARTICLE VI REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Administrative Agent and each Lender that: 6.01 Incorporation, Good Standing and Due Qualification. Each of the Company and its Subsidiaries (other than Elnic, Inc. which is a dormant corporation) (a) is duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its assets and to transact the business in which it is now engaged, and (b) is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required except where failure to be so qualified would not have a material adverse effect on the Company's business as a whole or its properties, condition (financial or otherwise) or operation. 6.02 Corporate Power and Authority; No Conflicts. The execution, delivery and performance by the Company and each Subsidiary of the PTI Merger Documents, Offer Documents and the Loan Documents to which it is a party are within its corporate power, have been duly authorized by all necessary corporate action and do not and, except for (x) approval by Company shareholders of the issuance of up to 7.7 million shares of Company Common Stock pursuant to the PTI Merger, (y) any filing or related proceeding under the securities laws of the United States relating to either the solicitation of proxies from Company shareholders or the issuance of up to 7.7 million shares of Company Common Stock and the issuance by the SEC of an order declaring effective the Company's registration statement on Form S-4 pursuant to which the Company will register under the Securities Act of 1933 the issuance of up to 7.7 million shares of Company 85 95 Common Stock in the PTI Merger, and (z) the expiration or termination of any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and related antitrust laws and regulations (and provided that all such approvals, consents, filings and expirations will be completed before the PTI Funding Date) will not: (a) require any consent or approval of its stockholders; (b) contravene its charter or by-laws; (c) violate any provision of, or require any filing (except for the filing of this Agreement with the SEC and the New York Stock Exchange), registration, consent or approval under, any law, rule, regulation (including Regulation U of the FRB), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Company or any of its Subsidiaries or affiliates; (d) result in a breach of, or constitute a default or require any consent (except for those consents which have been obtained) under, any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Company or any of its Subsidiaries is a party or by which it or its properties may be bound; (e) result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties now owned or hereafter acquired by the Company or any of its Subsidiaries; or (f) cause the Company (or any Subsidiary or affiliate, as the case may be) to be in default under any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument. 6.03 Legally Enforceable Agreements. Each Loan Document to which the Company or any of its Subsidiaries is a party is, or when delivered under this Agreement will be, a legal, valid and binding obligation of the Company or such Subsidiary, as applicable, enforceable against the Company or such Subsidiary, as applicable, in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability and the time barring of claims under any applicable limitations act. 6.04 Litigation. Except as disclosed on Schedule 6.04, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries before any court, governmental agency or arbitrator, which, in any one case or in the aggregate, would have a reasonable likelihood of having a material adverse effect on the financial condition, operations, properties or business of the Company and its Subsidiaries as taken as a whole or the ability of the Company or any of its Subsidiaries to perform its obligations under the Loan Documents to which it is a party. 6.05 Financial Statements; SEC Filings. (a) Attached hereto as Schedule 6.05(a) is a true and correct copy of the audited consolidated balance sheet of the Company and its Consolidated Subsidiaries as at March 31, 1998, and the related consolidated statements of income and statements of cash flows and changes in stockholders' equity of the Company and its Consolidated Subsidiaries for the fiscal year then ended, and the accompanying footnotes, together with the opinion thereon, of KPMG Peat Marwick LLP, independent certified public accountants, a copy of which is contained in Schedule 6.05(a), and such financial statements present fairly in all material respects the financial condition of the Company and its Consolidated Subsidiaries as at such date and the results of the operations of the Company and its Consolidated Subsidiaries for the periods covered by such statements, all in accordance with 86 96 generally accepted accounting principles. Since March 31, 1998, there has been no material adverse change in the business, financial position or results of operations of the Company and its Subsidiaries. The Company has timely made all filings required of it with the SEC and is in material compliance with all securities laws applicable to it. (b) (i) Attached hereto as Schedule 6.05(b) is a true and correct copy of the audited financial statements of the Target for the fiscal years ended December 31, 1995, December 31, 1996 and December 31, 1997, together with the opinion thereon of Price Waterhouse, independent certified public accountants, a copy of which is contained in Schedule 6.05(b), and to the knowledge of the Company, such financial statements give a true and fair view of the state of affairs of Target and its Subsidiaries as at such dates and of the profit and cash flows of Target and its Subsidiaries for the years then ended and have been properly prepared in accordance with the Companies Act of 1985. (ii) Since December 31, 1998, there has been no material adverse change in the business, financial position or results of operations of Target and its Subsidiaries; provided, however, that up to and including the Initial Funding Date this representation and warranty contained in this clause (ii) shall be deemed to have been made only to the best knowledge of the Company. (c) (i) Attached hereto as Schedule 6.05(c) is a true and correct copy of the audited financial statements of PTI for the fiscal years ended December 31, 1996, December 31, 1997 and December 31, 1998, together with the opinion thereon of PricewaterhouseCoopers, independent certified public accountants, a copy of which is contained in Schedule 6.05(c), and to the knowledge of the Company, such financial statements present fairly in all material respects the financial condition of PTI and its Consolidated Subsidiaries as at such date and the results of the operations of PTI and its Consolidated Subsidiaries for the periods covered by such statements, all in accordance with generally accepted accounting principles. (ii) Beginning on the PTI Funding Date, there has been no material adverse change in the business, financial position or results of operations of PTI and its Subsidiaries since December 31, 1997. 6.06 Taxes. Each of the Company and its Subsidiaries has filed all United States Federal income tax returns and all other material tax returns required to be filed and has paid all taxes, assessments and governmental charges and levies shown thereon to be due, including interest and penalties, except for those which are being contested in good faith and by appropriate proceedings diligently conducted. The federal income tax liability of the Company and its Subsidiaries has been audited by the Internal Revenue Service and has been finally determined and satisfied for all taxable years up to and including the taxable year ended March 31, 1994 (other than with respect to any research and development credit attributable to any taxable year prior to March 31, 1994). The charges, accruals and reserves on the books of the Company and its Subsidiaries with respect to taxes or other governmental charges are adequate in the opinion of the Company. 87 97 6.07 ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code with respect to each Plan. No member of the ERISA Group has (a) sought a waiver of the minimum funding standard under Section 412 of the Code in respect of any Plan, (b) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Code or (c) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. 6.08 Subsidiaries and Ownership of Stock. (a) Schedule 6.08 is a complete and accurate list of Subsidiaries of the Company as of the date hereof (including, without limitation, an additional attachment thereto showing the capital structure of PTI), showing the jurisdiction of incorporation or organization of each Subsidiary and showing the percentage of the Company's ownership of the outstanding capital stock or other ownership interest of each such Subsidiary. Except as set forth on Schedule 6.08, all of the outstanding capital stock or other ownership interest of each such Subsidiary has been validly issued, is fully paid and nonassessable and if owned by the Company is free and clear of all Liens; and (b) PTI MergeCo prior to the PTI Funding Date shall have no property, assets, business operations or employees. 6.09 Credit Arrangements. As of September 30, 1998, Schedule 6.09 (as such Schedule is updated on the Initial Funding Date with the consent of the Administrative Agent) is a complete and correct list of all Debt of the Company and its Subsidiaries outstanding pursuant to which in each case the Company or its Subsidiaries are or may be, in any manner, directly or contingently, obligated in an amount equal to or greater than $1,000,000 and all Liens existing securing Debt outstanding. 6.10 No Default on Outstanding Judgments or Orders. Each of the Company and its Subsidiaries has satisfied all material judgments, and neither the Company nor any of its Subsidiaries is in default with respect to any material judgment, writ, injunction, decree, rule or regulation of any court, arbitrator or federal, state, municipal or other governmental authority, commission, board, bureau, agency or instrumentality, domestic or foreign. 6.11 Governmental Regulation. Neither the Company nor any of its Subsidiaries is a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, or an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or an "investment advisor" within the meaning of the Investment Advisors Act of 1940, as amended. 6.12 Environmental Matters. Except as disclosed in Schedule 6.12, each of the Company and its Subsidiaries is in compliance with all applicable Environmental Laws, and neither the Company nor any of its Subsidiaries has any fixed or contingent liability under any Environmental Law applicable to the business, operations or properties of the Company or any of its Subsidiaries (for purposes of this Section 6.12, "liabilities" shall include liabilities for any capital or operating 88 98 expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any losses or expenses relating to periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses), except in each case where the amount of the liabilities associated with such noncompliance and the amount of such fixed or contingent liabilities does not exceed in the aggregate $5,000,000. For purposes of determining the liability of the Company and its Subsidiaries with respect to any remedial obligation imposed pursuant to the Comprehensive Environmental Response Compensation and Liability Act, as amended, or other similar laws, whether state or federal, the Company and the Lenders shall take account of the contribution obligations of other potentially responsible parties associated with such remedial obligation. 6.13 Margin Stock. As of the PTI Effective Date, the fair market value of all margin stock (as defined in Regulation U of the FRB, 12 CFR Section 221.2(h)) owned by the Company and its Subsidiaries does not exceed $150,000 (not including any shares of the Company's Common Stock held in the MacDermid, Incorporated Employee Pension Plan, the MacDermid, Incorporated Employees Profit Sharing Plan and the MacDermid, Incorporated Employee Stock Ownership Plan and 14,267,816 shares of Common Stock held in the Company's treasury as of the Announcement Date). 6.14 Full Disclosure. All information heretofore furnished by the Company or any of its Subsidiaries to the Administrative Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Company to the Administrative Agent or any Lender will be, true and accurate in all material respects on the date as of which such information is stated or certified. The Company has disclosed to the Lenders any and all facts, other than general economic conditions, which materially and adversely affect or may affect (to the extent the Company can now reasonably foresee) the business, operations or financial condition of the Company and its Subsidiaries, taken as a whole, or the ability of the Company or any of its Subsidiaries to perform their respective obligations under any Loan Document. 6.15 Collateral Documents. (a) The provisions of each Pledge Agreement are effective to create, in favor of the Administrative Agent for the benefit of the Lenders, a legal, valid and enforceable security interest in all of the collateral described therein; and the Pledged Collateral was delivered to the Administrative Agent or its nominee in accordance with the terms thereof. The Lien of each Pledge Agreement constitutes a perfected, first priority security interest in all right, title and interest of a Borrower or its Subsidiary, as the case may be, in the Collateral described therein, prior and superior to all other Liens and interests. 89 99 (b) All representations and warranties of a Borrower and any of its Subsidiaries party thereto contained in the Collateral Documents are true and correct in all material respects. 6.16 Solvency The Company and its Subsidiaries, on a consolidated basis, are Solvent, and, on and after the Initial Funding Date, US Holdco #1, US Holdco #2, and Bidco, each on a stand alone basis, and the Target and its Subsidiaries, on a consolidated basis, are, Solvent, and on and after the PTI Funding Date, PTI and its Subsidiaries on a consolidated basis are Solvent. 6.17 Labor Relations There are no strikes, lockouts or other material labor disputes against the Company or any of its Subsidiaries, or, to the best of the Company's knowledge, threatened against or materially affecting the Company or any of its Subsidiaries, and no significant unfair labor practice complaint is pending against the Company or any of its Subsidiaries or, to the best knowledge of the Company, threatened against or materially affecting any of them before any Governmental Authority. 6.18 Copyrights, Patents, Trademarks and Licenses, etc. Except as set forth on Schedule 6.18 hereto, the Company or a Subsidiary owned or is licensed or otherwise has the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are material to the operation of their respective businesses, without conflict by, or with the rights of, any other Person. To the best knowledge of the Company, no slogan or other advertising device, product, process, method, substance, part or other material employed by the Company or any of its Subsidiaries infringes upon any rights held by any other Person. Except as set forth on Schedule 6.18 hereto, no claim or litigation regarding any of the foregoing is pending or to the knowledge of the Company threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Company, proposed, which, in either case, could reasonably be expected to have a material adverse change in the business, financial position or results of operations of the Company and its Subsidiaries. 6.19 Broker's; Transaction Fees Neither the Company nor any of its Subsidiaries has any obligation to any Person in respect of any finder's, broker's or investment banker's fee in connection with the Transaction except as disclosed on Schedule 6.19. 6.20 Insurance The properties of each of the Company and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Company, in such amounts, with such deductibles and covering such risks as are customarily carried by companies 90 100 engaged in similar businesses and owning similar properties in localities where the Company or such Subsidiary operates. 6.21 Swap Obligations Neither the Company nor any of its Subsidiaries has incurred any outstanding obligations under any Swap Contracts, other than Permitted Swap Obligations. The Company has undertaken its own independent assessment of its consolidated assets, liabilities and commitments and has considered appropriate means of mitigating and managing risks associated with such matters and has not relied on any swap counterparty or any Affiliate of any swap counterparty in determining whether to enter into any Swap Contract. All of the Swap Contracts of the Company and its Subsidiaries in effect as of the date of this Agreement are set forth on Schedule 6.21. 6.22 Transaction Agreements and PTI Merger Documents (a) The agreements in connection with the Transaction (including, without limitation, the Press Release, the Offer Documents and the agreements relating to the refinancing of certain Debt of the Target and certain Target Subsidiaries) ("Transaction Agreements") are, or when executed (or released in the case of the Press Release) will be, in full force and effect, and if previously executed, have not been terminated, rescinded or withdrawn, and no material portion thereof has been amended or waived by any party except as permitted pursuant to the terms and conditions contained in Section 7.14. As of the Initial Funding Date, all requisite approvals by governmental authorities and regulatory bodies having jurisdiction over the Company and other Persons referenced therein, with respect to the transactions contemplated by the Transaction Agreements, have been obtained, and no such approvals impose any conditions to the consummation of the transactions contemplated by the Transaction Agreements or to the conduct in any material respect by the Company and its Subsidiaries of its business thereafter. To the best of the Company's knowledge, none of any Person's representations or warranties in the Transaction Agreements contain any untrue statement of a material fact or omit any fact necessary to make the facts necessary to make the statements contained therein not misleading in light of the circumstances in which made. (b) The agreements in connection with the PTI Merger (including, without limitation, that certain Plan and Agreement of Merger dated February 18, 1999 among PTI, PTI MergeCo, the Company, and Citicorp Venture Capital, Ltd., a New York corporation ("CVC"), the Certificate of Merger; the Escrow Agreement among the Company, CVC, David Beckerman ("PTI's Management Representative") and State Street Bank and Trust Company (the "Escrow Agent"); the Agency Agreement, Waiver and Release among CVC, PTI'S Management Representative, and PTI Stockholders (as defined therein); and the Registration Rights Agreement between the Company and CVC; and the agreements relating to the refinancing of certain Debt of PTI and certain PTI Subsidiaries) ("PTI Merger Documents") are, or when executed will be, in full force and effect, and if previously executed, have not been terminated, rescinded or withdrawn, and no material portion thereof has been amended or waived by any party except as permitted pursuant to the terms and conditions contained in Section 7.14. As of the PTI Funding Date, all requisite approvals by governmental authorities and regulatory bodies having jurisdiction over the Company and other 91 101 Persons referenced therein, with respect to the transactions contemplated by the PTI Merger Documents, have been obtained, and no such approvals impose any material conditions to the consummation of the transactions contemplated by the PTI Merger Documents or to the conduct in any material respect by the Company and its Subsidiaries of their businesses thereafter. To the best of the Company's knowledge, none of any Person's representations or warranties in the PTI Merger Documents contains any untrue statement of a material fact or omits any fact necessary to make the facts necessary to make the statements contained therein not misleading in light of the circumstances in which made; provided, however, that for purposes of this Section 6.22(b), required Asset Dispositions or other changes in the business or assets of PTI which are required by a Governmental Authority as a condition to such Person's consent to the PTI Merger shall be permitted if reasonably satisfactory to the Administrative Agent and in an amount not to exceed 7.5% of the 1998 consolidated net revenues of PTI (before giving effect to the PTI Merger) as reflected on the most recent audited financial statements of PTI. 6.23 Governmental Authorization (a) In connection with the Transaction and the Offer, no approval, consent, exemption, authorization, or other action by, or notice to, or filing (other than pursuant to the Collateral Documents) with, any Governmental Authority is materially necessary or required in connection with the execution, delivery or performance by, or enforcement against, a Borrower or any of its Subsidiaries of this Agreement, any other Loan Document or any Transaction Agreement other than (a) those approvals, consents, exemptions and authorizations which have already been obtained, (b) any consent or dispensations in connection with Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and appropriate clearances from the Office of Fair Trading, each of which will be obtained on or prior to the Initial Funding Date and (c) the registration of certain of the Collateral Documents as required by Section 395 of the Companies Act. (b) In connection with the PTI Merger, no approval, consent, exemption, authorization, or other action by, or notice to, or filing (other than pursuant to the Collateral Documents) with, any Governmental Authority is materially necessary or required in connection with the execution, delivery or performance by, or enforcement against, a Borrower or any of its Subsidiaries of this Agreement, any other Loan Document or any PTI Merger Documents other than (a) those approvals, consents, exemptions and authorizations which have already been obtained, (b) any consent or dispensations in connection with Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and related anti-trust laws and regulations, which will be obtained on or prior to the PTI Funding Date; (c) any filings required pursuant to the securities laws of the United States relating to either the solicitation of proxies from Company shareholders or the issuance of up to 7.7 million shares of Company Common Stock and the issuance by the SEC of an order declaring effective the Company's registration statement on Form S-4 pursuant to which the Company will register under the Securities Act of 1933 the issuance of up to 7.7 million shares of Company Common Stock in the PTI Merger ; (d) approval by the Company's shareholders of the issuance of up to 7.7 million shares of Company Common Stock pursuant to the PTI Merger, which approval will be obtained prior to the PTI Funding Date and prior to any issuance of Company Common Stock pursuant to the PTI Merger; and (e) approval of the PTI Merger by the holders of a majority of the 92 102 shares of PTI Class A common stock and any other shares required to approve the PTI Merger, which approval will be obtained prior to the PTI Funding Date and prior to the issuance of Company Common Stock pursuant to the PTI Merger. 6.24 Year 2000 Compliance On the basis of an investigation made by Company and each of its Subsidiaries, the Company to the best of its knowledge reasonably believes that the Y2K Problem will not result in a material adverse change in the business, financial position or results of operations of the Company and its Subsidiaries. 6.25 Representations of Eligible Borrowers. Each Eligible Borrower shall be deemed by the execution and delivery of its Election to Participate to have represented and warranted as of the date thereof that: (a) It is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and is a Wholly-Owned Consolidated Subsidiary of the Company; (b) The execution and delivery by it of its Authorization Letter, its Election to Participate, the Subsidiary Guaranty (in the case of a Domestic Subsidiary only), the Subsidiary Pledge Agreement (in the case of a Domestic Subsidiary only) and its Notes, and the performance by it of this Agreement and the other Loan Documents to which it is a party are within its corporate powers; have been duly authorized by all necessary corporate action; require no action by or in respect of, or filing with, any governmental body, agency or official; do not contravene, or constitute a default under, any provision of any applicable law or regulation or of its certificate of incorporation or by-laws or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or such Eligible Borrower; and will not result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries other than Permitted Liens; (c) This Agreement and each other Loan Document to which it is a party constitutes a legal, valid and binding obligation of such Eligible Borrower, enforceable against such Eligible Borrower in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability and the time barring of claims under any applicable limitations act; (d) Except as disclosed in such Election to Participate, there is no income, stamp or other tax of any country, or any taxing authority thereof or therein, in the nature of withholding or otherwise, which is imposed on any payment to be made by such Eligible Borrower pursuant hereto or on any of its Notes, or is imposed on or by virtue of the execution, delivery, performance or enforcement of its Election to Participate or any of its Notes. 93 103 ARTICLE VII AFFIRMATIVE COVENANTS On and after the PTI Effective Date, so long as any Lender shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, unless the Majority Lenders waive compliance in writing: 7.01 Reporting Requirements. The Company shall furnish directly to the Administrative Agent (and the Administrative Agent shall promptly furnish a copy to the Lenders): (a) as soon as available and in any event within 90 days after the end of each fiscal year of the Company, a consolidated and consolidating balance sheet of the Company and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated and consolidating statements of income and consolidated statements of cash flows and changes in stockholders' equity of the Company and its Consolidated Subsidiaries for such fiscal year, all in reasonable detail and stating in comparative form the respective consolidated and consolidating figures for the corresponding date and period in the prior fiscal year and (i) in the case of the consolidated statements, all reported on in a manner acceptable to the SEC by KPMG Peat Marwick LLP or other independent public accountants of nationally recognized standing, and (ii) in the case of consolidating statements, all certified as to fairness of presentation, compliance with generally accepted accounting principles and consistency by a Responsible Officer of the Company; (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Company, a consolidated and consolidating balance sheet of the Company and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated and consolidating statements of income and consolidated statements of cash flows and changes in stockholders' equity of the Company and its Consolidated Subsidiaries for such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail and stating in comparative form the respective consolidated figures as of the end of and for the corresponding quarter and the corresponding year-to-date period in the previous fiscal year, and certified by a Responsible Officer of the Company (subject to year end adjustments and the omission of notes permitted by the applicable regulations of the SEC to be excluded from quarterly reports filed on Form 10-Q) as to fairness of presentation, compliance with generally accepted accounting principles and consistency; (c) simultaneously with the delivery of each set of financial statements referred to in Sections 7.01(a) and 7.01(b) , a certificate of a Responsible Officer of the Company in the form of Exhibit C hereto (a "Compliance Certificate") (i) setting forth in reasonable detail the calculations required to establish whether the Company was in compliance with the requirements of Sections 8.01 through 8.04, inclusive, and Sections 8.06, 9.01, 9.02 and 9.03 on the date of such financial statements, (ii) certifying as to the ratio for the twelve-month period then ending of the Debt of the Company and its Consolidated Subsidiaries on a consolidated basis to its Consolidated EBITDA for such period, and (iii) stating whether any Default or Event of Default exists on the date of such 94 104 certificate and, if any Default or Event of Default then exists, setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (d) within ten days after any officer of the Company obtains knowledge of any Default or Event of Default, if such Default or Event of Default is then continuing, a certificate of a Responsible Officer of the Company setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (e) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (f) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Company shall file with the Securities and Exchange Commission; (g) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the Plan administrator of any Plan has given or is required to give notice of any such reportable event to the PBGC, a copy of such notice; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of a Responsible Officer of the Company setting forth details as to such occurrence and action, if any, which any member of the ERISA Group is required or proposes to take; (h) promptly after the commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the Company or any of its Subsidiaries which have a reasonable likelihood of a material adverse effect on the financial condition, properties, or operations of the Company and its Subsidiaries taken as a whole; (i) if, at any time, the Company shall become aware or have reasonable cause to believe (i) that Hazardous Substances or solid wastes have been released, or have otherwise come to be located, on or in or have begun to affect any real property owned or leased by the Company or any Subsidiary or that any liability arising out of the violation of any Environmental Laws has arisen, 95 105 including liability for off-site environmental conditions, or (ii) that a notice has been received from any governmental body or other party seeking any information or alleging any violation of any Environmental Laws or alleging any liability with regard to any real property owned or leased by the Company or any Subsidiary or off-site environmental conditions, in either case which shall have a reasonable likelihood of materially impairing the Borrowers' ability to meet their obligations under the Loan Documents, notice of that event; (j) such other information respecting the condition or operations, financial or otherwise, of the Company or any of its Subsidiaries as the Administrative Agent or any Lender may from time to time reasonably request; and (k) if, at any time, the Company shall wish to add any information or material to the Schedules to this Agreement, it shall propose such additions to the Agent and the Lenders, provided that such Schedules shall only be amended with the consent of the Majority Lenders, which they may withhold in their sole discretion (which consent will not be unreasonably withheld). 7.02 Payment of Obligations. The Company will pay and discharge, and will cause each Subsidiary to pay and discharge, at or before maturity or in accordance with the Company's customary trade practices, all their respective material obligations and liabilities, including tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each Subsidiary to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same. 7.03 Maintenance of Property; Insurance. (a) The Company will maintain, and will cause each Subsidiary to maintain, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) To the extent that insurance is reasonably available to the Company and its Subsidiaries at a price comparable to the price paid by other Persons in the same or similar types of business conducted by the Company or the relevant Subsidiary, the Company will, and will cause each of its Subsidiaries to, maintain (either in the name of the Company or in such Subsidiary's own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are (i) insured against under the policies of insurance of the Company and its Subsidiaries set forth on the schedule previously provided by the Company to the Lenders or (ii) usually insured against in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to the Lenders, upon request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried. To the extent such insurance is not obtained, the Company will adopt, in lieu of or supplemental to such insurance, such other plan or method of protection, whether by the establishment of an insurance fund or a reserve to be held and 96 106 applied to casualty losses, or otherwise, satisfactory to the Lenders and conforming to the practices of similar corporations' self-insurance. 7.04 Conduct of Business and Maintenance of Existence. The Company will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Company and its Subsidiaries (i.e., the business of specialty chemicals and related equipment), and will preserve, renew and keep in full force and effect as necessary, and will cause each Subsidiary to preserve, renew and keep in full force and effect as necessary, (a) their respective corporate existence and (b) their respective permits, licenses, certifications, approvals, rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that nothing in this Section 7.04 shall prohibit (i) the merger or consolidation of a Subsidiary with or into another Person if the corporation surviving such consolidation or merger is a Wholly-Owned Subsidiary or the merger of a Subsidiary into the Company if, in each case, after giving effect thereto, no Default or Event of Default shall have occurred and be continuing, or (ii) the termination of the corporate existence of any Subsidiary if (A) such termination is not materially disadvantageous to the Lenders and the Company in good faith determines that such termination is in the best interest of the Company or (B) such termination is in compliance with Section 8.05(ii). 7.05 Compliance with Laws. The Company will comply, and will cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations and requirements of governmental authorities (including Environmental Laws and ERISA and the rules and regulations thereunder), whether foreign or domestic, except (a) where the necessity of compliance therewith is contested in good faith by appropriate proceedings and appropriate reserves are maintained in accordance with generally accepted accounting principles and (b) where failure to comply with such law, ordinance, rule, regulation or requirement would not have a material adverse effect on the financial condition of the Company and its Subsidiaries taken as a whole. 7.06 Inspection of Property, Books and Records. The Company will keep, and will cause each Subsidiary to keep, proper books of record and account in which materially full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Lender to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, provided the Company shall have the right to be present at any meeting with its independent public accountants, all at such reasonable times, upon reasonable notice and as often as may reasonably be desired. 7.07 Maintenance of Ownership of Subsidiaries. 97 107 The Company will at all times maintain direct or indirect legal and beneficial ownership of the percentage of outstanding shares of each class of capital stock substantially as set forth on Schedule 6.08 of each of its Subsidiaries, except as modified by a consolidation merger or sale permitted pursuant to the proviso to Section 8.05. 7.08 Use of Proceeds (a) The Borrowers shall use the proceeds of the Revolving Loans (including the amount of the PTI Revolver Increase Commitment after the PTI Funding Date) and Swing Line Loans for working capital and other general corporate purposes (other than for the purpose of financing a hostile Acquisition), the refinancing of certain Debt of the Company and its Subsidiaries under the Existing Credit Agreement, to the payment of fees and expenses relating to the Transaction. In addition, the Company shall use proceeds of Revolving Loans and Swing Line Loans for the acquisition of Target Shares during the Certain Funds Period. (b) The Company shall apply the proceeds of the Term Loan to the refinancing or prepayment of all outstanding Debt of the Company and its Subsidiaries under the Existing Credit Agreement , for the purchase of Target Shares (in accordance with the funding procedures clause (c) below), and for other general corporate purposes. (c) The Company shall apply the proceeds of all Sterling Acquisition Loans first to make equity contributions and/or intercompany loans to US Holdco #1 and US Holdco #2, each of which shall use 100% of such proceeds to make equity contributions and/or intercompany loans to Bidco to enable Bidco to facilitate the refinancing of certain Debt of the Target and certain Target Subsidiaries as provided in Section 5.02(c), towards financing the cash consideration to be paid by Bidco for the Target Shares pursuant to acceptances of the Offer, and second towards the payment of fees and expenses relating to the Transaction and for other general corporate purposes. (d) The Company hereby acknowledges and agrees that the aggregate Dollar Equivalent of Loans incurred during the Certain Funds Period in connection with the purchase of Target Shares, any refinancing of Debt of Target and its Subsidiaries in connection with the acquisition of Target pursuant to the Offer, any refinancing of Debt of the Company and its Subsidiaries on the Initial Funding Date and the payment of fees in connection with the Transaction shall not exceed the Dollar Equivalent of $320,000,000. (e) The Company shall apply the proceeds of the PTI Term Loan to refinance certain Debt of PTI and/or PTI's Subsidiaries pursuant to the PTI Merger and the transactions related thereto. (f) The Company hereby acknowledges and agrees that the aggregate Dollar Equivalent of Loans incurred in connection with the PTI Merger shall not exceed the Dollar Equivalent of $205,000,000; provided, however, that no more than the Dollar Equivalent of (i) $180,000,000 may be used to repay indebtedness of PTI, (ii) $10,000,000 may be used for the payment of fees and expenses in connection with the PTI Merger, and (iii) $15,000,000 may be used, 98 108 if needed, to purchase in cash PTI shares from PTI shareholders asserting dissenters' rights in connection with the PTI Merger. 7.09 Solvency The Company and its Subsidiaries, on a consolidated basis, shall at all times be Solvent, and on and after (a) the Initial Funding Date, US Holdco #1, US Holdco #2 and Bidco, each on a stand-alone basis, and the Target and its Subsidiaries, on a consolidated basis, shall at all times be Solvent, and (b) the PTI Funding Date, PTI and the PTI Subsidiaries taken as a whole shall at all times be Solvent. 7.10 Further Assurances. (a) Each Borrower shall ensure that all written information, exhibits and reports furnished to the Administrative Agent or the Lenders do not and will not contain any untrue statement of a material fact and do not and will not omit to state any material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and will promptly disclose to the Administrative Agent and the Lenders and correct any defect or error that may be discovered therein or in any Loan Document or in the execution, acknowledgment or recordation thereof. (b) Promptly upon the written request of the Administrative Agent or the Majority Lenders, each Borrower shall (and shall cause any of its Subsidiaries to) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, security agreements, mortgages, assignments, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments the Administrative Agent or such Lenders, as the case may be, may reasonably require from time to time in order (i) to carry out more effectively the purposes of this Agreement or any other Loan Document, (ii) to subject any of the properties, rights or interests covered by any of the Collateral Documents to the Liens created by any of the Collateral Documents, (iii) to perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and the Liens intended to be created thereby, and (iv) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Administrative Agent and the Lenders the rights granted or now or hereafter intended to be granted to the Administrative Agent and the Lenders under any Loan Document or under any other document executed in connection therewith. 7.11 Foreign Subsidiaries Security (a) The Company will, and will cause its relevant Subsidiaries to, deliver to the Administrative Agent on or prior to the 45th day following the Initial Funding Date (or such later date as is acceptable to the Administrative Agent to accommodate processing or local law requirements) the Pledged Collateral relating to each Specified Foreign Subsidiary, together with such instruments of transfer as are reasonably acceptable to the Administrative Agent. 99 109 (b) If the Administrative Agent reasonably believes that appropriate changes have been made to the relevant sections of the Code as in effect on the Announcement Date, the regulations and rules promulgated thereunder and any rulings issued thereunder, the Administrative Agent may (or upon the reasonable request of the Majority Lenders, shall) request that counsel for the Company acceptable to the Administrative Agent within 30 days after such request deliver evidence satisfactory to the Administrative Agent, with respect to any Foreign Subsidiary which is a first-tier Wholly-Owned Consolidated Subsidiary of the Company, that (i) a pledge of 65% or more of the total combined voting power of all classes of capital stock of such Foreign Subsidiary entitled to vote, (ii) the entering into by such Foreign Subsidiary of a guaranty in substantially the form of the Subsidiary Guaranty or (iii) the entering into by such Foreign Subsidiary of a pledge agreement in substantially the form of the Subsidiary Guarantor Pledge Agreement, in either case would cause the earnings of such Foreign Subsidiary to be treated as a deemed dividend to such Foreign Subsidiary's United States parent or would otherwise violate a material applicable law or governmental or regulatory restriction or rule (including laws, rules, or restrictions of, or issued by, a government or regulatory authorities of a foreign jurisdiction or would otherwise cause a material adverse monetary tax consequence to the Company), and in the case of a failure to deliver the evidence described in clause (i) above, (A) that portion of such Foreign Subsidiary's outstanding capital stock and intercompany notes not theretofore pledged pursuant to a Pledge Agreement shall be pledged to the Administrative Agent, for the benefit of itself, the Issuing Bank and the Lenders pursuant to a Pledge Agreement (or another pledge agreement in substantially similar form, if needed), (B) such Foreign Subsidiary shall execute and deliver a guaranty of the Obligations of the Company under the Loan Documents and (C) such Foreign Subsidiary shall execute and deliver a pledge agreement granting the Administrative Agent for the benefit of the Lenders a security interest in all of the capital stock of each Subsidiary of such Foreign Subsidiary and intercompany notes payable to such Foreign Subsidiary, in each case with all documents delivered pursuant to this Section 7.11 to be in form and substance satisfactory to the Administrative Agent. 7.12 The Offer (a) The Company will procure that the Offer is made on the terms and conditions set out in the Press Release. (b) The Company will keep the Administrative Agent informed as to the status of, and progress with respect to, the Offer and updated financial information on Target and each Target Subsidiary (as available) and, in particular, will promptly give to the Administrative Agent such information (including details as to the current level of acceptances) concerning the Offer or otherwise relevant to the Offer as the Administrative Agent may reasonably request and shall promptly upon receipt deliver to the Administrative Agent a copy of every certificate delivered to Bidco in connection with the Offer by the receiving agent pursuant to the City Code. (c) Without the prior approval of the Administrative Agent (the Administrative Agent's response not to be unreasonably delayed), the Company will not, and will procure that Bidco will not: 100 110 (i) waive, in whole or in part, either of the conditions specified in 1(B) and (C) of Appendix 1 to the Press Release relating to the UK Fair Trading Act 1973 and the US Hart-Scott-Rodino Anti-Trust Improvements Act of 1976; or (ii) make any increase in the per share offer purchase price or any change in the form of consideration of the offer purchase price (each as delineated in the Press Release) or take or permit to be taken any step as a result of which such an increase or change is or may be required; and (iii) take or permit to be taken any step which would require the Company or any of its Subsidiaries (including Bidco) to make a mandatory offer for Target within Rule 9 of the City Code. (d) The Company will notify the Administrative Agent immediately upon becoming aware of any circumstance or event which is or could reasonably be construed as being covered by a condition of the Offer which, if not waived, would entitle it, with the consent of the Panel on Take-overs and Mergers in the United Kingdom, if needed, to lapse the Offer and will consult with the Administrative Agent in relation to such event or circumstances and its intended actions. (e) The Company will consult with the Administrative Agent before declaring the Offer unconditional as to acceptances in circumstances where it has not acquired or agreed to acquire pursuant to the Offer at least 90% in nominal value of the Target Shares to which the Offer relates (within the meaning of Section 428-430F of the Companies Act). (f) The Company will not, and will not permit Bidco to, exercise its rights to declare the Offer unconditional as to acceptances unless it has acquired or agreed to acquire pursuant to the Offer not less than 75% of the Target Shares on a fully diluted basis. (g) The Company shall, and shall cause US Holdco #1, US Holdco #2 and Bidco to, comply in all material respects with the provisions of the City Code, the Financial Services Act 1986 and the Companies Act 1985 and all other applicable statutes, laws and regulations relevant in the context of the Offer. (h) The Company shall cause Bidco to give notice under Section 429 of the Companies Act to relevant Target shareholders promptly upon becoming entitled to do so under the Companies Act. (i) The Company shall ensure that, on the Initial Funding Date, the Administrative Agent is provided with copies of such constitutional documents of the Target and each Target Subsidiary as it deems to be material. (j) The Company will (and will cause Bidco to) consult with the Administrative Agent with respect to any condition which is attached to: 101 111 (i) any indication by the Office of Fair Trading that it is not the intention of the Secretary of State for Trade and Industry to refer the proposed acquisition of Target by Bidco to the Monopolies and Mergers Commission; or (ii) the expiry, lapsing or termination of any appropriate waiting period (including any extension thereof) under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the regulations thereunder; and will not in any event treat or deem the conditions to the Offer specified in Sections 1(b) or (c) (as the case may be) of Appendix 1 to the Press Release as satisfied or waived if it would, in the reasonable opinion of the Administrative Agent, have a material adverse effect on the business, assets, financial conditions or prospects of the Company, Bidco or the Target. 7.13 Bidco Capitalization. On or prior to the Initial Funding Date, the Company shall take any and all actions necessary to ensure that the shares of Bidco are fully paid, and shall have delivered evidence satisfactory to the Administrative Agent that such actions have been taken. 7.14 The PTI Merger. On or prior to the PTI Funding Date (except paragraph (d), which shall continue in effect thereafter), the Company shall: (a) deliver to the Administrative Agent correct and complete copies of the PTI Merger Documents and update such documents as necessary; (b) obtain all anti-trust clearance from the FTC and other Governmental Agencies for the PTI Merger and deliver to the Administrative Agent proof thereof (or promptly notify Administrative Agent in the event such clearance has been refused); (c) obtain all necessary consents and approvals from the SEC and any necessary state authority relating to the issuance of Company Capital Stock as partial consideration for the PTI Merger and required by the PTI Merger Documents; and (d) not permit or cause PTI MergeCo or any of its other Subsidiaries to consent to any amendment or waiver to the terms or conditions of the PTI Merger Documents without the prior written consent of the Administrative Agent. ARTICLE VIII NEGATIVE COVENANTS On and after the PTI Effective Date, so long as any Lender shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, unless the Majority Lenders waive compliance in writing the Company shall not, and shall not permit any of its Subsidiaries to: 102 112 8.01 Debt. Incur or at any time be liable with respect to any Debt except: (a) Debt outstanding under this Agreement and the other Loan Documents; (b) Debt not evidenced by this Agreement or the other Loan Documents and in an amount outstanding as of September 30, 1998 and identified on Schedule 6.09 (as such Schedule is updated on the PTI Funding Date with the consent of the Administrative Agent) and other Debt in an amount outstanding as of the PTI Effective Date (which shall be identified on Schedule 6.09 if in each case it is in excess of $1,000,000) and any extensions, renewals and refinancings of any such Debt to the extent that (x) the aggregate principal amount of the Debt permitted pursuant to this clause (b) is not increased as of such date as a result thereof, and (y) the respective issue of refinancing Debt shall have no restrictions which would violate any terms of this Agreement or any other Loan Document or of any other Debt of the Company and its Subsidiaries which is to remain in effect; provided, however, that no Debt under the Existing Credit Agreement (or any refinancing thereof other than with the proceeds of the Loans) will be permitted on or after the Initial Funding Date. (c) Debt (in addition to the allowances in clauses (a), (b), (d), (e),(f) , and (g)of this Section 8.01) in an aggregate principal amount not to exceed $30,000,000 (provided, however, that on and after the PTI Funding Date, this amount shall be $50,000,000) at any time outstanding; (d) Debt subordinated to the Debt hereunder, in amounts and on terms and conditions satisfactory to the Majority Lenders; (e) Debt constituting a guaranty issued by the Company with respect to (x) Debt of any Subsidiary to the extent such Subsidiary's Debt is permitted to be incurred pursuant to a clause (other than this clause (e)) of this Section 8.01 and (y) Debt of any Person not a Subsidiary, provided that the aggregate principal amount of such Debt shall not at any time exceed $15,000,000 (without giving effect to any write-offs or write-downs of such Debt); (f) intercompany loans to the extent permitted pursuant to Section 8.06; and (g) Debt of the Company in a principal amount not to exceed $100,000,000 (the "Take Out Debt") which is unsecured, contains interest rates, fees and other pricing terms reflecting fair market value rates, does not mature in whole or in part or require any principal amortization or prepayments until after the maturity date of all Loans hereunder and is on such other terms and conditions as are not materially more restrictive than the terms and conditions of the Loan Documents, together with Debt (without double counting) consisting of unsecured guarantees of the Take Out Debt by any Subsidiaries of the Company that are then party to the Subsidiary Guaranty on a pari passu basis with the obligations under the Subsidiary Guaranty, and is on such terms and conditions as are not materially more restrictive than the terms and conditions of the Loan Documents; provided, further, that prior to incurring such Take Out Debt (i) no Default or Event of Default shall then exist or result after giving effect thereto (as further evidenced by a written 103 113 certificate to such effect from the Company in favor of the Lenders and the Administrative Agent), (ii) the Company demonstrates in writing to the reasonable satisfaction of the Administrative Agent that it is and will be in compliance on a pro forma basis with the financial covenants set forth in Article IX after giving effect to such Take Out Debt and (iii) the proceeds of such Take Out Debt are applied in accordance with Section 2.07(k). 8.02 Restricted Payments. Declare or make any Restricted Payments except Restricted Payments made when no Default or Event of Default has occurred and is continuing (or would result after giving effect to such Restricted Payment) and where immediately after giving effect thereto, the aggregate of all Restricted Payments declared or made subsequent to the Announcement Date does not exceed (a) $22,500,000 (provided, however, that on and after the PTI Funding Date, this amount shall be $32,500,000) plus (b) 50% of Consolidated Net Income (less consolidated net loss, if any) of the Company and its Consolidated Subsidiaries for the period from the Announcement Date through the end of the Company's then most recent fiscal quarter (treated for this purpose as a single accounting period). Nothing in this Section 8.02 shall prohibit the payment of (A) any dividend or distribution within 60 days after the declaration thereof if such declaration was not prohibited by this Section 8.02; and (B) the distribution of up to 7.7 million shares of Company Common Stock (as such amount is adjusted pursuant to any dividend, stock split, merger, reverse stock merger or similar transaction after the PTI Effective Date) to PTI MergeCo for delivery to the former shareholders of PTI pursuant to the PTI Merger Documents. 8.03 Investments. Make or acquire any Investment in any Person other than: (a) Investments (other than pursuant to Section 8.03(f)) in an aggregate amount not to exceed $33,000,000 (provided, however, that on and after the PTI Funding Date, this amount shall be $40,000,000) outstanding as of the Announcement Date (such Investments in excess of $1,000,000 are set forth on Schedule 8.03(a) (as such Schedule is updated on the Initial Funding Date with the consent of the Administrative Agent) and any replacements of such Investments with Investments of equal amount thereto; (b) Investments in joint ventures of the Company or its Subsidiaries if after giving effect thereto the aggregate amount of all such Investments does not exceed $10,000,000 (provided, however, that on and after the PTI Funding Date, this amount shall be $20,000,000) outstanding at any one time, excluding any Investments described in Sections 8.03(a) and (f); (c) deposits with, or time deposits with, including certificates of deposits issued by, (i) any office located in the United States of any bank or trust company which is organized under the laws of the United States or any state thereof and has capital surplus and undivided profits aggregating at least $100,000,000, (ii) any Lender or (iii) any foreign bank for which S & P or 104 114 Moody's issues a rating of "A" or higher and which has capital surplus and undivided profits aggregating at least $100,000,000; (d) Investments in investment grade securities; (e) Investments made in another Person pursuant to a merger or asset acquisition made in compliance with clause (i) of the proviso in Section 8.05; (f) Investments relating to the ViaTek program existing or planned as of the Announcement Date and listed on Schedule 8.03(b), and additional Investments relating to the ViaTek program in an aggregate amount not to exceed $12,000,000 at any time; (g) Investments to the extent permitted pursuant to Section 8.06; and (h) other Investments (other than pursuant to Section 8.03 (f)) up to (x) at any time prior to the Initial Funding Date, $45,000,000 in the aggregate and (y) on and after the Initial Funding Date, $20,000,000 in the aggregate. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without adjustments for increases or decreases in value, write-ups, write-downs or write-offs with respect to such Investment. 8.04 Negative Pledge. Create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing as of the Announcement Date securing Debt outstanding on such date and identified on Schedule 8.04 (as such Schedule is updated on the Initial Funding Date with the consent of the Administrative Agent), provided, that the Lien identified in Item 5(b) on Schedule 8.04 shall not be permitted to exist at any time on and after February 28, 1999; (b) Permitted Liens; (c) any Lien existing on any non-current asset securing Debt in an aggregate principal amount up to $15,000,000 at any time; (d) any Lien securing factoring programs of Foreign Subsidiaries in an aggregate amount of up to $5,000,000 at any time; and (e) any Lien relating to a transaction permitted by Section 8.05(ii)(y). 105 115 8.05 Consolidations, Mergers and Sales of Assets. Suffer, permit or enter into any agreement to (a) consolidate or merge with or into any other Person or (b) make an Asset Disposition; provided that: (i) the Company or any Subsidiary may merge with or acquire another Person, through a stock, asset or any other similar transaction, which is in the business of specialty chemicals and related equipment if (A) the Company or such Subsidiary is the surviving entity, (B) such acquisition is friendly and is done with the recommendation of the acquiree's board of directors or similar governing body and (C) the Company has delivered to the Administrative Agent a certificate executed by a Responsible Officer (x) certifying that no Default or Event of Default has occurred and is continuing both before and after giving effect to such transaction and (y) demonstrating pro forma compliance with Sections 9.01, 9.02 and 9.03 after giving effect to such transaction; (ii) the Company or any Subsidiary may make Asset Dispositions the aggregate net proceeds of which received by the Company after the Announcement Date shall not exceed (x) $25,000,000 (other than an Asset Disposition subject to the following clause (y)) (and, subject to compliance with Section 2.07(f), the Lenders hereby agree not to unreasonably withhold their consent for Asset Dispositions in excess of such aggregate amount ) and (y) $10,000,000 (provided, however, that on and after the PTI Funding Date, this amount shall be $20,000,000) with respect to Asset Dispositions of equipment in connection with a sale-leaseback transaction pursuant to which the Company or a Subsidiary will be the lessee; (iii) a Subsidiary of a Borrower may merge with a Borrower or a Wholly-Owned Subsidiary of a Borrower if (A) such Borrower or such Wholly-Owned Subsidiary, as the case may be, is the corporation surviving such merger and (B) immediately after giving effect to such merger, no Default or Event of Default shall have occurred and be continuing; (iv) the Transaction shall be permitted; and (v) subject to the satisfaction of Sections 5.05 and 5.06, the PTI Merger shall be permitted in accordance with the PTI Merger Documents. 8.06 Transactions with Affiliates. Directly or indirectly, pay any funds to or for the account of, make any Investment in (whether by acquisition of stock or Debt, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise), lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate; provided, however, that the foregoing provisions of this Section 8.06 shall not prohibit: 106 116 (a) the Company from declaring or paying any lawful dividend permitted pursuant to Section 8.02; (b) the Company or any Subsidiary from making sales to or purchases from any Affiliate and, in connection therewith, extending credit or making payments, or from making payments for extending credit or making payments, or from making payments for services rendered by any Affiliate, if such sales or purchases are made or such services are rendered in the ordinary course of business and on terms and conditions at least as favorable to the Company or such Subsidiary as the terms and conditions which would apply in a similar transaction with a Person not an Affiliate; (c) the Company or any Subsidiary from participating in, or effecting any transaction in connection with, any joint enterprise or other joint arrangement with any Affiliate if the Company or such Subsidiary participates in the ordinary course of its business and on a basis no less advantageous than the basis on which such Affiliate participates; (d) any transactions between the Company and any Eligible Borrower which has executed and delivered an Election to Participate which is still in effect or any Subsidiary that has executed a Subsidiary Guaranty hereunder; (e) any payment from any Subsidiary to the Company; (f) intercompany loans (i) involving only the Company and a Qualified Subsidiary, (ii) between Qualified Subsidiaries, (iii) between Non-Qualified Subsidiaries and (iv) from a Non-Qualified Subsidiary to the Company or a Qualified Subsidiary, in each case so long as the payee with respect to such intercompany loan is Solvent both before and after giving effect to such intercompany loan; (g) as a further limitation on clause (f), during the Squeeze-Out Period the Company may purchase shares of US Holdco #1 and US Holdco #2, and US Holdco #1 and US Holdco #2 may (x) make intercompany loans to Bidco and (y) purchase shares of Bidco, in each case so long as (i) 100% of the proceeds of all such Investments shall be utilized by Bidco to purchase Target Shares pursuant to the Offer and related fees and costs for the Offer and (ii) the ratio of (x) to (y) above shall be at least 1.0 to 1.0; and (h) Intercompany Debt which does not exceed $15,000,000 in the aggregate. 8.07 Change in Business. (a) Engage in any material line of business substantially different from those lines of business carried on by the Company and its Subsidiaries on the Announcement Date (or, in the case of Target and each Target Subsidiary, on the Unconditional Date) and lines of business reasonably ancillary or complementary to such current lines of business. 107 117 (b) The Company will not permit (x) US Holdco #1 and US Holdco #2 to engage in any business activities other than in connection with its ownership interest in Bidco and the execution, delivery and performance of the Collateral Documents to which it is a party or (y) Bidco to engage in any business activities other than those necessary (i) to effect the Offer and (ii) with respect to its ownership interest in Target. 8.08 Accounting Changes. Make any significant change in accounting treatment or reporting practices, except as required by GAAP. 8.09 Target Operations. For a period of sixty (60) days (the "Cure Period") after the Unconditional Date, the representations and warranties set out in Section 6.04, 6.06, 6.07, 6.10, 6.17, 6.18, 6.20, 6.21 and (to the extent any disclosure covered under Section 6.14 relates to or provides information covered solely and specifically to one of the representations previously listed) Section 6.14 and the negative covenants set out in Sections 8.01, 8.03, 8.04, 8.05 and 8.06 shall not apply in respect of events or circumstances not known to the Company and existing on the Initial Funding Date (a "Cure Period Event") with respect to Target and each Target Subsidiary and capable of remedy within such sixty (60) day Cure Period; provided, that: (a) the Company agrees to notify the Administrative Agent promptly upon learning of any such Cure Period Event that would, but for this covenant, constitute a Default or Event of Default; (b) such Cure Period Event is not reasonably likely to cause a material adverse effect on the business, financial position or results of operations of the Company and its Subsidiaries or the Target and its Subsidiaries; (c) the aggregate amount that will be required to cure such Cure Period Event is not in excess of $7,500,000; and (d) if at the end of such Cure Period the Cure Period Event still exists, it shall be an immediate Event of Default. ARTICLE IX FINANCIAL COVENANTS So long as any of the Notes shall remain unpaid, any amounts shall be owing hereunder by any Borrower, or any Lender shall have any Commitment under this Agreement, the Company covenants that: 108 118 9.01 EBIT to Interest Expense Ratio. The ratio of Consolidated EBIT for the preceding four fiscal quarters to Consolidated Interest Expense for the preceding four fiscal quarters shall not be less than 2.50 to 1.00, tested at end of each fiscal quarter. 9.02 Minimum Consolidated Net Worth. The Company shall maintain at all times Consolidated Net Worth (without giving effect to any adjustments made in accordance with GAAP with respect to currency translations) at the end of each fiscal quarter of not less than $98,279,000, plus an amount equal to the sum of (a) 50% of positive Consolidated Net Income for each full fiscal quarter since September 30, 1998 to the measurement date plus (b) an amount equal to the net proceeds received by the Company from the issuance of its capital stock during such period. 9.03 Maximum Total Debt to Consolidated EBITDA. The ratio of Consolidated Total Debt to Consolidated EBITDA tested at the end of each fiscal quarter for the preceding four fiscal quarters shall not during the periods set forth below exceed the following:
Period Ratio - ------ ----- Announcement Date to March 31, 2000 4.00 to 1.00 April 1, 2000 to March 31, 2001 3.50 to 1.00 April 1, 2001 to March 31, 2002 3.25 to 1.00 April 1, 2002 and thereafter 3.00 to 1.00
ARTICLE X EVENTS OF DEFAULT 10.01 Event of Default Any of the following shall constitute an "Event of Default": (a) any Borrower shall: (i) fail to pay the principal of any Note as and when due and payable; (ii) fail to pay interest on any Note or any fee or other amount due hereunder as and when due and payable and such failure shall continue for five (5) Business Days; or (b) any representation or warranty made or deemed made by any Borrower in this Agreement or in any other Loan Document or which is contained in any certificate, document, opinion, financial or other written statement furnished at any time under or in connection with any 109 119 Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made or furnished; or (c) any Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 5.04(e), Article VII, Article VIII or Article IX; or (d) any Borrower shall fail to perform or observe any term, covenant or agreement on its part to be performed or observed (other than the obligations specifically referred to elsewhere in this Section 10.01) in any Loan Document and such failure shall continue for thirty (30) consecutive calendar days after written notice thereof has been given to the Company by the Administrative Agent at the request of the Majority Lenders; or (e) (i) the Company or any Subsidiary shall fail to make any payment in respect of any Material Debt when due or within any applicable grace period or (ii) there occurs under any Swap Contract an early termination date or similar termination or payment event resulting from (1) any breach, violation or event of default under Swap Contract as to which the Company or any of its Subsidiaries is the defaulting or breaching party or (2) any termination or similar event as to which the Company or any of its Subsidiaries is an affected party, and, in either event, the Swap Termination Value owed and not immediately paid by the Company or such Subsidiary as a result thereof is greater than $5,000,000; or (f) any event or condition shall occur which results in the acceleration of the maturity of any Material Debt or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; or (g) the Company or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally or admit in writing its inability to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or (h) an involuntary case or other proceeding shall be commenced against the Company or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief shall be entered against the Company or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect; or 110 120 (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $1,000,000 which such member shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer, any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $1,000,000; or (j) a final, non-appealable judgment or order for the payment of money in excess of $5,000,000 shall be rendered against the Company or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of (i) in the case of a judgment or order rendered by a court, arbitrator or governmental authority located in the United States, ten (10) days or (ii) in the case of a judgment or order rendered by a court, arbitrator or governmental authority located outside the United States, thirty (30) days; or (k) (i) any provision of any Collateral Document (other than a Credit Agreement Guaranty) shall for any reason cease to be valid and binding on or enforceable against the Company or any of its Subsidiaries party thereto and, with respect to Pledged Collateral to be perfected in a jurisdiction other than the United States, shall remain so for thirty (30) consecutive days, or any such Person shall so state in writing or bring an action to limit its obligations or liabilities thereunder; or (ii) any Collateral Document (other than a Credit Agreement Guaranty) shall for any reason (other than pursuant to the terms thereof) cease to create a valid security interest in the Collateral purported to be covered thereby or such security interest shall for any reason cease to be a perfected and first priority security interest and, with respect to Pledged Collateral to be perfected in a jurisdiction other than the United States, shall remain so for thirty (30) consecutive days; or (l) there occurs any Change of Control; or (m) any Person party thereto fails in any material respect to perform or observe any term, covenant or agreement in any Credit Agreement Guaranty or any Credit Agreement Guaranty is for any reason partially (including with respect to future advances) or wholly revoked or invalidated, or otherwise ceases to be in full force and effect, or any Person party thereto or any other Person contests in any manner the validity or enforceability thereof or denies that it has any further liability or obligation thereunder; or any event described at clauses (g) or (h) of this Section occurs with respect to such Person party to a Credit Agreement Guaranty; or (n) a Relevant Event of Default occurs and is continuing at any time; or 111 121 (o) Bidco shall have failed for any reason to have caused Target to become a Wholly-Owned Consolidated Subsidiary of the Company by acquiring 100% in nominal value of the Target Shares (and cancelling all options) within six (6) months after the Announcement Date; provided, however, that the time period set forth in this clause (o) shall be extended by an additional one month and two weeks if Bidco has initiated the Squeeze-Out during the initial six months after the Announcement Date. 10.02 Relevant Events of Default with respect to Offer. Notwithstanding the provisions of Section 10.01, until the expiration of the Certain Funds Period the events set out below shall be the only Events of Default upon the occurrence of which Administrative Agent and/or the Lenders shall be entitled to exercise their powers under Section 10.03 with respect to making aggregate Loans sufficient to permit the Company to repay its existing indebtedness under the Existing Credit Agreement and contribute or loan funds to Bidco to permit Bidco to purchase the Target Shares (a "Relevant Event of Default") whether or not caused by any reason outside the control of the Company: (a) the Company fails to comply with Sections 7.04(a), 7.08(d), 7.09, 7.12(a), (c), (f) or (j) or Section 8.02 and, if such event is, in the opinion of the Administrative Agent, capable of remedy, within 15 days after the earlier of the Administrative Agent becoming aware of such default or written notice from the Administrative Agent to the Company requiring the failure to be remedied, the Company shall have failed to cure such default, provided no funding need occur during such cure period; or (b) any of the representations and warranties with respect to the Company, US Holdco #1, US Holdco #2 and Bidco contained in Section 6.01(a), and in respect of the Company and its Subsidiaries contained in Sections 6.02(b), 6.03, 6.15 or 6.16 made or deemed to be repeated during the Certain Funds Period is incorrect in any respect when made or deemed to be repeated, in each case by reference to the facts and circumstances then subsisting; or (c) any Default or Event of Default with respect to the Company, US Holdco #1 or US Holdco #2 pursuant to Section 10.01(g) or (h); or (d) an order is made for the winding up of Bidco or Target; or (e) an administration order is made in relation to or an administrative or other receiver or manager is appointed of Bidco or the Target or any such Person is not Solvent; or (f) a resolution is passed for the winding up of Bidco or the Target; provided, however, that in the event that a Default or Event of Default shall have occurred during the Certain Funds Period that would not constitute a Relevant Event of Default, the Company hereby acknowledges and agrees that the Administrative Agent and the Lenders shall not be deemed to have waived such Default or Event of Default by the making of any Loan to the Company during the 112 122 Certain Funds Period and that such Default or Event of Default shall be continuing and otherwise actionable in accordance with the terms of this Agreement. 10.03 Remedies (a) If any Event of Default or Relevant Event of Default occurs, the Administrative Agent shall, at the request of, or may, with the consent of, the Majority Lenders: (i) declare the commitment and obligation of each Lender to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit to be terminated, whereupon such commitments and obligation shall be terminated; (ii) declare an amount equal to the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letters of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letters of Credit) to be immediately due and payable (including, without limitation, satisfying the obligations under paragraph (c) below), and declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and/or (iii) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents or applicable law. (b) If an Event of Default exists: (i) the Administrative Agent shall have for the benefit of the Lenders, in addition to all other rights of the Administrative Agent and the Lenders, the rights and remedies of a secured party under the UCC; and (ii) the Administrative Agent may sell and deliver any Collateral at public or private sales, for cash, upon credit or otherwise, at such prices and upon such terms as the Administrative Agent deems advisable, in its sole discretion, and may, if the Administrative Agent deems it reasonable, postpone or adjourn any sale of the Collateral by an announcement at the time and place of sale or of such postponed or adjourned sale without giving a new notice of sale. Without in any way requiring notice to be given in the following manner, each Borrower agrees that any notice by the Administrative Agent of sale, disposition or other intended action hereunder or in connection herewith, whether required by the UCC or otherwise, shall constitute reasonable notice to a Borrower if such notice is mailed by registered or certified mail, return receipt requested, postage prepaid, or is delivered personally against receipt, at least ten (10) Business Days prior to such action. The proceeds of sale shall be applied in accordance with this Agreement and the Borrower shall remain liable for any deficiency. (c) If any Letter of Credit is outstanding upon the termination of this Agreement or the Commitments or if an Event of Default has occurred and is continuing, then upon such termination or during the continuation of such Event of Default the relevant Borrower shall with respect to each Letter of Credit then outstanding, as the Majority Lenders, in their sole discretion 113 123 shall specify, either (A) deposit with Administrative Agent a standby letter of credit (a "Supporting Letter of Credit") in form and substance satisfactory to the Administrative Agent, issued by an issuer satisfactory to the Administrative Agent and in an amount equal to the greatest amount for which such Letter of Credit may be drawn, under which Supporting Letter of Credit the Administrative Agent is entitled to draw amounts necessary to reimburse the Administrative Agent and the Revolving Lenders for payments made by the Administrative Agent and the Revolving Lenders under such Letter of Credit or under any credit support or enhancement provided through the Administrative Agent with respect thereto, or (B) deposit with NationsBank cash in amounts necessary to reimburse the Administrative Agent and the Revolving Lenders for payments made or to be made (including, without limitation, the amount that the Administrative Agent estimates will be necessary to cover its expenses and legal fees in connection therewith) by the Administrative Agent or the Revolving Lenders under such Letter of Credit or under any credit support or enhancement provided through the Administrative Agent with respect thereto, and grant the Administrative Agent (on behalf of the Lenders) a security interest in such deposited funds. Such Supporting Letter of Credit shall be held by Administrative Agent and any deposit of cash shall be held by NationsBank, pursuant to Section 2.07(c), for the ratable benefit of the Administrative Agent and the Revolving Lenders as security for, and to provide for the payment of, the aggregate undrawn amount of such Letters of Credit remaining outstanding. (d) Notwithstanding the foregoing, upon the occurrence of any event specified in Sections 10.01(g) or (h) (in the case of clause (h), upon the expiration of the 60-day period mentioned therein), the commitment and obligation of each Revolving Lender and the Swing Line Lender to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts and obligations as aforesaid (including, without limitation, under clause (c) above) shall automatically become due and payable without further act of the Administrative Agent, the Issuing Bank or any Lender and without presentment, demand, protest or notice of any kind in connection therewith. 10.04 Rights Not Exclusive The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. 10.05 Permitted Swap Contract Remedies. Notwithstanding any other provision of this Article X, each swap provider shall have the right, with prior notice to the Administrative Agent, but without the approval or consent of the Administrative Agent or the Lenders, with respect to any Permitted Swap Obligations of such swap provider, (a) to declare an event of default, termination event or other similar event thereunder, (b) to determine net termination amounts in accordance with the terms of such Permitted Swap Obligation, and (c) to prosecute any legal action against any Borrower to enforce net amounts owing to such swap provider. 114 124 ARTICLE XI THE ADMINISTRATIVE AGENT 11.01 Appointment and Authorization; "Administrative Agent" (a) Each Lender hereby irrevocably (subject to Section 11.09) appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. (b) The Issuing Bank shall act on behalf of the Lenders with respect to any Letters of Credit Issued by it and the documents associated therewith until such time and except for so long as the Administrative Agent may agree at the request of the Majority Lenders to act for such Issuing Bank with respect thereto; provided, however, that the Issuing Bank shall have all of the benefits and immunities (i) provided to the Administrative Agent in this Article XI with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit Issued by it or proposed to be Issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term "Administrative Agent", as used in this Article XI, included the Issuing Bank with respect to such acts or omissions, and (ii) as additionally provided in this Agreement with respect to the Issuing Bank. 11.02 Delegation of Duties The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 115 125 11.03 Liability of Administrative Agent None of the Administrative Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by any Borrower or any Subsidiary or Affiliate of any Borrower, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of any Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Administrative Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Borrower or any of Subsidiary or Affiliate of any Borrower. 11.04 Reliance by Administrative Agent (a) The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Borrowers), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Lenders (or, to the extent required by Section 12.01, all of the Lenders) as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Lenders (or, to the extent required by Section 12.01, all of the Lenders) and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. (b) For purposes of determining compliance with the conditions specified in Article V, each Lender that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter sent by the Administrative Agent to such Lender for consent, approval, acceptance or satisfaction. 11.05 Notice of Default The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of 116 126 principal, interest and fees required to be paid to the Administrative Agent for the account of the Lenders, unless the Administrative Agent shall have received written notice from a Lender or a Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". The Administrative Agent will promptly notify the Lenders of its receipt of any such notice. Subject to Section 12.01, the Administrative Agent shall take such action with respect to such Default or Event of Default as may be requested by the Majority Lenders in accordance with Article X; provided, however, that unless and until the Administrative Agent has received any such request, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable and in the best interest of the Lenders. 11.06 Credit Decision Each Lender acknowledges that none of the Administrative Agent-Related Persons nor any Prior Loan Document Lender has made any representation or warranty to it, and that no act by the Administrative Agent hereafter taken, including any review of the affairs of each Borrower and each of its Subsidiaries, shall be deemed to constitute any representation or warranty by any Administrative Agent-Related Person or any Prior Loan Document Lender to any Lender. Each Lender represents to the Administrative Agent and each Prior Loan Document Lender that it has, independently and without reliance upon any Administrative Agent- Related Person or any Prior Loan Document Lender and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of each Borrower and each of its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to each Borrower and each of its Subsidiaries hereunder. Each Lender also represents that it will, independently and without reliance upon any Administrative Agent-Related Person or any Prior Loan Document Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of each Borrower. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any Borrower which may come into the possession of any of the Administrative Agent-Related Persons. 11.07 Indemnification of Administrative Agent Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Administrative Agent-Related Persons (to the extent not reimbursed by or on behalf of a Borrower and without limiting the obligation of such Borrower to do so), pro rata, from and against any and all Indemnified Liabilities; provided, however, that no Lender shall be liable for the payment to the Administrative Agent-Related Persons of any portion 117 127 of such indemnified liabilities resulting solely from any such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse the Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of a Borrower. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Administrative Agent. 11.08 Administrative Agent in Individual Capacity NationsBank and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, enter into Swap Contracts with, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with a Borrower and its Subsidiaries and Affiliates as though NationsBank were not the Administrative Agent or the Issuing Bank hereunder and without notice to or consent of the Lenders; provided, however, nothing in this Section 11.08 shall relieve the Borrower or its Subsidiaries from providing notices to or obtaining consents of the Lenders otherwise required by this Agreement. The Lenders acknowledge that, pursuant to such activities, NationsBank or its Affiliates may receive information regarding a Borrower or its Affiliates (including information that may be subject to confidentiality obligations in favor of such Borrower or such Affiliate) and acknowledge that the Administrative Agent shall be under no obligation to provide such information to them. With respect to its Loans and L/C Obligations, NationsBank shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent or the Issuing Bank. 11.09 Successor Administrative Agent The Administrative Agent may, and at the request of the Majority Lenders shall, resign as Administrative Agent upon 30 days' notice to the Lenders. If the Administrative Agent resigns under this Agreement, the Majority Lenders shall appoint from among the Lenders a successor agent for the Lenders which successor agent shall be approved by the Company. If no successor agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders and the Company, a successor agent from among the Lenders. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the term "Administrative Agent" shall mean such successor agent and the retiring Administrative Agent's appointment, powers and duties as Administrative Agent shall be terminated. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article XI and Sections 12.04 and 12.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. If no successor agent has accepted appointment as Administrative Agent by the date which is 30 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's 118 128 resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Majority Lenders appoint a successor agent as provided for above. Notwithstanding the foregoing, however, NationsBank may not be removed as the Administrative Agent at the request of the Majority Lenders unless NationsBank shall also simultaneously be replaced as "Issuing Bank" and "Swing Line Lender" hereunder pursuant to documentation in form and substance reasonably satisfactory to NationsBank. 11.10 Withholding Tax (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the Code and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Section 1441 or 1442 of the Code, such Lender agrees with and in favor of the Administrative Agent to deliver to the Administrative Agent: (i) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, two properly completed and executed copies of IRS Form 1001 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Lender and in each succeeding taxable year of such Lender during which interest may be paid under this Agreement; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Lender agrees to promptly notify the Administrative Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of a Borrower to such Lender, such Lender agrees to notify the Administrative Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of a Borrower to such Lender. To the extent of such percentage amount, the Administrative Agent will treat such Lender's IRS Form 1001 as no longer valid. (c) If any Lender claiming exemption from United States withholding tax by filing IRS Form 4224 with the Administrative Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of a Borrower to such Lender, such Lender agrees 119 129 to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Lender is entitled to a reduction in the applicable withholding tax, the Administrative Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. However, if the forms or other documentation required by clause (a) of this Section are not delivered to the Administrative Agent, then the Administrative Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax imposed by Sections 1441 and 1442 of the Code, without reduction. (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Administrative Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Lenders under this Section shall survive the payment of all Obligations and the resignation or replacement of the Administrative Agent. 11.11 Collateral Matters (a) The Administrative Agent is authorized on behalf of all the Lenders, without the necessity of any notice to or further consent from the Lenders, from time to time to take any action with respect to any Collateral or the Collateral Documents which may be necessary to perfect and maintain perfected the security interest in and Liens upon the Collateral granted pursuant to the Collateral Documents. (b) The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion, to release any Lien granted to or held by the Administrative Agent upon any Collateral (i) upon termination of the Commitments and payment in full of all Loans and all other Obligations known to the Administrative Agent and payable under this Agreement or any other Loan Document; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted hereunder; (iii) constituting property in which the Company or any Subsidiary owned no interest at the time the Lien was granted or at any time thereafter; (iv) constituting property leased to the Company or any Subsidiary under a lease which has expired or been terminated in a transaction not prohibited under this Agreement or is about to expire and which has not been, and is not intended by the Company or such Subsidiary to be, renewed or extended; (v) consisting of an instrument evidencing Debt or other debt instrument, if the Debt evidenced thereby has been paid in full; or (vi) if approved, authorized or ratified in writing by the Majority Lenders or all the Lenders, as the case may be, as provided in Section 12.01(f). Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the 120 130 Administrative Agent's authority to release particular types or items of Collateral pursuant to this Section 11.11(b), provided that the absence of any such confirmation for whatever reason shall not affect the Administrative Agent's rights under this Section 11.11. 11.12 Administrative Agent as English Trustee (a) The Administrative Agent in its capacity as trustee or otherwise under the Loan Documents governed by English law: (i) is not liable for any failure, omission, or defect in perfecting or registering the security constituted or created by any Loan Document; (ii) may accept without inquiry such title as any Borrower or any of its Subsidiaries may have to any asset secured by any Loan Document; and (iii) is not under any obligation to hold any Loan Document or any other document in connection with the Loan Documents or the assets secured by any Loan Document (including title deeds) in its own possession or take any steps to protect or preserve the same. The Administrative Agent may permit any Borrower or any of its Subsidiaries to retain any Loan Document or other document in its possession. (b) Except as otherwise provided in the Loan Documents governed by English law, all moneys which under the trusts contained in the Loan Documents are received by the Administrative Agent in its capacity as trustee or otherwise may be invested in the name of or under the control of the Administrative Agent in any investment authorized by English law for the investment by a trustee of trust money or in any other investments which may be selected by the Administrative Agent. Additionally, the same may be placed on deposit in the name or under the control of the Administrative Agent with such Lender or institution (including the Administrative Agent itself) and upon such terms as the Administrative Agent may think fit. 11.13 Assignment under Dutch Law In connection with any assignment and delegation of all, or any part of, the Loans, the Commitments, the L/C Obligations and the other rights or obligations of any Lender (or former Lender) hereunder, the Administrative Agent is authorized on behalf of both the assignor Lender and the assignee Lender, without necessity of any notice to or further consent from such Lenders (or former Lenders, if applicable), to take any action the Administrative Agent deems reasonably necessary or appropriate to assign a corresponding interest in the community of Lenders (which is a community in accordance with Article 166 (and subsequent articles) of Book 3 of the Dutch Civil Code), including without limitation the rights and interests of such assignor Lender (whether held directly or indirectly through the Administrative Agent) under any Loan Documents in any pledged stock or equity interest of any corporation or other legal entity organized under the laws of the Kingdom of the Netherlands and constituting Collateral, to the assignee Lender. The Administrative Agent will notify the Borrower and each pledgor of any pledged stock or equity interest of any such 121 131 corporation or other legal entity organized under the laws of the Kingdom of the Netherlands of the assignment of the rights under this Agreement and under any deed of pledge or similar Loan Documents evidencing such security interest to the assignee Lender in writing in advance. Each such pledgor and the Borrower acknowledge and agree that Lenders may assign their interests from time to time as described in this Section 11.13. ARTICLE XII MISCELLANEOUS 12.01 Amendments and Waivers No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the applicable Borrower or any applicable Subsidiary therefrom, shall be effective unless the same shall be in writing and signed by the Majority Lenders (or by the Administrative Agent at the written request of the Majority Lenders) and the applicable Borrower and acknowledged by the Administrative Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall: (a) increase or extend the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 2.05 or Section 10.03) without the prior written consent of each Lender directly affected thereby; (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to any Lenders hereunder or under any other Loan Document without the prior written consent of each Lender directly affected thereby; (c) reduce the principal of, or the rate of interest specified herein on, any Loan, or (subject to clause (iv) below) any fees or other amounts payable hereunder or under any other Loan Document without the prior written consent of each Lender directly affected thereby; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Lenders or any of them to take any action hereunder without the prior written consent of each Lender; (e) amend this Section, or Section 2.14, the definition of "Majority Lenders" or any provision herein providing for consent or other action by all Lenders without the prior written consent of each Lender; or (f) release all or substantially all of the Collateral or all of the Credit Agreement Guaranties, except in connection with a repayment in full of all Obligations and Loans and a 122 132 termination of the Commitments or as otherwise permitted under this Agreement without the prior written consent of each Lender; and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the affected Issuing Bank in addition to the Majority Lenders or all the Lenders, as the case may be, affect the rights or duties of such Issuing Bank under this Agreement or any L/C-Related Document relating to any Letter of Credit Issued or to be Issued by it, (ii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Majority Lenders or all the Lenders, as the case may be, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document, (iii) no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender in addition to the Majority Lenders or all Lenders, as the case may be, affect the rights or duties of the Swing Line Lender under this Agreement, (iv) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed by the parties thereto and (v) any references in this Agreement to a Business Day, day-count, fraction or other convention (whether for the calculation of interest, determination of payment dates or otherwise) will, to the extent that the Administrative Agent specifies to be necessary, be amended to comply with any generally accepted conventions and market practice applicable to euro-denominated obligations in the London interbank market. 12.02 Notices (a) All notices, requests, consents, approvals, waivers and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 12.02, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on Schedule 12.02; or, as directed to a Borrower or the Administrative Agent and/or the Swing Line Lender, as the case may be, to such other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Company and the Administrative Agent. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices pursuant to Article II, III or XI to the Administrative Agent and/or the Swing Line Lender, as the case may be, shall not be effective until actually received by the Administrative Agent and/or the Swing Line Lender, as the case may be, and notices pursuant to Article III to the Issuing Bank shall not be effective until actually received by the Issuing Bank at the address specified for the "Issuing Bank" on the applicable signature page hereof. (c) Any agreement of the Administrative Agent and the Lenders herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of a Borrower. The Administrative Agent and the Lenders shall be entitled to rely on the authority of any 123 133 Person purporting to be a Person authorized by the relevant Borrower to give such notice and the Administrative Agent and the Lenders shall not have any liability to such Borrower or other Person on account of any action taken or not taken by the Administrative Agent or the Lenders in reliance upon such telephonic or facsimile notice. The obligation of each Borrower to repay the Loans and L/C Obligations shall not be affected in any way or to any extent by any failure by the Administrative Agent and the Lenders to receive written confirmation of any telephonic or facsimile notice or the receipt by the Administrative Agent and the Lenders of a confirmation which is at variance with the terms understood by the Administrative Agent and the Lenders to be contained in the telephonic or facsimile notice. 12.03 No Waiver; Cumulative Remedies No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 12.04 Costs and Expenses Each Borrower shall: (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse NationsBank (including in its capacity as Administrative Agent and Issuing Bank) within five Business Days after demand (subject to Section 5.01(e)) for all reasonable out-of-pocket costs and expenses incurred by NationsBank (including in its capacity as Administrative Agent and Issuing Bank) in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any other Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, reasonable Attorney Costs incurred by NationsBank (including in its capacity as Administrative Agent and Issuing Bank) with respect thereto and all fees and expenses for title and lien searches, appraisals, surveys, title commitment and insurance costs and corporate search fees; and (b) pay or reimburse the Administrative Agent and each Lender within 15 Business Days after demand (subject to Section 5.01(e)) for all reasonable out-of-pocket costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of a Default or an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). The undertaking in this Section shall survive the payment of all Obligations hereunder. 124 134 12.05 Company Indemnification Whether or not the transactions contemplated hereby are consummated, the Company hereby agrees to indemnify and hold harmless the Administrative Agent-Related Persons and each Lender and each of their affiliates and their respective directors, officers, employees, advisors and agents (each, an "Indemnified Party") from and against (and will reimburse each Indemnified Party as the same are incurred) any and all losses, claims, damages, liabilities, and expenses (including, without limitation, the reasonable fees and expenses of counsel (including, without duplication, the allocated cost of internal counsel)) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) (a) the Transaction or any similar transaction and any of the other transactions contemplated thereby, or (b) this Agreement, the other Loan Documents, any Loan or any Letter of Credit, or any use made or proposed to be made with the proceeds thereof (including any arising out of the negligence of such Indemnified Party)(collectively, "Indemnified Liabilities"), unless and except to the extent that, as to such Indemnified Party, it shall be determined in a final, nonappealable judgment by a court of competent jurisdiction that such losses, claims, damages, liabilities or expenses resulted from the gross negligence or willful misconduct of such Indemnified Party or the intentional breach by such Indemnified Party of its agreement to make Loans or issue Letters of Credit in accordance with the terms of this Agreement and the other Loan Documents. In the case of any investigation, litigation or proceeding to which the indemnity in this Section 12.05 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Company, the Company's shareholders or creditors or such Indemnified Party and whether or not the Transaction is consummated, unless and except to the extent that, as to such Indemnified Party, it shall be determined in a final, nonappealable judgment by a court of competent jurisdiction that such losses, claims, damages, liabilities or expenses resulted from the gross negligence or wilful misconduct of such Indemnified Party or the intentional breach by such Indemnified Party of its agreement to make Loans or issue Letters of Credit in accordance with the terms of this Agreement and the other Loan Documents. The Company hereby agrees that no Indemnified Party shall have any liability to the Company or any of its Subsidiaries or Affiliates or to the Company's or their respective security holders or creditors for any indirect, consequential or punitive damages arising out of, related to or in connection with the Transaction or the Loan Documents. The agreements in this Section shall survive payment of all other Obligations. 125 135 12.06 Payments Set Aside To the extent that a Borrower makes a payment to the Administrative Agent or the Lenders, or the Administrative Agent or the Lenders exercise their right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its pro rata share of any amount so recovered from or repaid by the Administrative Agent. 12.07 Successors and Assigns The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent and each Lender. 12.08 Assignments, Participations, etc. (a) Any Lender may, with the written consent of the Administrative Agent, the Issuing Bank, the Swing Line Lender and, so long as no Default or Event of Default has occurred and is continuing, the Company, which consents shall not be unreasonably withheld, at any time assign and delegate to one or more Eligible Assignees (provided that no written consent of the Administrative Agent, the Issuing Bank, the Swing Line Lender or the Company shall be required in connection with any assignment and delegation by a Lender to an Eligible Assignee that is an Affiliate of such Lender) (each an "Assignee") all of, or any part of, the Loans, the Commitments, the L/C Obligations and the other rights and obligations of such Lender hereunder, in a minimum aggregate Dollar Equivalent of $5,000,000 (or, if less, the entire amount of such Lender's Loans and Commitments, and such Loans and Commitments may consist of the Revolving Loan Commitments, the Term Loan Commitments and the Sterling Acquisition Loan Commitments as determined by the assigning Lender) calculated by aggregating the Commitments, Loans and L/C Obligations held by an Eligible Assignee which are Affiliates; provided, however, that each Borrower and the Administrative Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to each Borrower and the Administrative Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered to each Borrower and the Administrative Agent an Assignment and Acceptance in the form of Exhibit E attached hereto ("Assignment and Acceptance") together with any Note or Notes subject to such assignment and (iii) the assignor Lender or Assignee has paid to the Administrative Agent a processing fee in the amount of $3,500. 126 136 (b) From and after the date that the Administrative Agent notifies the assignor Lender that it has received (and provided its consent with respect to) an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents (other than with respect to any indemnification pursuant to Article IV or Section 12.05). (c) Within five Business Days after its receipt of notice by the Administrative Agent that it has received an executed Assignment and Acceptance and payment of the processing fee (and provided that it consents to such assignment in accordance with Section 12.08(a)), the relevant Borrower shall execute and deliver to the Administrative Agent, new Notes evidencing such Assignee's assigned Loans and Commitments and, if the assignor Lender has retained a portion of its Loans and its Commitments, replacement Notes in the principal amount of the Loans retained by the assignor Lender (such Notes to be in exchange for, but not in payment of, the Notes held by such Lender). Immediately upon receipt by the Administrative Agent of the processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitments allocated to each Assignee shall reduce such Commitments of the assigning Lender pro tanto. (d) Any Lender may at any time sell to one or more commercial banks or other Persons not Affiliates of a Borrower (a "Participant") participating interests in any Loans, the Commitments of that Lender and the other interests of that Lender (the "originating Lender") hereunder and under the other Loan Documents; provided, however, that (i) the originating Lender's obligations under this Agreement shall remain unchanged, (ii) the originating Lender shall remain solely responsible for the performance of such obligations, (iii) each Borrower, the Issuing Bank, the Swing Line Lender and the Administrative Agent shall continue to deal solely and directly with the originating Lender in connection with the originating Lender's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Lender shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would require unanimous consent of the Lenders as required pursuant to the first proviso to Section 12.01. In the case of any such participation, the Participant shall not have any rights under this Agreement, or any of the other Loan Documents, and all amounts payable by a Borrower hereunder shall be determined as if such Lender had not sold such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. 127 137 (e) Notwithstanding any other provision in this Agreement, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Notes held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. (f) No assignee, participant or other transferee of any Lender's rights shall be entitled to receive any greater payment under Article IV than such Lender would have been entitled to receive with respect to the rights transferred or by reason of the provisions of Article IV requiring such Lender to designate a different Applicable Lending office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (g) In connection with any assignment by NationsBank including in connection with the execution of this Agreement, NationsBank may, with the consent of the Administrative Agent, designate any such assignee with the title "documentation agent," "syndication agent," "co-manager, "co-agent", "co-arranger" or other similar title in addition to such assignee being a "Lender" under this Agreement; provided, that any such assignee shall not receive any fee from the Company or have any additional duties or responsibilities by virtue of such title. 12.09 Confidentiality Each Lender agrees to take and to cause its Affiliates to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by a Borrower and provided to it by a Borrower or any Subsidiary of a Borrower, or by the Administrative Agent on such Person's behalf, under this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents or in connection with other business now or hereafter existing or contemplated with any Borrower or any of its Subsidiaries; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by such Lender, or (ii) was or becomes available on a non-confidential basis from a source other than a Borrower, provided that such source is not bound by a confidentiality agreement with a Borrower known to such Lender; provided, however, that any Lender may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which such Lender is subject or in connection with an examination of such Lender by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Administrative Agent, any Lender or their respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to such Lender's independent auditors and other professional advisors; (G) to any Participant or Assignee, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Lenders hereunder; (H) as to any Lender or its Affiliate, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which a Borrower or any Subsidiary of a Borrower is party or is deemed party with such Lender or such Affiliate; and (I) to its Affiliates. 128 138 12.10 Set-off In addition to any rights and remedies of the Lenders provided by law, if an Event of Default exists or the Loans have been accelerated, each Lender is authorized at any time and from time to time, without prior notice to a Borrower, any such notice being waived by each Borrower to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other Debt at any time owing by, such Lender to or for the credit or the account of the relevant Borrower or any Subsidiary Guarantor against any and all Obligations owing to such Lender, now or hereafter existing, irrespective of whether or not the Administrative Agent or such Lender shall have made demand under this Agreement or any other Loan Document and although such Obligations may be contingent or unmatured. Each Lender agrees promptly to notify the relevant Borrower or any Subsidiary Guarantor and the Administrative Agent after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. 12.11 Notification of Addresses, Lending Offices, etc. Each Lender shall notify the Administrative Agent in writing of any changes in the address to which notices to the Lender should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Administrative Agent shall reasonably request. 12.12 Counterparts This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 12.13 Severability The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 12.14 No Third Parties Benefited. This Agreement is made and entered into for the sole protection and legal benefit of each Borrower, the Lenders, the Administrative Agent and the Administrative Agent-Related Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. 12.15 Governing Law and Jurisdiction. 129 139 (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF NEW YORK; PROVIDED THAT THE PARTIES SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT, THE ISSUING BANK AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW. (c) THE COMPANY HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS US CORPORATION SYSTEMS WITH OFFICES ON THE DATE HEREOF IN NEW YORK, NEW YORK (OR SUCH OTHER AGENT TO RECEIVE SERVICE OF PROCESS IN NEW YORK, NEW YORK AS IS REASONABLY ACCEPTABLE TO THE ADMINISTRATIVE AGENT), AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE COMPANY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE ADMINISTRATIVE AGENT UNDER THIS AGREEMENT. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET FORTH ON SCHEDULE 12.02, SUCH SERVICE TO BECOME EFFECTIVE 10 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT UNDER THIS AGREEMENT, ANY LENDER OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY BORROWER IN ANY OTHER JURISDICTION. 12.16 Waiver of Jury Trial 130 140 THE COMPANY, THE LENDERS AND THE ADMINISTRATIVE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY ADMINISTRATIVE AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE LENDERS AND THE ADMINISTRATIVE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 12.17 Entire Agreement This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among each Borrower, the Lenders and the Administrative Agent, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof including, without limitation, the commitment letters among NationsBank, NationsBanc Montgomery Securities, LLC and the Company, dated October 16, 1998 and March 23, 1999 (except the provisions of such commitment letter which expressly survive the execution of this Agreement, and the Administrative Agent hereby confirms that during the Certain Funds Period none of such provisions include additional conditions to any Borrowing pursuant to Section 5.02 of this Agreement). 12.18 Judgment Currency If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or under any other Loan Document in one currency into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of any Borrower in respect of any such sum due from it to the Administrative Agent or any Lender hereunder or under the other Loan Documents shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the "Agreement Currency"), be discharged only to the extent that on the Business Day following receipt by the Administrative Agent or such Lender of any sum adjudged to be so due in the Judgment Currency, the Administrative Agent or such Lender may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount 131 141 of the Agreement Currency so purchased is less than the sum originally due to the Administrative Agent or such Lender in the Agreement Currency, the Company agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Administrative Agent or such Lender or the Person to whom such obligation was owing against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to the Administrative Agent or such Lender in such currency, the Administrative Agent or such Lender agrees to return the amount of any excess to the Company (or to any other Person who may be entitled thereto under applicable law). 12.19 Amendment and Restatement (a) (i) On and after the Initial Funding Date, the First Amended and Restated Credit Agreement automatically and without further action of any kind amended and restated in its entirety the Prior Loan Document and, upon the Initial Funding Date, the terms and provisions of the Prior Loan Document were, subject to this Section 12.19(a), superseded thereby; provided, however, that notwithstanding the amendment and restatement of the Prior Loan Document by the First Amended and Restated Credit Agreement, the Company continues to be liable to NationsBank, the Administrative Agent-Related Persons (as defined in the Prior Loan Document) and the Lenders under, and as defined in, the Prior Loan Document (the "Prior Loan Document Lenders") with respect to agreements on the part of the Company or any of its Subsidiaries under the Prior Loan Document to indemnify and hold NationsBank (individually and as Administrative Agent), the Administrative Agent-Related Persons and the Prior Loan Document Lenders harmless from and against all claims, demands, liabilities, damages, losses, costs, charges and expenses to which NationsBank (individually and as Administrative Agent), the Administrative Agent-Related Persons and the Prior Loan Document Lenders may be subject arising in connection with any action taken, failure to take action or transaction contemplated in or under the Prior Loan Document during the period that such agreement was in effect. Without limiting the generality of the foregoing, the obligations of the Company pursuant to Sections 4.01, 4.03, 4.04, 4.09 and 12.05 of the Prior Loan Document and the Fee Letter, as such term is defined in the Prior Loan Document, are not superseded, modified or otherwise affected by the First Amended and Restated Credit Agreement. (ii) Simultaneously with the occurrence of the Initial Funding Date, each Prior Loan Document Lender assigned (subject to Section 11.06 of the First Amended and Restated Credit Agreement) a portion of its Commitments under, and as defined in, the Prior Loan Document to the Lenders under the First Amended and Restated Credit Agreement in such amounts so that the allocation of the Commitments as of the Initial Funding Date was in the amounts specified on Schedule 2.01 thereto, and each Lender accepted such assignment and assumed its portion of the Commitments in accordance with the terms and conditions thereunder (and the Prior Loan Document Lenders had no further obligations with respect to such Commitments). (iii) In furtherance of and without limiting the foregoing, all amounts owing with respect to accrued fees with respect to the Commitments under, and as defined in, the Prior Loan Documents shall have been paid to the Prior Loan Document Lenders currently on and as of the Initial Funding Date in their entirety. 132 142 (b) (i) On and after the PTI Effective Date, this Agreement will automatically and without further action of any kind amend and restate in its entirety the First Amended and Restated Credit Agreement and, upon the PTI Effective Date, the terms and provisions of the First Amended and Restated Credit Agreement shall, subject to this Section 12.19(b), be superseded hereby; provided, however, that notwithstanding the amendment and restatement of the First Amended and Restated Credit Agreement by this Agreement, the Company shall continue to be liable to NationsBank, the Administrative Agent-Related Persons (as defined in the First Amended and Restated Credit Agreement) and the Lenders under, and as defined in, the First Amended and Restated Credit Agreement (the "First Amended and Restated Credit Agreement Lenders") with respect to agreements on the part of the Company or any of its Subsidiaries in Section 12.19(a) of the First Amended and Restated Credit Agreement to indemnify and hold NationsBank (individually and as Administrative Agent), the Administrative Agent-Related Persons and the First Amended and Restated Credit Agreement Lenders from time to time harmless from and against all claims, demands, liabilities, damages, losses, costs, charges and expenses to which NationsBank (individually and as Administrative Agent), the Administrative Agent-Related Persons and the First Amended and Restated Credit Agreement Lenders may be subject arising in connection with any action taken, failure to take action or transaction contemplated in or under but only to the extent set forth in the First Amended and Restated Credit Agreement during the period that such agreement was in effect. Without limiting the generality of the foregoing, the obligations of the Company pursuant to (I) Sections 4.01, 4.03, 4.04, 4.09 and 12.05 of the First Amended and Restated Credit Agreement and the Fee Letter, as such term is defined in the First Amended and Restated Credit Agreement, and (II) under Section 12.19(a), shall not be superseded, modified or otherwise affected by this Agreement. (ii) Simultaneously with the occurrence of the PTI Effective Date, each First Amended and Restated Credit Agreement Lender shall be deemed to have assigned (subject to Section 11.06 of this Agreement) a portion of its Commitments under, and as defined in, the First Amended and Restated Credit Agreement to the Lenders under this Agreement in such amounts so that the allocation of the Commitments as of the PTI Effective Date shall be in the amounts specified on Schedule 2.01 hereto, and each Lender hereby accepts such assignment and assumes its portion of the Commitments in accordance with the terms and conditions hereunder (and the First Amended and Restated Credit Agreement Lenders shall have no further obligations with respect to such Commitments). (iii) In furtherance of and without limiting the foregoing, all amounts owing with respect to accrued fees with respect to the Commitments under, and as defined in, the First Amended and Restated Credit Agreement shall have been paid to the First Amended and Restated Credit Agreement Lenders currently on and as of the PTI Effective Date in their entirety. [Signature pages to follow] 133 143 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. MacDERMID, INCORPORATED By:_______________________________________ Name:_____________________________________ Title:____________________________________ NATIONSBANK, N.A., as Administrative Agent By:_______________________________________ Name:_____________________________________ Title:____________________________________ NATIONSBANK, N.A., Individually as a Lender, the Swing Line Lender and as the Issuing Bank By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-1 144 BANKBOSTON, N.A., as Documentation Agent and as a Lender By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-2 145 FLEET NATIONAL BANK, as Syndication Agent and as a Lender By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-3 146 THE BANK OF NEW YORK, as Co-Agent and as a Lender By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-4 147 FIRST UNION NATIONAL BANK, as Co-Agent and as a Lender By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-5 148 LLOYDS BANK PLC, MIAMI, as Co-Agent and as a Lender By:_______________________________________ Name:_____________________________________ Title:____________________________________ LLOYDS BANK PLC, MIAMI, as Co-Agent and as a Lender By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-6 149 THE CHASE MANHATTAN BANK By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-7 150 COMERICA BANK By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-8 151 THE FIRST NATIONAL BANK OF CHICAGO By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-9 152 ABN AMRO BANK N.V. By:_______________________________________ Name:_____________________________________ Title:____________________________________ ABN AMRO BANK N.V. By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-10 153 BANK OF MONTREAL By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-11 154 BANK OF TOKYO-MITSUBISHI TRUST COMPANY By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-12 155 DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG, CAYMAN ISLAND BRANCH By:_______________________________________ Name:_____________________________________ Title:____________________________________ DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG, CAYMAN ISLAND BRANCH By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-13 156 THE ROYAL BANK OF SCOTLAND plc By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-14 157 UNICREDITO ITALIANO S.p.A., New York Branch By:_______________________________________ Name:_____________________________________ Title:____________________________________ UNICREDITO ITALIANO S.p.A., New York Branch By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-15 158 HSBC BANK USA By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-16 159 GENERALE (USA) FINANCE LLC By:_______________________________________ Name:_____________________________________ Title:____________________________________ [TO CREDIT AGREEMENT] S-17 160 SCHEDULE 1(a) CALCULATION OF THE MANDATORY COST (a) The Mandatory Cost for a Lender in relation to a Loan for each of its Interest Periods is the rate determined by that Lender to be equal to the following formulae: in relation to a Loan denominated in Sterling: BY + S(Y-Z) + F x 0.01 % per annum = Mandatory Cost ---------------------- 100-(B + S) in relation to any other Loan: F x 0.01 % per annum = Mandatory Cost --------- 300 where on the day of application of the formula: B is the percentage of the relevant Lender's eligible liabilities (in excess of any stated minimum) which the Bank of England requires that Lender to hold on a non-interest-bearing deposit account in accordance with its cash ratio requirements; Y is the rate at which Sterling deposits are offered by the relevant Lender to leading banks in the London interbank market at or about 11.00 a.m. on that day for the relevant period; S is the percentage of the relevant Lender's eligible liabilities which the Bank of England requires that Lender to place as a special deposit; Z is the interest rate per annum allowed by the Bank of England on special deposits; and F is the charge payable by the relevant Lender to the Financial Services Authority under paragraph 2.02 or 2.03 (as appropriate) of the Fees Regulations but where for this purpose, the figure in paragraph 2.02b and 2.03b will be deemed to be zero expressed in pounds per pound sterling 1 million of the fee base of the relevant Lender. (b) For the purposes of this Schedule 3: (i) "eligible liabilities" and "special deposits" have the meanings given to them at the time of application of the formula by the Bank of England; and (ii) "fee base" has the meaning given to it in the Fees Regulations; 161 (iii) "Fees Regulations" means: (1) prior to 31st March, 1999, the Banking Supervision (Fees) Regulations 1998; and (2) on and after 31st March, 1999, any regulations governing the payment of fees for banking supervision. (ii) "relevant period" in relation to each Interest Period, means: (A) if it is three months or less, that Interest Period; or (B) if it is more than three months, each successive period of three months and any necessary shorter period comprised in that Interest Period. (c) In the application of the formula, B, Y, S and Z are included in the formula as figures and not as percentages, e.g. if B = 0.5% and Y = 15%, BY is calculated as 0.5 x 15. (d) If the relevant Lender can not determine a rate, the applicable Mandatory Cost will be determined on the basis of the rate(s) supplied by reference banks selected by the relevant Lender. (e) (i) The formula is applied on the first day of each relevant period comprised in the relevant Interest Period. (ii) Each rate calculated in accordance with the formula is, if necessary, rounded upward to four decimal places. (f) If the relevant Lender determines that a change in circumstances has rendered, or will render, the formula inappropriate, the relevant Lender (after consultation with the other Lenders) shall notify the Company of the manner in which the Mandatory Cost will subsequently be calculated. The manner of calculation so notified by the relevant Lender shall, in the absence of manifest error, be binding on all the Parties. 162 SCHEDULE 2.01 COMMITMENTS
LENDERS $75,000,000.00 $200,300,000.00 POUND STERLING 45,000,000.00 REVOLVER TERM STERLING ACQUISITION - ------------------------------------------------------------------------------------------------------------------------- NationsBank, N.A. 9,214,285.72 24,608,285.69 5,528,571.41 BankBoston, N.A. 7,714,285.72 20,602,285.71 4,628,571.41 Fleet National Bank 7,714,285.72 20,602,285.71 4,628,571.41 The Bank of New York 5,785,714.30 15,451,714.27 3,471,428.57 First Union National Bank 5,785,714.30 15,451,714.27 3,471,428.57 Lloyds Bank Plc, Miami 5,785,714.30 15,451,714.27 3,471,428.57 The Chase Manhattan Bank 4,928,571.43 13,162,571.43 2,957,142.86 Comerica Bank 4,928,571.43 13,162,571.43 2,957,142.86 The First National Bank of 4,928,571.43 13,162,571.43 2,957,142.86 Chicago ABN Amro Bank N.V. 3,214,285.70 8,584,285.73 1,928,571.43 Bank of Montreal 3,214,285.70 8,584,285.73 1,928,571.43 Bank of Tokyo-Mitsubishi Trust 3,214,285.70 8,584,285.73 1,928,571.43 Company DG Bank 3,214,285.70 8,584,285.73 1,928,571.43 Deutschegenossenschaftbank AG, Cayman Island Branch Royal Bank of Scotland plc 3,214,285.70 8,584,285.73 1,928,571.43 Generale Bank 0.00 0.00 0.00 HSBC 0.00 0.00 0.00 UniCredito Italiano S.p.A., New 2,142,857.15 5,722,857.14 1,285,714.29 York Branch TOTAL COMMITMENT $75,000,000.00 $200,300,000.00 pound sterling 45,000,000.00
LENDERS $50,000,000 $115,000,000 REVOLVER PTI INCREASE TERM - --------------------------------------------------------------------- NationsBank, N.A. 3,636,363.64 8,363,636.36 BankBoston, N.A. 1,515,151.52 3,484,848.48 Fleet National Bank 1,515,151.52 3,484,848.48 The Bank of New York 3,939,393.94 9,060,606.06 First Union National Bank 3,939,393.94 9,060,606.06 Lloyds Bank Plc, Miami 3,939,393.94 9,060,606.06 The Chase Manhattan Bank 0.00 0.00 Comerica Bank 2,121,212.12 4,878,787.88 The First National Bank of 5,151,515.15 11,848,484.85 Chicago ABN Amro Bank N.V. 1,515,151.51 3,484,848.49 Bank of Montreal 4,545,454.55 10,454,545.45 Bank of Tokyo-Mitsubishi Trust 1,515,151.51 3,484,848.49 Company DG Bank 1,515,151.51 3,484,848.49 Deutschegenossenschaftbank AG, Cayman Island Branch Royal Bank of Scotland plc 1,515,151.51 3,484,848.49 Generale Bank 7,575,757.58 17,424,242.42 HSBC 6,060,606.06 13,939,393.94 UniCredito Italiano S.p.A., New 0.00 0.00 York Branch TOTAL COMMITMENT 50,000,000.00 115,000,000.00
EX-23.3 6 CONSENT OF KPMG PEAT MARWICK LLP 1 Exhibit 23.3 [KPMG LOGO] CITYPLACE II HARTFORD, CT 06103-4103 The Board of Directors MacDermid, Incorporated; We consent to the use of our reports incorporated herein by reference and to the reference to our firm under the heading "Experts" in our prospectus. /s/ KPMG LLP KPMG LLP Hartford, Connecticut August 30, 1999 EX-23.4 7 CONSENT OF PRICEWATERHOUSECOOPERS LLP/ BOSTON 1 Exhibit 23.4 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the use in this Proxy Statement of MacDermid, Incorporated of our report dated March 19, 1999 relating to the financial statements of PTI, Inc., which appear in such Proxy Statement. We also consent to the references to us under the headings "Experts" in such Proxy Statement. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP Boston, MA August 30, 1999 EX-23.5 8 CONSENT OF PRICEWATERHOUSECOOPERS LLP/ U.K. 1 Exhibit 23.5 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Proxy Statement of MacDermid, Incorporated of our report on W. Canning plc dated 18 March 1998, except for note 28 which is as of 8 June 1999, appearing in such Proxy Statement. We also consent to the references to us under the headings "Experts" in such Proxy Statement. /s/ PricewaterhouseCoopers PricewaterhouseCoopers 30 August 1999 Birmingham, England EX-27 9 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated balance sheet as of March 31, 1999 and the consolidated statement of earnings for the fiscal year ended March 31, 1999 included in Exhibit 13 to the 1999 Form 10-K Annual Report of MacDermid, Incorporated and is qualified in its entirety to such statements. 1000 YEAR MAR-31-1999 APR-01-1998 MAR-31-1999 15486 968 115030 6411 56049 189374 109205 49966 506279 126126 231009 0 0 39413 102626 506279 382648 382648 192961 328585 135624 1383 13271 54063 17780 36283 0 0 0 36283 1.44 1.43
EX-99.1 10 FORMMOF MACDERMID PROXY CARD 1 Exhibit 99.1 PROXY MACDERMID, INCORPORATED PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS PROXY FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD SEPTEMBER 30, 1999 The undersigned, having received the Notice of Special Meeting and accompanying Joint Proxy Statement-Prospectus, hereby appoint(s) John L. Cordani and Daniel H. Leever, and each of them, Proxies of the undersigned (with full power of substitution) to attend the above Special Meeting of Shareholders and all adjournments thereof (the "Meeting"), and there to vote all shares of common stock, no par value, of MacDermid, Incorporated that the undersigned would be entitled to vote, if personally present, in regard to all matters which may come before the Meeting. The undersigned hereby confer(s) upon the Proxies, and each of them, discretionary authority to consider and act upon such business, matters or proposals other than the proposal set forth below as may properly come before the Meeting. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER SPECIFIED HEREIN, IF NO SPECIFICATION IS MADE THE PROXIES INTEND TO VOTE FOR ITEM 1. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. (Continued and to be signed and dated on reverse side) - ------------------------------------------------------------------------------- 2 MACDERMID, INCORPORATED PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X] THE BOARD OF DIRECTORS OF MACDERMID, INCORPORATED RECOMMENDS A VOTE FOR ITEM 1. 1. Proposal to approve and adopt the Plan and Agreement of Merger dated as of February 18, 1998, as amended as of July 27, 1999, by and among MacDermid, Incorporated, a Connecticut corporation, MCD Acquisition Corp., a Delaware corporation, PTI, Inc., a Delaware corporation, and Citicorp Venture Capital, Ltd., a New York corporation. FOR AGAINST ABSTAIN [ ] [ ] [ ] Dated: ______________________, 1999 Signature(s) ___________________________________________ ___________________________________________ In signing, please write name(s) exactly as appearing in the imprint on this card. For shares held jointly, each joint owner should sign. If signing as executor, or in any other representative capacity, or as an officer of a corporation, please indicate your full vote as such. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - FOLD AND DETACH HERE YOUR VOTE IS IMPORTANT. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. EX-99.2 11 FORM OF PTI PROXY CARD 1 Exhibit 99.2 PROXY PTI, INC PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS PROXY FOR SPECIAL MEETING OF SHAREHOLDERS TO THE HELD SEPTEMBER 30, 1999 The undersigned, having received the Notice of Special Meeting and accompanying Joint Proxy Statement-Prospectus, hereby appoint(s) David R. Beckerman and Thomas C. Weaver, and each of them, Proxies of the undersigned (with full power of substitution) to attend the above Special Meeting of Shareholders and all adjournments thereof (the "Meeting"), and there to vote all shares of common stock, no par value, of PTI, Inc that the undersigned would be entitled to vote, if personally present, in regard to all matters which may come before the Meeting. The undersigned hereby confer(s) upon the Proxies, and each of them, discretionary authority to consider and act upon such business, matters or proposals other than the proposal set forth below as may properly come before the Meeting. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER SPECIFIED HEREIN. IF NO SPECIFICATION IS MADE THE PROXIES INTEND TO VOTE FOR ITEM 1. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. (Continued and to be signed and dated on reverse side.) - ------------------------------------------------------------------------------- 2 PTI, INC PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X] [ ] The Board of Directors of PTI, Inc recommends a vote FOR Item 1. 1. Proposal to approve and adopt the Plan and Agreement of Merger, dated as of February 18, 1999, as amended as of July 27, 1999, by and among MacDermid, Incorporated a Connecticut corporation, MCD Acquisition Corp., a Delaware corporation, PTI, Inc, a Delaware corporation, and Citicorp Venture Capital, Ltd, a New York corporation. FOR AGAINST ABSTAIN [ ] [ ] [ ] Dated: ______________________, 1999 Signature____________________________________________ _____________________________________________________ In signing, please write name(s) exactly as appearing in the imprint on this card. For shares held jointly, each joint owner should sign, if signing as executor, or in any other representative capacity, or as an officer of a corporation, please indicate your full title as such. - -------------------------------------------------------------------------------- -- FOLD AND DETACH HERE -- YOUR VOTE IS IMPORTANT. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. EX-99.3 12 CONSENT OF JOSEPH M. SILVESTRI 1 EXHIBIT 99.3 CONSENT OF JOSEPH M. SILVESTRI ------------------------------ I hereby consent to my inclusion as a prospective director of MacDermid, Incorporated and to the use in this Joint Proxy Statement -- Prospectus of MacDermid, Incorporated of my name and information which appears relating to me under the headings "Summary -- Executive Officers and Directors of MacDermid After the Merger" and Executive Officers and Directors of MacDermid After the Merger." /s/ Joseph M. Silvestri - ------------------------------ Joseph M. Silvestri August 26, 1999 -----END PRIVACY-ENHANCED MESSAGE-----