Form 10-Q
Table of Contents

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

 


 

FORM 10-Q

 


 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For Quarterly Period Ended June 30, 2004

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For Transition Period from              to            .

 

Commission File Number 1-12658

 


 

ALBEMARLE CORPORATION

(Exact name of registrant as specified in its charter)

 


 

VIRGINIA   54-1692118
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

330 SOUTH FOURTH STREET    
RICHMOND, VIRGINIA   23219
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code - (804) 788-6000

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

 

Number of shares of common stock, $.01 par value, outstanding as of July 31, 2004: 41,568,017

 



Table of Contents

ALBEMARLE CORPORATION

 

I N D E X

 

        Page
Number(s)


PART I.   FINANCIAL INFORMATION    
ITEM 1.   Financial Statements    
    Consolidated Balance Sheets – June 30, 2004 and December 31, 2003   3-4
    Consolidated Statements of Income – Three- and Six- Months Ended June 30, 2004 and 2003   5
    Consolidated Statements of Comprehensive Income – Three- and Six- Months Ended June 30, 2004 and 2003   6
    Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2004 and 2003   7
    Notes to the Consolidated Financial Statements   8-23
ITEM 2.   Management’s Discussion and Analysis of Results of Operations and Financial Condition and Additional Information   24-32
ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk   32-33
ITEM 4.   Controls and Procedures   33
PART II.   OTHER INFORMATION    
ITEM 1.   Legal Proceedings   33-34
ITEM 6.   Exhibits and Reports on Form 8-K   34-35
SIGNATURES   36
EXHIBIT INDEX   37
EXHIBITS   38-206

 

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Table of Contents

PART I - FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

ALBEMARLE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(Dollars In Thousands)

 

    

June 30,

2004


   December 31,
2003


     (Unaudited)     

ASSETS

             

Current assets:

             

Cash and cash equivalents

   $ 38,653    $ 35,173

Accounts receivable, less allowance for doubtful accounts (2004 - $932; 2003 - $2,287)

     238,668      226,026

Inventories:

             

Finished goods

     142,359      154,594

Raw materials

     23,475      22,384

Stores, supplies and other

     25,980      27,725
    

  

       191,814      204,703

Deferred income taxes and prepaid expenses

     13,523      15,467
    

  

Total current assets

     482,658      481,369
    

  

Property, plant and equipment, at cost

     1,617,082      1,605,048

Less accumulated depreciation and amortization

     1,107,215      1,078,043
    

  

Net property, plant and equipment

     509,867      527,005

Prepaid pension assets

     187,860      185,531

Other assets and deferred charges

     80,060      74,802

Goodwill

     36,488      36,832

Other intangibles, net of amortization

     84,148      81,752
    

  

Total assets

   $ 1,381,081    $ 1,387,291
    

  

 

See accompanying notes to the consolidated financial statements.

 

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Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(Dollars In Thousands)

 

    

June 30,

2004


   December 31,
2003


     (Unaudited)     

LIABILITIES AND SHAREHOLDERS’ EQUITY

             

Current liabilities:

             

Accounts payable

   $ 118,314    $ 111,431

Long-term debt, current portion

     44      190

Accrued expenses

     74,191      70,610

Dividends payable to shareholders

     11,683      5,494

Income taxes payable

     33,018      22,346
    

  

Total current liabilities

     237,250      210,071
    

  

Long-term debt

     176,486      228,389

Postretirement benefits

     68,162      66,969

Other noncurrent liabilities

     109,877      101,976

Deferred income taxes

     134,330      143,665

Commitments and contingencies (Note 18)

             

Shareholders’ equity:

             

Common stock, $.01 par value, issued and outstanding - 41,553,392 in 2004 and 41,153,008 in 2003

     416      412

Additional paid-in capital

     6,906      736

Accumulated other comprehensive income

     19,912      23,643

Retained earnings

     627,742      611,430
    

  

Total shareholders’ equity

     654,976      636,221
    

  

Total liabilities and shareholders’ equity

   $ 1,381,081    $ 1,387,291
    

  

 

See accompanying notes to the consolidated financial statements.

 

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Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands Except Per-Share Amounts)

(Unaudited)

 

     Three Months Ended
June 30,


   

Six Months Ended

June 30,


 
     2004

    2003

    2004

    2003

 

Net sales

   $ 326,759     $ 271,823     $ 648,768     $ 538,562  

Cost of goods sold

     260,331       211,591       521,556       419,788  
    


 


 


 


Gross profit

     66,428       60,232       127,212       118,774  

Selling, general and administrative expenses

     32,649       29,435       63,003       57,061  

Research and development expenses

     5,088       4,421       9,667       9,363  

Special items

     550       —         5,057       —    
    


 


 


 


Operating profit

     28,141       26,376       49,485       52,350  

Interest and financing expenses

     (1,359 )     (1,257 )     (2,918 )     (2,594 )

Other income (expense), net including minority interest

     2,702       (316 )     1,619       3,257  
    


 


 


 


Income before income tax and cumulative effect of a change in accounting principle, net

     29,484       24,803       48,186       53,013  

Income taxes

     8,716       1,069       13,811       5,492  
    


 


 


 


Income before cumulative effect of a change in accounting principle, net

     20,768       23,734       34,375       47,521  

Cumulative effect of a change in accounting principle, net

     —         —         —         (2,220 )
    


 


 


 


Net income

   $ 20,768     $ 23,734     $ 34,375     $ 45,301  
    


 


 


 


Basic earnings per share:

                                

Income before cumulative effect of a change in accounting principle, net

   $ 0.50     $ 0.58     $ 0.83     $ 1.15  

Cumulative effect of a change in accounting principle, net

     —         —         —         (0.05 )
    


 


 


 


Net income

   $ 0.50     $ 0.58     $ 0.83     $ 1.10  
    


 


 


 


Diluted earnings per share:

                                

Income before cumulative effect of a change in accounting principle, net

   $ 0.49     $ 0.56     $ 0.81     $ 1.12  

Cumulative effect of a change in accounting principle, net

     —         —         —         (0.05 )
    


 


 


 


Net income

   $ 0.49     $ 0.56     $ 0.81     $ 1.07  
    


 


 


 


Cash dividends declared per share of common stock

   $ 0.145     $ 0.14     $ 0.435     $ 0.42  
    


 


 


 


 

See accompanying notes to the consolidated financial statements.

 

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Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars In Thousands)

(Unaudited)

 

     Three Months Ended
June 30,


    Six Months Ended
June 30,


 
     2004

    2003

    2004

    2003

 

Net income

   $ 20,768     $ 23,734     $ 34,375     $ 45,301  

Other comprehensive (loss) income, net of tax:

                                

Unrealized (loss) gain on securities available for sale

     (34 )     24       (26 )     6  

Unrealized (loss) on hedging derivatives

     —         (30 )     (51 )     (30 )

Foreign currency translation

     (1,913 )     7,520       (3,654 )     10,788  
    


 


 


 


Other comprehensive (loss) income

     (1,947 )     7,514       (3,731 )     10,764  
    


 


 


 


Comprehensive income

   $ 18,821     $ 31,248     $ 30,644     $ 56,065  
    


 


 


 


 

See accompanying notes to the consolidated financial statements.

 

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Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars In Thousands)

(Unaudited)

 

    

Six Months Ended

June 30,


 
     2004

    2003

 

Cash and cash equivalents at beginning of year

   $ 35,173     $ 47,784  
    


 


Cash flows from operating activities:

                

Net income

     34,375       45,301  

Cumulative effect of a change in accounting principle, net (a)

     —         2,220  
    


 


Income before cumulative effect of a change in accounting principle, net

     34,375       47,521  

Adjustments to reconcile net income before cumulative effect of a change in accounting principle, net to cash flows from operating activities:

                

Depreciation and amortization

     42,962       40,779  

Working capital changes, net of the effects of acquisitions

     20,037       7,128  

Increase in prepaid pension assets

     (2,329 )     (2,712 )

Increase in income tax receivable

     —         (11,278 )

Other, net

     (9,602 )     3,895  
    


 


Net cash provided from operating activities

     85,443       85,333  
    


 


Cash flows from investing activities:

                

Capital expenditures

     (19,634 )     (19,278 )

Investments in joint ventures and nonmarketable securities

     (5,030 )     (6,410 )

Acquisitions of assets

     (203 )     (26,579 )

Proceeds from hedging of anticipated acquisition purchase price

     2,989       —    

Proceeds from liquidation of nonmarketable security

     —         4,419  
    


 


Net cash used in investing activities

     (21,878 )     (47,848 )
    


 


Cash flows from financing activities:

                

Proceeds from borrowings

     14,775       47,332  

Proceeds from exercise of stock options

     4,786       372  

Repayments of long-term debt

     (66,474 )     (51,490 )

Purchases of common stock

     (827 )     (13,474 )

Dividends paid to shareholders

     (11,874 )     (11,664 )

Dividends paid to minority interest

     (1,669 )     (1,501 )
    


 


Net cash used in financing activities

     (61,283 )     (30,425 )
    


 


Net effect of foreign exchange on cash and cash equivalents

     1,198       6,248  
    


 


Increase in cash and cash equivalents

     3,480       13,308  
    


 


Cash and cash equivalents at end of period

   $ 38,653     $ 61,092  
    


 



(a) Supplemental noncash disclosures due to a cumulative change in accounting principle:

                

Increase in property, plant and equipment

   $ —       $ (6,520 )

Increase in accumulated depreciation

     —         3,083  

Increase in other noncurrent liabilities

     —         6,922  

Decrease in deferred tax liabilities

     —         (1,265 )
    


 


Cumulative effect of a change in accounting principle, net

   $ —       $ 2,220  
    


 


 

See accompanying notes to the consolidated financial statements.

 

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Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

1. In the opinion of management, the accompanying consolidated financial statements of Albemarle Corporation and its wholly-owned subsidiaries (“Albemarle” or the “Company”) contain all adjustments necessary for a fair presentation, in all material respects, of the Company’s consolidated financial position as of June 30, 2004, and December 31, 2003, the consolidated results of operations and comprehensive income for the three- and six-month periods ended June 30, 2004, and 2003, and condensed consolidated cash flows for the six-month periods ended June 30, 2004, and 2003. All adjustments are of a normal and recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2003 Annual Report on Form 10-K. The December 31, 2003 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The results of operations for the three- and six-month periods ended June 30, 2004, are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the accompanying consolidated financial statements and the notes thereto to conform to the current presentation.

 

2. Long-term debt consists of the following:

 

     June 30,
2004


   December 31,
2003


Variable-rate bank loans

   $ 160,000    $ 207,935

Industrial revenue bonds

     11,000      11,000

Foreign borrowings

     4,618      8,687

Miscellaneous

     912      957
    

  

Total

     176,530      228,579

Less amounts due within one year

     44      190
    

  

Long-term debt

   $ 176,486    $ 228,389
    

  

 

3. Cost of goods sold includes foreign exchange transaction (losses) gains of ($25) and $367, and $748 and $809 for the three- and six-month periods ended June 30, 2004 and 2003, respectively. Other income (expense), net including minority interest includes a $2.9 million realized foreign exchange hedging gain ($1.8 million after income taxes, or four cents per share on a diluted basis) associated with the Company’s acquisition of Akzo Nobel N.V’s (“Akzo Nobel”) refinery catalyst business.

 

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Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

4. Basic and diluted earnings per share for the three- and six-month periods ended June 30, 2004 and 2003, are calculated as follows:

 

     Three Months Ended
June 30,


   Six Months Ended
June 30,


 
     2004

   2003

   2004

   2003

 

Basic earnings per share

                             

Numerator:

                             

Income before cumulative effect of a change in accounting principle, net

   $ 20,768    $ 23,734    $ 34,375    $ 47,521  

Cumulative effect of a change in accounting principle, net

     —        —        —        (2,220 )
    

  

  

  


Income available to shareholders, as reported

   $ 20,768    $ 23,734    $ 34,375    $ 45,301  
    

  

  

  


Denominator:

                             

Average number of shares of common stock outstanding

     41,538      41,208      41,451      41,352  
    

  

  

  


Basic earnings per share:

                             

Income before cumulative effect of a change in accounting principle, net

   $ 0.50    $ 0.58    $ 0.83    $ 1.15  

Cumulative effect of a change in accounting principle, net

     —        —        —        (0.05 )
    

  

  

  


Basic earnings per share

   $ 0.50    $ 0.58    $ 0.83    $ 1.10  
    

  

  

  


Diluted earnings per share

                             

Numerator:

                             

Income before cumulative effect of a change in accounting principle, net

   $ 20,768    $ 23,734    $ 34,375    $ 47,521  

Cumulative effect of a change in accounting principle, net

     —        —        —        (2,220 )
    

  

  

  


Income available to shareholders, as reported

   $ 20,768    $ 23,734    $ 34,375    $ 45,301  
    

  

  

  


Denominator:

                             

Average number of shares of common stock outstanding

     41,538      41,208      41,451      41,352  

Shares issuable upon exercise of stock options

     744      838      790      814  
    

  

  

  


Total shares

     42,282      42,046      42,241      42,166  
    

  

  

  


Diluted earnings per share:

                             

Income before cumulative effect of a change in accounting principle, net

   $ 0.49    $ 0.56    $ 0.81    $ 1.12  

Cumulative effect of a change in accounting principle, net

     —        —        —        (0.05 )
    

  

  

  


Diluted earnings per share

   $ 0.49    $ 0.56    $ 0.81    $ 1.07  
    

  

  

  


 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

5. The following table reflects the changes in consolidated shareholders’ equity from December 31, 2003 through June 30, 2004:

 

     Common Stock

  

Additional
Paid-In

Capital


   

Accumulated
Other
Comprehensive

Income


   

Retained

Earnings


   

Total
Share-
holders’

Equity


 
   Shares

    Amounts

        

Balance at December 31, 2003

   41,153,008     $ 412    $ 736     $ 23,643     $ 611,430     $ 636,221  

Net income

   —         —        —         —         34,375       34,375  

Foreign currency translation, net

   —         —        —         (3,654 )     —         (3,654 )

Change in unrealized gain on marketable equity securities, net

   —         —        —         (26 )     —         (26 )

Change in unrealized (loss) on hedging derivatives, net

   —         —        —         (51 )     —         (51 )

Cash dividends declared

   —         —        —         —         (18,063 )     (18,063 )

Stock option remeasurement adjustments

   —         —        880       —         —         880  

Shares repurchased and retired

   (27,569 )     —        (827 )     —         —         (827 )

Shares issued upon exercise of stock options

   379,334       4      4,782       —         —         4,786  

Issuance of incentive award stock

   48,619       —        1,335       —         —         1,335  
    

 

  


 


 


 


Balance at June 30, 2004

   41,553,392     $ 416    $ 6,906     $ 19,912     $ 627,742     $ 654,976  
    

 

  


 


 


 


 

6. At June 30, 2004, goodwill and other intangibles consist principally of goodwill, customer lists, trademarks, patents and other intangibles.

 

     Balances at
Beginning of
Year


   Additions at
Cost


    Amortization
Charged to
Expense


   Foreign
Exchange


    Balances at
June 30,
2004


Goodwill

   $ 36,832    $ —       $ —      $ (344 )   $ 36,488
    

  


 

  


 

Other intangibles

   $ 81,752    $ 4,756 (a)   $ 2,864    $ 504     $ 84,148
    

  


 

  


 


(a) Other intangibles additions consist of intangibles ($1,989) associated with the allocation of the purchase price of Atofina’s bromine fine chemicals business (“Atofina”), and a non-compete agreement ($416), an employment contract ($1,292), a customer list ($890) and other intangibles ($169) associated with the acquisition of the assets of Taerim International Corporation (“Taerim”).

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

7. The significant differences between the U.S. Federal statutory income tax rate on pretax income and the effective income tax rate for the three- and six-month periods ended June 30, 2004 and 2003, respectively, are as follows:

 

     % of Income Before Income Taxes

 
    

Three Months Ended

June 30,


      

Six Months Ended

June 30,


 
     2004

     2003

       2004

    2003

 

Federal statutory rate

   35.0 %    35.0 %      35.0 %   35.0 %

Revaluation of reserve requirements

   —        (26.6 )      —       (12.5 )

State taxes, net of federal tax benefit

   0.3      0.8        0.5     0.9  

Extraterritorial income exclusion

   (2.4 )    (2.2 )      (2.7 )   (2.4 )

Depletion

   (1.5 )    (1.8 )      (1.9 )   (1.7 )

Federal income tax settlement

   —        —          —       (8.4 )

Other items, net

   (1.8 )    (0.9 )      (2.2 )   (0.5 )
    

  

    

 

Effective income tax rate

   29.6 %    4.3 %      28.7 %   10.4 %
    

  

    

 

 

During the quarter ended June 30, 2003, the Company received notification of the finalization of the Internal Revenue Service’s examination of its Federal income tax returns for the years ended December 31, 1998 and 1999. As a result, the Company evaluated its tax reserves and released $6.6 million to earnings.

 

In March 2003, the Company recorded a receivable for an income tax refund of $11,083. The refund related to the Internal Revenue Service’s examination of the Company’s 1996 and 1997 tax returns. In addition, at June 30, 2003, the Company recorded additional interest income of $195 ($124 after income taxes) for the three months then ended. The net effect of the refund on the Consolidated Statement of Income for the six-month period ended June 30, 2003 amounted to $7,216 or 17 cents per diluted share, including interest of $4,308 ($2,744 after income taxes).

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

8. On January 21, 2003, the Company acquired Ethyl Corporation’s fuel and lubricant antioxidants working capital, patents and other intellectual property for $26,579. The Company acquired the antioxidants assets to further leverage core strengths in alkyls and orthoalkylation. A summary of the final purchase price allocation is as follows:

 

Current assets

   $ 4,685  

Property, plant and equipment

     300  

Other assets

     613  

Intangibles

     24,161  

Current liabilities

     (2,230 )

Noncurrent liabilities

     (950 )
    


Net cash paid

   $ 26,579  
    


 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

On December 2, 2003, the Company, through its wholly-owned subsidiary Albemarle Chemicals SAS, acquired Atofina’s bromine fine chemicals business for $10,130. The transaction included the transfer to Albemarle of Atofina’s production site in Port de Bouc, France, as well as a long-term supply agreement with Atofina for certain fine chemicals. The acquisition provides Albemarle with flexibility in raw material supply and complements the Company’s existing network of bromine-based facilities in Jordan and the United States. The current purchase price allocation as of June 30, 2004, subject to final negotiations with the seller, is summarized below.

 

Accounts receivable

   $ 1,861  

Inventory

     7,915  

Property, plant and equipment

     6,120  

Deferred expenses

     799  

Deferred tax assets

     843  

Other assets

     1,061  

Intangibles

     1,989  

Current liabilities

     (1,440 )

Other noncurrent liabilities

     (7,839 )

Long-term environmental liabilities

     (1,179 )
    


Net cash paid

   $ 10,130  
    


 

9. Effective January 1, 2004, the Company acquired the business assets, customer lists and other intangibles of Taerim and formed Albemarle Korea Corporation located in Seoul. Taerim was formerly Albemarle’s Korean distributor and representative. The acquisition purchase price, which totaled $3,337 payable in cash and long-term notes due over five years, consisted primarily of intangible assets and inventory.

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

10. Special items for the three- and six-months ended June 30, 2004, includes a second-quarter 2004 additional charge totaling $550 ($350 after income taxes or 1 cent per diluted share) related to the cleanup of the Pasadena plant zeolite facility and a first-quarter 2004 charge totaling $4,507 ($2,871 after income taxes or seven cents per diluted share) consisting of layoffs of 53 employees at the zeolite facility amounting to $3,449 and related SFAS 88 curtailment charges of $898 and certain other charges of $160. The following table summarizes the total special charges related to the 2004 layoff and 2003 voluntary separation programs:

 

Beginning accrual balance, January 1, 2004

   $ 1,193  

Workforce reduction charges

     3,449  

Payments

     (3,380 )

Overaccrual reversed to income in first quarter

     (519 )
    


Ending accrual balance, June 30, 2004

   $ 743 *
    



* The remaining 2004 amount will be paid during the year.

 

11. At June 30, 2004 and 2003, other assets and deferred charges include an insurance receivable amounting to $5,783, that was recorded in the second quarter of 2002. The receivable relates to the probable recovery of a claim from the Company’s insurers for costs incurred by the Company regarding the discontinuance of product support for and the withdrawal from a water treatment venture.

 

On June 4, 2004, the Company initiated a petition for breach of contract and declaratory judgment against Amerisure Insurance Company and Amerisure Mutual Insurance Company (f/k/a Michigan Mutual Insurance Company) (collectively, the “Defendants”) on the grounds of Defendants’ refusal to honor their respective obligations under certain insurance policies on which the Company was named an additional insured. See “Legal Proceedings” in Part II of this Form 10-Q.

 

The Company, after initiating the petition for breach of contract against its secondary insurance carrier, also initiated formal discussions regarding existing insurance coverage with its primary general commercial liability carrier, Lexington Insurance Company (“Lexington”). At this time the Company believes that it will collect the full amount of the receivable from the Defendants and/or Lexington.

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

12. The Company has the following recorded environmental liabilities primarily included in “Other noncurrent liabilities” at June 30, 2004:

 

Beginning balance at December 31, 2003

   $ 29,122  

Additions

     1,179  

Payments

     (1,283 )

Foreign exchange

     (762 )
    


Ending balance at June 30, 2004

   $ 28,256  
    


 

The amounts recorded represent the Company’s future remediation and other anticipated environmental costs relating to past operations. Although it is difficult to quantify the potential financial impact of compliance with environmental protection laws, management estimates (based on the latest available information) that there is a reasonable possibility that future environmental remediation costs associated with the Company’s past operations, in excess of amounts already recorded, could be up to approximately $11,000 before income taxes.

 

On another matter, the Company has submitted a request for arbitration against Aventis S.A. (“Aventis”) to confirm that Aventis is obligated to indemnify the Company pursuant to the terms of a stock purchase agreement, for certain present and future claims asserted against the Company arising out of soil and groundwater contamination at the site of the Thann facility. See Note 18.

 

The Company believes that any sum it may be required to pay in connection with environmental remediation matters in excess of the amounts recorded should occur over a period of time and should not have a material adverse effect upon results of operations, financial condition or cash flows of the Company on a consolidated basis but could have a material adverse impact in a particular quarterly reporting period.

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

13. The Company is a global manufacturer of specialty polymer and fine chemicals, grouped currently in two operating segments: Polymer Chemicals and Fine Chemicals. The operating segments were determined based on management responsibility. The Polymer Chemicals segment is comprised of flame retardants, catalysts and polymer additives. The Fine Chemicals segment is comprised of agrichemicals, pharmachemicals, fine chemistry services and intermediates and performance chemicals. Segment data includes inter segment transfers of raw materials at cost and foreign exchange transaction gains and losses, as well as allocations for certain corporate costs. The corporate and other expenses include certain corporate-related items that are not allocated to the reportable segments.

 

     Three Months Ended June 30,

 

Summary of Segment Results


   2004

    2003

 
     Revenues

   Income

    Revenues

   Income

 

Polymer Chemicals

   $ 204,292    $ 24,921     $ 150,128    $ 18,750  

Fine Chemicals

     122,467      11,091       121,695      13,575  
    

  


 

  


Segment totals

   $ 326,759      36,012     $ 271,823      32,325  
    

          

        

Corporate and other expenses

            (7,871 )            (5,949 )
           


        


Operating profit

            28,141              26,376  

Interest and financing expenses

            (1,359 )            (1,257 )

Other income(expense), net including minority interest

            2,702              (316 )
           


        


Income before income taxes and cumulative effect of a change in accounting principle, net

          $ 29,484            $ 24,803  
           


        


 

     Six Months Ended June 30,

 

Summary of Segment Results


   2004

    2003

 
     Revenues

   Income

    Revenues

   Income

 

Polymer Chemicals

   $ 399,675    $ 46,264     $ 297,356    $ 35,099  

Fine Chemicals

     249,093      16,382       241,206      27,862  
    

  


 

  


Segment totals

   $ 648,768      62,646     $ 538,562      62,961  
    

          

        

Corporate and other expenses

            (13,161 )            (10,611 )
           


        


Operating profit

            49,485              52,350  

Interest and financing expenses

            (2,918 )            (2,594 )

Other income, net including minority interest

            1,619              3,257  
           


        


Income before income taxes and cumulative effect of a change in accounting principle, net

          $ 48,186            $ 53,013  
           


        


 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

14. On January 1, 2003, the Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations,” (“SFAS No. 143”) which addressed financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. At the time of adoption, the Company identified certain assets for which there were future retirement obligations. These future obligations were comprised primarily of the cost of closing various facilities and of capping brine wells. The financial statement impact at the date of adoption of SFAS No. 143 amounted to $3,485 or $2,220 after income taxes, which is reflected as a cumulative effect of a change in accounting principle, net in the Company’s consolidated statements of income in 2003.

 

15. Cash dividends declared for the six-month period ended June 30, 2004 totaled 43.5 cents per share, which included a dividend of 14.5 cents per share declared on January 30, 2004, paid April 1, 2004, a dividend of 14.5 cents per share declared March 31, 2004, payable July 1, 2004, as well as a dividend of 14.5 cents per share declared June 30, 2004, payable October 1, 2004. The cash dividends declared for the six-month period ended June 30, 2003 included three dividend declarations or 42 cents per share. The primary reason for the two dividend declarations in both first-quarter periods was the timing of the Board of Directors meeting dates.

 

16. During January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46 (“FIN 46” or the “Interpretation”), “Consolidation of Variable Interest Entities, and an Interpretation of ARB No. 51.” FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties; such entities are known as variable interest entities (“VIEs”). FIN 46 applied to all VIEs created after January 31, 2003. The FASB issued a revision to FIN 46 (“FIN 46-R”) in December 2003. FIN 46-R was effective for the interim period ending March 31, 2004 for all new or existing VIEs. The Company has determined that the adoption of FIN 46-R did not impact the Company or its results for the current period.

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

17. SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS No. 123”) encourages, but does not require, companies to record at fair value, compensation cost for stock-based employee compensation plans. The Company continues to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Under the intrinsic method, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock. If compensation cost had been determined based on the fair value at the grant date under the plans consistent with the method of SFAS No. 123, the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below:

 

     Three Months Ended
June 30,


     2004

   2003

Stock based compensation expense, net of taxes

             

as reported

   $ 845    $ 174

pro forma

   $ 1,615    $ 1,064

Net income

             

as reported

   $ 20,768    $ 23,734

pro forma

   $ 19,998    $ 22,844

Basic earnings per share on net income

             

as reported

   $ 0.50    $ 0.58

pro forma

   $ 0.48    $ 0.55

Diluted earnings per share on net income

             

as reported

   $ 0.49    $ 0.56

pro forma

   $ 0.47    $ 0.54

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

     Six Months Ended
June 30,


     2004

   2003

Stock based compensation expense, net of taxes

             

as reported

   $ 1,768    $ 348

pro forma

   $ 3,271    $ 2,051

Income before cumulative effect of a change in accounting principle, net

             

as reported

   $ 34,375    $ 47,521

pro forma

   $ 32,872    $ 45,818

Net income

             

as reported

   $ 34,375    $ 45,301

pro forma

   $ 32,872    $ 43,598

Basic earnings per share on income before cumulative effect of a change in accounting principle, net

             

as reported

   $ 0.83    $ 1.15

pro forma

   $ 0.79    $ 1.11

Basic earnings per share on Net income

             

as reported

   $ 0.83    $ 1.10

pro forma

   $ 0.79    $ 1.05

Diluted earnings per share on income before cumulative effect of a change in accounting principle, net

             

as reported

   $ 0.81    $ 1.12

pro forma

   $ 0.77    $ 1.08

Diluted earnings per share on net income

             

as reported

   $ 0.81    $ 1.07

pro forma

   $ 0.77    $ 1.03

 

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for options granted in the three and six-months periods ended June 30, 2004 and 2003.

 

     Three Months Ended
June 30,


      

Six Months Ended

June 30,


 
     2004

     2003

       2004

       2003

 

Fair values of options granted

   $10.38      $8.62        $10.07        $ 8.62  

Dividend Yield

   2.37 %    2.54 %      2.37 %        2.54 %

Volatility

   30.03 %    31.2 %      30.21 %        31.2 %

Average expected life (in years)

   10      10        10          10  

Risk-free interest rate

   4.96 %    4.21 %      4.28 %        4.21 %

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

18. Commitments and Contingencies.

 

The following table summarizes the Company’s contractual obligations for plant construction, purchases of equipment, unused letters of credit and various take or pay and throughput agreements:

 

    

3Q

2004


  

4Q

2004


   2005

   2006

   2007

   2008

   2009

   There-
after


Take or pay / throughput agreements

   $ 12,348    $ 12,349    $ 22,191    $ 12,072    $ 8,431    $ 6,946    $ 6,339    $ 28,525

Additional investment commitment payments

   $ 1,723    $ 133    $ 1,020    $ 790    $ 790    $ 30    $ 30    $ 199

Capital projects

   $ 8,755    $ 4,235    $ 3,362    $ 848    $ 848    $ 2,545      —        —  

Letters of credit and guarantees

   $ 19    $ 1,232    $ 23,463      —        —        —      $ 7    $ 44
    

  

  

  

  

  

  

  

Total

   $ 22,845    $ 17,949    $ 50,036    $ 13,710    $ 10,069    $ 9,521    $ 6,376    $ 28,768
    

  

  

  

  

  

  

  

 

In addition, the Company has commitments, in the form of guarantees, for 50% of the loan amounts outstanding (which at June 30, 2004, amounted to $31,867) of its 50%-owned joint venture company, Jordan Bromine Company Limited (“JBC”). JBC entered into the loans in 2000 to finance construction of certain bromine and derivatives manufacturing facilities on the Dead Sea. The Company’s total loan guarantee commitment for JBC is 50% of JBC’s total loans, which could amount to up to $44,800 if JBC makes all of its allowable draws.

 

On April 2, 2004, Albemarle Overseas Development Company (“AODC”), a wholly-owned subsidiary of Albemarle Corporation, initiated a Request for Arbitration against Aventis S.A., through the International Chamber of Commerce, International Court of Arbitration, Paris, France. The dispute arises out of a 1992 Stock Purchase Agreement (“Agreement”) between a predecessor to AODC, and a predecessor to Aventis, pursuant to which 100% of the stock of Potasse et Produits Chimiques, S.A., now known as Albemarle PPC (APPC), was acquired by AODC. The dispute relates to a chemical facility in Thann in eastern France owned by APPC. Under the terms of the Agreement, Aventis is obligated to indemnify AODC and APPC, and hold them harmless from certain claims, losses, damages, costs or any other present or prospective liabilities arising out of soil and/or groundwater contamination at the site in Thann.

 

Beginning in May 2000, the French Government, with respect to the management of pollution risk on the site of active industrial installations, required APPC to conduct an environmental risk study of the Thann facility. In June 2002, the French Government directed APPC to undertake a more detailed risk study of groundwater contamination. The administrative process of the French Government is still ongoing as of the present date. AODC has demanded indemnification from Aventis for the cost of the studies, but Aventis has refused to pay.

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

The Request for Arbitration requests indemnification of AODC by Aventis for certain costs incurred by APPC, in connection with any environmental claims of the French Government for the APPC facility and a declaratory judgment as to the liability of Aventis under the Agreement for costs to be incurred in the future by APPC in connection with such claims.

 

At this time, it is not possible to predict what the French Government will require with respect to the Thann facility, since this matter is in its initial stages and environmental matters are subject to many uncertainties. The Company believes, however, that it is entitled to be indemnified by Aventis for liabilities arising from this matter.

 

19. In accordance with Financial Accounting Standards Board, Statement of Financial Accounting Standards No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits— an amendment of FASB Statements No. 87, 88, and 106”, the following information is provided for interim domestic financial statements (foreign information is excluded from the requirements until the period ended December 15, 2004):

 

     Three
Months
Ended
June 30,
2004


    Three
Months
Ended
June 30,
2003


    Six
Months
Ended
June 30,
2004


    Six
Months
Ended
June 30,
2003


 

Net Periodic Pension Benefit Cost:

                                

Service cost

   $ 2,215     $ 1,960     $ 4,491     $ 3,920  

Interest cost

     5,712       4,962       11,942       9,924  

Expected return of assets

     (10,256 )     (8,757 )     (20,598 )     (17,514 )

Plan pension curtailment *

     —         —         898       —    

Amortization of Unrecognized Amounts:

                                

Net transition (asset)

     (3 )     (10 )     (5 )     (20 )

Prior service charge

     176       318       355       636  

Net loss

     876       202       1,514       404  
    


 


 


 


Total income

   $ (1,280 )   $ (1,325 )   $ (1,403 )   $ (2,650 )
    


 


 


 


 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

     Three
Months
Ended
June 30,
2004


    Three
Months
Ended
June 30,
2003


    Six
Months
Ended
June 30,
2004


    Six
Months
Ended
June 30,
2003


 

Net Periodic Postretirement Benefit Expense:

                                

Service cost

   $ 345     $ 456     $ 832     $ 912  

Interest cost

     1,054       1,123       2,124       2,246  

Expected return of assets

     (141 )     (133 )     (255 )     (266 )

Amortization of Unrecognized Amounts:

                                

Net transition (asset)/obligation

     —         —         —         —    

Prior service charge

     (359 )     (365 )     (698 )     (730 )

Net loss

     51       94       147       188  
    


 


 


 


Total expense

   $ 950     $ 1,175     $ 2,150     $ 2,350  
    


 


 


 



* During first quarter ended March 31, 2004, a SFAS No. 88 pension curtailment charge was incurred totaling $898 due to the layoffs at the Pasadena plant zeolite facility.

 

The Company did not make any contributions to its pension plans in the first six months of 2004; and at this time, none are anticipated for the remainder of the year.

 

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“the Act”) was signed into law. The Act introduces a prescription drug benefit under Medicare Part D, as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The Company sponsors medical programs for certain of its U.S. retirees and expects that this legislation will reduce the costs for some of these programs. The Company is continuing to evaluate the impact of the legislation since guidance from various governmental and regulatory agencies concerning the requirements that must be met to obtain these cost reductions is still pending. In April 2004, the FASB issued Staff Position (FSP) No. FAS 106-2 to address the accounting and disclosure requirements related to the Act. The FSP No. FAS 106-2 is effective for interim or annual periods beginning after June 15, 2004. The Company does not expect the adoption of FSP No. FAS 106-2 to have a material impact on the Company’s financial position, results of operations or cash flows.

 

20. On July 31, 2004, the Company completed the acquisition of the catalyst refinery business of Akzo Nobel for EUR 615.7 million (approximately $763 million) in cash in accordance with an International Share and Business Sale Agreement, dated as of July 16, 2004. In connection with the acquisition, the Company entered into (i) a five-year senior credit agreement, dated as of July 29, 2004 (the “Multi-Year Credit Agreement”), consisting of a $300 million revolving credit facility and a five-year $450 million term loan facility and (ii) a 364-day loan agreement consisting of a $450 million term loan facility, dated as of July 29,

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Share and Per-Share Amounts)

(Unaudited)

 

2004 (the “364-Day Credit Agreement”). The Company used initial borrowings under the Multi-Year Credit Agreement and the 364-Day Credit Agreement to consummate the acquisition, refinance its existing credit agreement and pay all fees and expenses in connection therewith.

 

The Company will operate the new business as a third segment (Catalyst), joining it with the Company’s existing Polymer Chemical and Fine Chemical segments, moving its current catalysts products into the new segment and incorporating other polymer additives and its flame retardants into a newly-named Polymer Additives segment.

 

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Table of Contents

ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition and Additional Information

 

The following data and discussion provides an analysis of certain significant factors affecting the results of operations of Albemarle Corporation and its subsidiaries (“Albemarle” or the “Company”), during the periods included in the accompanying consolidated statements of income and changes in the Company’s financial condition since December 31, 2003.

 

Some of the information presented in this Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on the Company’s current expectations, which are in turn based on the Company’s reasonable assumptions within the bounds of its knowledge of its business and operations. There can be no assurance, however, that the Company’s actual results will not differ materially from the results and expectations in the forward-looking statements. Factors that could cause actual results to differ materially include, without limitation, the timing of orders received from customers, the gain or loss of significant customers, competition from other manufacturers, changes in the demand for the Company’s products, increases in the cost of products, increases in the cost of energy and raw materials (notably ethylene, chlorine and natural gas), changes in the Company’s markets in general, fluctuations in foreign currencies, changes in new product introductions resulting in increases in capital project requests and approvals leading to additional capital spending, changes in laws and regulations, unanticipated claims or litigation, the inability to obtain current levels of product or premises liability insurance or the denial of such coverage, political unrest affecting the global economy, changes in accounting standards, and the successful integration of the recently acquired Akzo Nobel refinery catalyst business into the Company’s operations. The Company assumes no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.

 

Results of Operations

Second Quarter 2004 Compared with Second Quarter 2003

 

Net Sales

 

Net sales by operating segment for the second-quarter periods ended June 30, 2004 and 2003 are as follows:

 

    

Net Sales

(In Thousands)


     2004

   2003

Polymer Chemicals

   $ 204,292    $ 150,128

Fine Chemicals

     122,467      121,695
    

  

Segment totals

   $ 326,759    $ 271,823
    

  

 

Net sales for second quarter 2004 of $326.7 million were up $54.9 million (20.2%) from second-quarter 2003 net sales of $271.8 million. Polymer Chemicals’ net sales increased $54.2 million (36.1%) primarily due to higher volumes in flame retardants ($22.3 million) and catalysts and additives ($10.8 million), the contributions made by the Company’s 2003 acquisitions ($18.3 million) and the favorable impact of foreign exchange ($5.5 million) offset, in

 

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Table of Contents

part, by lower prices ($2.6 million), primarily in flame retardants. Fine Chemicals’ net sales increased $0.8 million (0.6%) primarily due to the contributions made by the Company’s 2003 bromine fine chemicals acquisition ($5.2 million), the favorable impact of foreign exchange ($3.6 million) and higher volumes in bulk active pharmaceuticals and agricultural chemicals ($1.9 million). The increase was mostly offset by an unfavorable sales mix in performance chemicals ($6.6 million) and lower prices in bulk active pharmaceuticals ($2.9 million) and fine chemistry services and intermediates ($0.6 million).

 

Operating Costs and Expenses

 

Cost of goods sold in the second quarter of 2004 increased $48.7 million (23.0%) from the corresponding 2003 period. The increase was primarily due to the impact of the Company’s 2003 acquisitions and higher sales volumes in the 2004 period as well as higher raw material and energy costs and the idling of the zeolite business assets. The gross profit margin decreased approximately 183 basis points to 20.3% in second-quarter 2004 from 22.2% for the corresponding period in 2003.

 

Selling, general and administrative expenses (“SG&A”) and research and development expenses (“R&D”) increased $3.9 million (11.5%) in the second quarter of 2004 versus second-quarter 2003 primarily due to higher employee incentive costs ($1.8 million), higher outside service costs ($0.8 million), higher research and development costs ($0.7 million), and the unfavorable impact of foreign exchange ($0.6 million) as well as higher SG&A costs related to acquisitions ($0.4 million) offset, in part, by the benefits of cost reduction efforts and a voluntary separation program implemented in the third quarter of 2003. As a percentage of net sales, SG&A and R&D were 11.5% in 2004 versus 12.5% in the 2003 quarter.

 

Operating Profit

 

Operating profit by reportable operating segment for the three-month periods ended June 30, 2004, and 2003 is as follows:

 

    

Operating Profit

(In Thousands)


 
     2004

    2003

 

Polymer Chemicals

   $ 24,921     $ 18,750  

Fine Chemicals

     11,091       13,575  
    


 


Segment totals

     36,012       32,325  

Corporate and Other Expenses

     (7,871 )     (5,949 )
    


 


Operating Profit

   $ 28,141     $ 26,376  
    


 


 

Polymer Chemicals’ second-quarter 2004 segment operating profit increased $6.2 million (32.9%) from second-quarter 2003. The increase was primarily due to higher shipments in flame retardants ($10.2 million) and catalysts and additives ($3.1 million), and the overall favorable net effects of foreign exchange ($2.0 million), offset, in part, by unfavorable raw material and energy costs ($6.3 million) and lower prices ($2.6 million), primarily in flame retardants.

 

Fine Chemicals’ second-quarter 2004 segment operating profit, including a special item charge of $0.6 million related to the cleanup of the Pasadena plant zeolite facility, decreased

 

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Table of Contents

$2.5 million (18.3%) from second-quarter 2003. Excluding the special item, second-quarter 2004 segment operating profit decreased $1.9 million (14.2%) from second-quarter 2003 primarily due to lower prices ($3.6 million), primarily in bulk active pharmaceuticals, unfavorable sales mix in performance chemicals ($0.6 million), the unfavorable net effects of foreign exchange ($0.4 million) and higher energy costs ($0.5 million). The decrease was partially offset by product mix in fine chemistry services and intermediates ($3.2 million).

 

Corporate and other expenses for the second-quarter of 2004 increased $1.9 million (32.3%) from second-quarter 2003 primarily due to higher employee incentive costs offset, in part, by the Company’s overall cost reduction efforts.

 

Interest and Financing Expenses

 

Interest and financing expenses for second-quarter 2004 amounted to $1.4 million, up slightly from $1.3 million in second-quarter 2003 due to higher average outstanding debt in the 2004 period.

 

Other Income (Expense), Net Including Minority Interest

 

Other income (expense), net for the second-quarter 2004 amounted to $2.7 million, up $3.0 million from the 2003 corresponding period. Second-quarter 2004 includes foreign exchange hedging gains of $2.9 million related to the Company’s hedging of euros for its acquisition of the refinery catalyst business of Akzo Nobel.

 

Income Taxes

 

Second-quarter 2004 effective income tax rate was 29.6%, up from 4.3% for the corresponding period in 2003. The 2003 period benefited from a favorable income tax adjustment of $6.6 million due to the revaluation of reserve requirements resulting from IRS settlements. The significant differences between the U.S. Federal statutory income tax rate on pretax income and the effective income tax rate for the three-month periods ended June 30, 2004 and 2003, respectively, are as follows:

 

     % of Income Before
Income Taxes


 
    

Three Months Ended

June 30,


 
     2004

     2003

 

Federal statutory rate

   35.0 %    35.0 %

Revaluation of reserve requirements

   —        (26.6 )

State taxes, net of federal tax benefit

   0.3      0.8  

Extraterritorial income exclusion

   (2.4 )    (2.2 )

Depletion

   (1.5 )    (1.8 )

Federal income tax settlement

   —        —    

Other items, net

   (1.8 )    (0.9 )
    

  

Effective income tax rate

   29.6 %    4.3 %
    

  

 

Results of Operations

Six Months 2004 Compared with Six Months 2003

 

Net Sales

 

Net sales by operating segment for the six-month periods ended June 30, 2004 and 2003 are as follows:

 

    

Net Sales

(In Thousands)


     2004

   2003

Polymer Chemicals

   $ 399,675    $ 297,356

Fine Chemicals

     249,093      241,206
    

  

Segment totals

   $ 648,768    $ 538,562
    

  

 

Net sales for first six months of 2004 of $648.8 million were up $110.2 million (20.5%) from the first six months of 2003 net sales of $538.6 million. Polymer Chemicals’ net sales increased $102.3 million (34.4%) primarily due to higher volumes in flame retardants ($37.7 million) and catalysts and additives ($19.4 million), the contributions made by the Company’s 2003 acquisitions ($35.4 million) and the favorable impact of foreign exchange ($15.0 million) offset, in part, by lower prices ($5.1 million), primarily in flame retardants. Fine Chemicals’ net sales increased $7.9 million (3.3%) primarily due to the favorable impact of foreign exchange

 

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($10.5 million), the contributions made by the Company’s 2003 bromine fine chemicals acquisition ($9.2 million), higher volumes in bulk active pharmaceuticals ($8.6 million) and higher volumes, offset in part, by lower prices, in fine chemistry services and intermediates ($0.8 million). The increase in Fine Chemicals’ net sales was partially offset by an unfavorable sales mix in performance chemicals ($15.2 million) and lower prices in bulk active pharmaceuticals ($5.7 million).

 

Operating Costs and Expenses

 

Cost of goods sold in the first six months of 2004 increased $101.7 million (24.2%) from the corresponding 2003 period. The increase was primarily due to the impact of the Company’s 2003 acquisitions and higher sales volumes in the 2004 period as well as the idling of the zeolite business assets and higher raw material costs. The gross profit margin decreased approximately 240 basis points to 19.6% in the 2004 period from 22.1% for the corresponding period in 2003.

 

SG&A and R&D increased $6.2 million (9.4%) in the first six months of 2004 versus first six months of 2003 primarily due to higher employee related costs ($5.2 million), the unfavorable impact of foreign exchange ($1.7 million), higher SG&A costs related to acquisitions ($0.9 million), higher outside legal costs ($0.4 million) as well as higher R&D costs ($0.3 million) offset, in part, by the benefits of cost reduction efforts and a voluntary separation program implemented in the third quarter of 2003. As a percentage of net sales, SG&A and R&D were 11.2% in 2004 versus 12.3% in the 2003 period.

 

Operating Profit

 

Operating profit by reportable operating segment for the six-month periods ended June 30, 2004, and 2003 is as follows:

 

    

Operating Profit

(In Thousands)


 
     2004

    2003

 

Polymer Chemicals

   $ 46,264     $ 35,099  

Fine Chemicals

     16,382       27,862  
    


 


Segment totals

     62,646       62,961  

Corporate and Other Expenses

     (13,161 )     (10,611 )
    


 


Operating Profit

   $ 49,485     $ 52,350  
    


 


 

Six-months 2004 operating profit, including special item charges in the Fine Chemicals’ segment of $4.5 million that resulted from the layoff of 53 employees at the Pasadena plant zeolite facility and their related SFAS No. 88 pension curtailment charge ($0.9 million) and $0.6 million for cleanup of the facility, was down $2.9 million (5.5%) from six-months 2003 operating profit. Excluding the effects of the special items, six-months 2004 operating profit increased $2.2 million (4.2%) from the corresponding 2003 period.

 

Polymer Chemicals’ first six months of 2004 segment operating profit increased $11.2 million (31.8%) from the first six months of 2003. The increase was primarily due to higher shipments in flame retardants ($14.0 million) and catalysts and additives ($6.7 million), the overall favorable net effects of foreign exchange ($5.5 million), offset, in part, by unfavorable

 

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raw material costs ($8.5 million), lower prices ($5.1 million), primarily in flame retardants, higher SG&A costs related to acquisitions ($0.9 million) and higher manufacturing and production costs ($0.6 million).

 

Fine Chemicals’ first six months of 2004 segment operating profit, including special item charges of $4.5 million that resulted from the layoff of 53 employees at the Pasadena plant zeolite facility and their related SFAS No. 88 pension curtailment charge ($0.9 million) and $0.6 million for cleanup of the facility, decreased $11.5 million (41.2%) from the first six months of 2003. Excluding the special items, first six-months 2004 segment operating profit decreased $6.4 million (23.1%) from the 2003 period primarily due to unfavorable plant utilization and manufacturing costs primarily due to the idling of the zeolite business assets ($5.8 million), lower prices, offset in part, by higher shipments in bulk active pharmaceuticals ($4.2 million), and unfavorable sales mix in performance chemicals ($1.7 million). The decrease was partially offset by higher shipments, offset in part, by lower prices in fine chemistry services and intermediates ($2.3 million) and higher shipments ($1.7 million) and prices ($1.4 million) in agricultural chemicals.

 

Corporate and other expenses for the first six months of 2004 increased $2.6 million (24.0%) from first six months of 2003 primarily due to higher estimated employee incentive costs.

 

Interest and Financing Expenses

 

Interest and financing expenses for the first six months of 2004 amounted to $2.9 million, up slightly from $2.6 million in the first six months of 2003 due to higher average outstanding debt in the 2004 period.

 

Other Income (Expense), Net Including Minority Interest

 

Other income (expense), net for the first six months of 2004 amounted to $1.6 million, down $1.6 million from the 2003 corresponding period. The decrease is primarily attributable to the absence of $4.3 million of interest income from an Internal Revenue Service (“IRS”) income tax settlement in the 2003 period, partially offset by foreign exchange hedging gains of $2.9 million related to the Company’s hedging of euros for its acquisition of the refinery catalyst business of Akzo Nobel in the 2004 period.

 

Income Taxes

 

The first six months of 2004 effective income tax rate was 28.7%, up from 10.4% for the corresponding period in 2003. The significant differences between the U.S. Federal statutory income tax rate on pretax income and the effective income tax rate for the six-month periods ended June 30, 2004 and 2003, respectively, are as follows:

 

     % of Income
Before Income Taxes


 
    

Six Months Ended

June 30,


 
     2004

    2003

 

Federal statutory rate

   35.0 %   35.0 %

Revaluation of reserve requirements

   —       (12.5 )

State taxes, net of federal tax benefit

   0.5     0.9  

Extraterritorial income exclusion

   (2.7 )   (2.4 )

Depletion

   (1.9 )   (1.7 )

Federal income tax settlement

   —       (8.4 )

Other items, net

   (2.2 )   (0.5 )
    

 

Effective income tax rate

   28.7 %   10.4 %
    

 

 

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Table of Contents

Financial Condition and Liquidity

 

Cash and cash equivalents at June 30, 2004, were $38.7 million, representing an increase of $3.5 million from $35.2 million at year-end 2003.

 

Cash flows provided from operating activities of $85.4 million, together with approximately $14.8 million of proceeds from borrowings and $3 million of realized hedging gains associated with the acquisition of Akzo Nobel’s refinery catalyst business, were used to cover operating activities, repay debt of $66.5 million, fund capital expenditures totaling $19.6 million, pay quarterly dividends to shareholders of $11.9 million, fund investments in joint ventures and nonmarketable securities of $5 million, purchase 27,569 shares of the Company’s common stock, purchase the assets and intellectual property of Taerim, and increase cash and cash equivalents by $3.5 million. The Company anticipates that cash provided from operations in the future will be sufficient to pay its operating expenses, satisfy debt-service obligations and make dividend payments.

 

The change in the Company’s accumulated other comprehensive loss from December 31, 2003, was due primarily to net foreign currency translation adjustments (strengthening of the U.S. Dollar versus the euro), net of related deferred taxes.

 

The noncurrent portion of the Company’s long-term debt amounted to $176.5 million at June 30, 2004, compared to $228.4 million at the end of 2003. The Company’s long-term debt, including the current portion, as a percentage of total capitalization amounted to 21.2% at June 30, 2004. The Company is guarantor of $44.8 million of long-term debt, in the form of commitments (of which $31.7 million was outstanding at June 30, 2004), on behalf of its 50-percent owned joint venture company, Jordan Bromine Company Limited. The Company’s long-term debt, including the guarantee, as a percent of total capitalization amounted to 24.1% at June 30, 2004.

 

On July 31, 2004, the Company completed the acquisition of the catalyst refinery business of Akzo Nobel N.V. (“Akzo Nobel”) for EUR 615.7 million (approximately $763 million) in cash in accordance with an International Share and Business Sale Agreement, dated as of July 16, 2004 (the “Purchase Agreement”), by and between the Company, Albemarle Catalysts International, L.L.C., a wholly-owned subsidiary of the Company (“Albemarle Catalysts”), and Akzo Nobel.

 

In connection with the acquisition, the Company entered into (i) a new senior credit agreement, dated as of July 29, 2004 (the “Multi-Year Credit Agreement”), among the Company, Albemarle Catalysts, certain subsidiaries of the Company, as guarantors, the banks named therein, Bank of America, N.A., as Administrative Agent, UBS Securities LLC, as Syndication Agent, and The Bank of New York, Fortis (USA) Finance LLC and SunTrust Bank, as Co-Documentation Agents, consisting of a $300 million revolving credit facility and a $450 million term loan facility and (ii) a 364-day loan agreement, dated as of July 29, 2004 (the “364-Day Credit Agreement”), among the Company, Albemarle Catalysts, certain subsidiaries of the Company, as guarantors, the banks named therein, Banc of America Bridge LLC, as Administrative Agent, and UBS Securities LLC, as Syndication Agent, consisting of a $450 million term loan facility. The Company used the initial borrowings under the Multi-Year Credit Agreement and the 364-Day Credit Agreement to consummate the acquisition, refinance its existing Credit Agreement dated September 10, 2002 and pay all fees and expenses in connection therewith.

 

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The Company intends to operate the new business as a third segment, to be known as Catalyst, joining it with the Company’s existing Polymer Chemical and Fine Chemical segments, moving its current catalysts products into the new segment and incorporating other polymer additives and its flame retardants into a newly-named Polymer Additives segment.

 

Borrowings under the Company’s new Multi-Year Credit Agreement and 364-Day Credit Agreement are conditioned upon compliance with the following financial covenants: (a) consolidated fixed charge coverage ratio, as defined, must be greater than or equal to 1.25:1.00 as of the end of any fiscal quarter, (b) consolidated debt to capitalization ratio, as defined, at the end of any fiscal quarter of the Company must be less than or equal to 65% (i) prior to the earlier of (A) the first anniversary of the closing date and (B) the first equity issuance of the Company subsequent to the closing date, and (ii) thereafter, 60%, (c) consolidated tangible domestic assets, as defined, must be or greater than or equal to $750 million for the Company to make investments in entities and enterprises that are organized outside the United States, (d) with the exception of liens specified in the new Multi-Year Credit Agreement and the 364-Day Credit Agreement, liens may not attach to assets with a value of more than 10% of consolidated net worth, as defined in the agreements.

 

The Company’s capital expenditures in the first six months of 2004 were up slightly from the six-month period of 2003. For the year, however, capital expenditures are forecasted to be about 20% greater than the 2003 level. Capital spending will be financed primarily with cash flow provided from operations with additional cash needed, if any, provided from debt. The amount and timing of any additional borrowings will depend on the Company’s specific cash requirements.

 

The Company is subject to federal, state, local and foreign requirements regulating the handling, manufacture and use of materials (some of which may be classified as hazardous or toxic by one or more regulatory agencies), the discharge of materials into the environment and the protection of the environment. To the Company’s knowledge, it is currently complying, and expecting to continue to comply, in all material respects with existing environmental laws, regulations, statutes and ordinances applicable to its operations. Such compliance with federal, state, local and foreign environmental protection laws is not expected to have in the future a material effect on earnings or the competitive position of Albemarle.

 

Among other environmental requirements, the Company is subject to the federal Superfund law, and similar state laws, under which the Company may be designated as a potentially responsible party and may be liable for a share of the costs associated with cleaning up various hazardous waste sites.

 

Additional Information

 

Outlook

 

Overview

 

Albemarle’s second quarter results continued to reflect the strong sales growth trend that we have experienced for the past six quarters. Based on market indicators in our key segments, we expect continued growth in net sales in the third quarter, especially in our Polymer Additives and the newly formed Catalyst segments.

 

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Table of Contents

As noted elsewhere, we completed the acquisition of Akzo Nobel’s refinery catalysts business on July 31, for EUR 615.7 million (approximately $763 million). With this acquisition, we will add a number of foundation technologies to our portfolio including catalysts for hydro-processing and fluidized catalytic cracking, as well as new products targeting the fast growing clean fuels catalyst market. Based on first-half 2004 unaudited results to date, the new Catalyst business is performing well and is poised to further participate in the three-to-five percent per year overall growth in the $10 billion catalyst industry.

 

We have begun to execute on our integration plans to combine our current polyolefin catalyst business with the newly acquired refinery catalysts business. Overall, the Catalyst segment is forecasted to generate about 30 percent of Albemarle’s total sales on an annual basis (excluding JVs). However, the acquisition is not expected to be accretive to earnings for the balance of the year due to significant integration activities and financing expenses.

 

We continue to experience significant increases in raw material and energy costs, particularly in benzene, bisphenol-A and phenol, which impact primarily in the Polymer Additives segment. By year end, raw material costs are expected to add nearly $16 million with energy adding another $3 to 4 million to our overall cost structure. In order to offset these increases, we are seeking price increases in most product areas, and these initiatives are taking effect with various levels of success. Our manufacturing cost reduction program, which began in 2003 to capture $50 million in savings over three years, is on track and contributing to partially offset the impact of raw material cost inflation.

 

Acquisitions continue to play a key role in sales growth for the Company. Over 40% of the net sales growth experienced in the second quarter was related to acquisitions made in the past 12 months. With the acquisition of the refinery catalysts business, the Company will have an annual sales rate of approximately $1.75 billion. We continue to forecast an effective tax rate of about 30% looking forward.

 

Fine Chemicals

 

Second quarter sales were flat with last year’s levels and were down slightly from the first quarter of 2004. Looking forward, we expect to see increasingly tight supply, high asset utilizations and price improvement in the bromine products area. Underlying trends in Fine Chemistry Services continue to improve, based on a strong new product development pipeline. This year alone, revenue from new products is expected to increase by 7 percent versus 2003. These new activities will help to offset the loss of revenue from the zeolites business and may provide opportunities to use these idle assets for more value-adding activities.

 

Overall profitability is expected to be down in agricultural chemicals due to the normal seasonal downturn in the third quarter. During this timeframe we will also experience the impact of unabsorbed factory costs resulting from a plant turnaround in our ibuprofen facility designed to provide further cost reductions through automation.

 

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We also expect competitive pricing pressure in ibuprofen. Profitability improvement plans are in place and we should begin to see better results in 2005.

 

Polymer Chemicals

 

Polymer Chemicals sales have increased to record levels for the past four quarters with a growth rate of close to eight percent per quarter. Segment revenues and income grew 36 percent and 33 percent year over year. General indicators of market recovery continue to show strength, driving shipments throughout our polymer additives product line. Flame retardants will continue to be the primary growth driver as we move into the second half of the year. The third quarter is typically the strongest for electronic equipment sales in advance of the holiday season, and we are seeing signs that recovery in this sector will continue.

 

Pricing in flame retardants improved sequentially 4-5 percent in the second quarter and we expect continued price improvement in third quarter, helping to offset anticipated raw material cost escalation.

 

With the majority of flame retardant assets running at full capacity, we expect to continue to increase production of tetrabrom at our Jordan facility in response to market demand and are expanding Martinal ATH capacity of 10%.

 

Overall, strength in Polymer Chemicals sales is expected to continue in 2004. Success of the price increases underway will become even more critical, however, as we face escalating raw material and energy costs in the second half of the year.

 

Additional information regarding the Company, its products, markets and financial performance is provided at the Company’s Internet web site, www.albemarle.com. The Company’s Internet website is not a part of this document nor is it incorporated herein by reference.

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

 

There have been no significant changes in the Company’s interest rate risk, marketable security price risk or raw material price risk from the information provided in the Annual Report on Form 10-K for the year ended December 31, 2003, except as noted below.

 

The operations of the Company are exposed to market risk from changes in natural gas prices. The Company purchases natural gas to meet its production requirements. In the second quarter of 2003, the Company began hedging a portion of its 12 month rolling forecast for North American natural gas requirements, by entering into natural gas futures contracts, to help mitigate uncertainty and volatility.

 

Hedge transactions are executed with a major financial institution by the Company’s purchasing personnel. Such derivatives are held to secure natural gas at fixed prices and not for trading.

 

The natural gas contracts qualify as cash flow hedges under SFAS No. 133 and are marked to market. The unrealized gains and/or losses are deferred and reported in Other Comprehensive Income to the extent that the unrealized gains and losses are offset by the forecasted transaction. Any unrealized gains and/or losses on the derivative instrument that are not offset by the forecasted transaction are recorded in earnings. There were no hedges of natural gas contracts at June 30, 2004.

 

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For the six-months ended June 30, 2004, the Company had unrealized losses of approximately $80 thousand ($51 thousand, net of tax) in Other Comprehensive Income.

 

ITEM 4. Controls and Procedures

 

The Company carried out an evaluation, with the participation of the Company’s management, including the Company’s President and Chief Executive Officer, and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Company’s President and Chief Executive Officer, and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. There has been no change in the Company’s internal control over financial reporting during the quarter ended June 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Part II - OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

On April 2, 2004, Albemarle Overseas Development Company (“AODC”), a wholly-owned subsidiary of Albemarle Corporation, initiated a Request for Arbitration against Aventis S.A. (“Aventis”), through the International Chamber of Commerce, International Court of Arbitration, Paris, France. The dispute arises out of a 1992 Stock Purchase Agreement (“Agreement”) between a predecessor to AODC, and a predecessor to Aventis pursuant to which 100% of the stock of Potasse et Produits Chimiques, S.A., now known as Albemarle PPC (APPC), was acquired by AODC. The dispute relates to a chemical facility in Thann in eastern France owned by APPC. Under the terms of the Agreement, Aventis is obligated to indemnify AODC and APPC, and hold them harmless from certain claims, losses, damages, costs or any other present or prospective liabilities arising out of soil and/or groundwater contamination at the site in Thann.

 

Beginning in May 2000, the French Government, with respect to the management of pollution risk on the site of active industrial installations, required APPC to conduct an environmental risk study of the Thann facility. In June 2002, the French Government directed APPC to undertake a more detailed risk study of groundwater contamination. The administrative process of the French Government is still ongoing as of the present date. AODC has demanded indemnification from Aventis for the cost of the studies, but Aventis has refused to pay.

 

The Request for Arbitration requests indemnification of AODC by Aventis for all costs incurred by APPC in connection with any environmental claims of the French Government for the APPC facility and a declaratory judgment as to the liability of Aventis under the Agreement for costs to be incurred in the future by APPC in connection with such claims.

 

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At this time, it is not possible to predict what the French Government will require with respect to the Thann facility, since this matter is in its initial stages and environmental matters are subject to many uncertainties. The Company believes, however, that it is entitled be fully indemnified by Aventis for all liabilities arising from this matter.

 

On June 4, 2004, the Company initiated a petition for breach of contract and declaratory judgment against Amerisure Insurance Company and Amerisure Mutual Insurance Company (f/k/a Michigan Mutual Insurance Company) (collectively, the “Defendants”) in the Nineteenth Judicial District Court, Parish of Baton Rouge, Louisiana on the grounds of Defendants’ refusal to honor their respective obligations under certain insurance policies on which the Company was named an additional insured to reimburse the Company for certain damages incurred by Albemarle in the discontinuance of product support for and the withdrawal from a water treatment venture. The Company has also initiated formal discussions related to such damages with its primary general commercial liability carrier. At this time the Company believes that it will collect the full amount of the receivable from the Defendants and/or its primary general insurance carrier.

 

In addition, the Company is involved from time to time in legal proceedings of types regarded as common in the Company’s businesses, particularly administrative or judicial proceedings seeking remediation under environmental laws, such as Superfund, products liability and premises liability litigation.

 

The Company maintains a financial accrual for these proceedings which includes defense costs and potential damages, as estimated by its General Counsel. The Company also maintains insurance to mitigate such risks. The Company is not party to any pending litigation proceedings that are expected to have a material adverse effect on the Company’s results of operations, financial position or cash flows.

 

ITEM 6. Exhibits and Reports on Form 8-K

 

  (a) Exhibits

 

10.1.1   Credit Agreement dated as of July 29, 2004 among Albemarle Corporation, Albemarle Catalysts International, L.L.C. and certain other subsidiaries of the Company
10.1.2   364-Day Credit Agreement dated as of July 29, 2004 among Albemarle Catalyst International L.L.C., as Borrower, Albemarle Corporation and the subsidiaries of the Company
31.1   Section 302 Certification of Chief Executive Officer
31.2   Section 302 Certification of Chief Financial Officer
32.1   Section 906 Certification of Chief Executive Officer
32.2   Section 906 Certification of Chief Financial Officer

 

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  (b) Reports on Form 8-K

 

(1)   The Company filed a Form 8-K on April 19, 2004, which included the Company’s press release regarding the Company’s intent to complete an agreement with Akzo Nobel N.V. to acquire catalyst business.
(2)   The Company furnished a Form 8-K, on April 21, 2004 under Item 12 thereof, which included the Company’s earnings press release for the quarter ended March 31, 2004.
(3)   The Company filed a Form 8-K on May 4, 2004, which included a financial presentation that Mark C. Rohr, President and Chief Executive Officer made in Chicago on May 4, 2004.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    ALBEMARLE CORPORATION
    (Registrant)
Date: August 9, 2004   By:  

/s/ PAUL F. ROCHELEAU


        Paul F. Rocheleau
        Senior Vice President and
        Chief Financial Officer

 

36


Table of Contents

EXHIBIT INDEX

 

         Page
Numbers


10.1.1   Credit Agreement dated as of July 29, 2004 among Albemarle Corporation, Albemarle Catalysts International, L.L.C. and certain other subisdiaries of the Company    38
10.1.2   364-Day Credit Agreement dated as of July 29, 2004 among Albemarle Catalyst International L.L.C.,as Borrower, Albemarle Corporation and the subsidiaries of the Company    131
31.1   Section 302 Certification of Chief Executive Officer    203
31.2   Section 302 Certification of Chief Financial Officer    204
32.1   Section 906 Certification of Chief Executive Officer    205
32.2   Section 906 Certification of Chief Financial Officer    206
Exhibit 10.1.1

 

Exhibit 10.1.1

 

CREDIT AGREEMENT

 

Dated as of July 29, 2004

 

among

 

ALBEMARLE CORPORATION,

(the “Company”),

 

ALBEMARLE CATALYSTS INTERNATIONAL, L.L.C.,

 

CERTAIN OTHER SUBSIDIARIES OF THE COMPANY,

 

THE LENDERS PARTY HERETO,

 

BANK OF AMERICA, N.A.,

as Administrative Agent, Swing Line Lender and L/C Issuer,

 

UBS SECURITIES LLC,

as Syndication Agent,

 

and

 

THE BANK OF NEW YORK,

FORTIS (USA) FINANCE LLC

and

SUNTRUST BANK,

as Co-Documentation Agents

 

Arranged By:

 

BANC OF AMERICA SECURITIES LLC

and

UBS SECURITIES LLC

as Joint Lead Arrangers and Joint Book Managers

 



TABLE OF CONTENTS

 

Section


       Page

ARTICLE I.

 

DEFINITIONS AND ACCOUNTING TERMS

   1

1.01

 

Defined Terms

   1

1.02

 

Other Interpretive Provisions

   22

1.03

 

Accounting Terms

   22

1.04

 

Rounding

   23

1.05

 

References to Agreements and Laws

   23

1.06

 

Times of Day

   23

1.07

 

Letter of Credit Amounts

   23

1.08

 

Exchange Rates; Currency Equivalents

   23

1.09

 

Additional Alternative Currencies

   23

1.10

 

Redenomination of Certain Alternative Currencies

   24

ARTICLE II.

 

THE COMMITMENTS AND CREDIT EXTENSIONS

   24

2.01

 

Committed Loans

   24

2.02

 

Borrowings, Conversions and Continuations of Committed Loans

   25

2.03

 

Letters of Credit

   26

2.04

 

Swing Line Loans

   34

2.05

 

Prepayments

   36

2.06

 

Termination or Reduction of Commitments

   37

2.07

 

Repayment of Loans

   37

2.08

 

Interest

   38

2.09

 

Fees

   39

2.10

 

Computation of Interest and Fees

   40

2.11

 

Evidence of Debt

   40

2.12

 

Payments Generally; Administrative Agent’s Clawback

   41

2.13

 

Sharing of Payments

   42

2.14

 

Designated Borrowers

   43

ARTICLE III.

 

TAXES, YIELD PROTECTION AND ILLEGALITY

   44

3.01

 

Taxes

   44

3.02

 

Illegality

   45

3.03

 

Inability to Determine Rates

   46

3.04

 

Increased Cost and Reduced Return; Capital Adequacy

   46

3.05

 

Funding Losses

   47

3.06

 

Matters Applicable to all Requests for Compensation

   47

3.07

 

Survival

   48

ARTICLE IV.

 

GUARANTY

   48

4.01

 

The Guaranty

   48

4.02

 

Obligations Unconditional

   48

4.03

 

Reinstatement

   49

4.04

 

Certain Additional Waivers

   49

4.05

 

Remedies

   50

4.06

 

Rights of Contribution

   50

4.07

 

Guarantee of Payment; Continuing Guarantee

   50

ARTICLE V.

 

CONDITIONS PRECEDENT TO CREDIT EXTENSIONS

   50

5.01

 

Conditions of Initial Credit Extension

   50

5.02

 

Conditions to all Credit Extensions

   52

5.03

 

Conditions to Release of Initial Credit Extensions

   53

 


ARTICLE VI.

 

REPRESENTATIONS AND WARRANTIES

   54

6.01

 

Existence, Qualification and Power; Compliance with Laws

   54

6.02

 

Authorization; No Contravention

   54

6.03

 

Governmental Authorization; Other Consents

   54

6.04

 

Binding Effect

   54

6.05

 

Financial Statements; No Material Adverse Change

   55

6.06

 

Litigation

   55

6.07

 

No Default

   55

6.08

 

Ownership of Property; Liens

   55

6.09

 

Environmental Compliance

   56

6.10

 

Insurance

   56

6.11

 

Taxes

   56

6.12

 

ERISA Compliance

   56

6.13

 

Margin Regulations; Investment Company Act; Public Utility Holding Company Act

   57

6.14

 

Disclosure

   57

6.15

 

Compliance with Laws

   57

6.16

 

Intellectual Property; Licenses, Etc.

   58

6.17

 

Subsidiaries

   58

6.18

 

Solvency

   58

ARTICLE VII.

 

AFFIRMATIVE COVENANTS

   58

7.01

 

Financial Statements

   58

7.02

 

Certificates; Other Information

   59

7.03

 

Notices

   60

7.04

 

Payment of Obligations

   61

7.05

 

Preservation of Existence, Etc.

   61

7.06

 

Maintenance of Properties

   61

7.07

 

Maintenance of Insurance

   61

7.08

 

Compliance with Laws

   62

7.09

 

Books and Records

   62

7.10

 

Inspection Rights

   62

7.11

 

Use of Proceeds

   62

7.12

 

Joinder of Guarantors

   62

7.13

 

ERISA Compliance

   63

ARTICLE VIII.

 

NEGATIVE COVENANTS

   63

8.01

 

Indebtedness

   63

8.02

 

Liens

   64

8.03

 

Investments

   65

8.04

 

Mergers, Dispositions, etc.

   66

8.05

 

Change in Nature of Business

   66

8.06

 

Transactions with Affiliates

   67

8.07

 

Use of Proceeds

   67

8.08

 

Financial Covenants

   67

8.09

 

ERISA

   67

8.10

 

Burdensome Agreements

   67

8.11

 

Assets in Loan Parties

   68

8.12

 

Granting of Certain Liens

   68

ARTICLE IX.

 

EVENTS OF DEFAULT AND REMEDIES

   68

9.01

 

Events of Default

   68

 


9.02

 

Remedies Upon Event of Default

   70

9.03

 

Application of Funds

   71

ARTICLE X.

 

ADMINISTRATIVE AGENT

   72

10.01

 

Appointment and Authority

   72

10.02

 

Rights of a Lender

   72

10.03

 

Exculpatory Provisions

   72

10.04

 

Reliance by Administrative Agent

   73

10.05

 

Delegation of Duties

   73

10.06

 

Resignation of Administrative Agent

   73

10.07

 

Non-Reliance on Administrative Agent and Other Lenders

   74

10.08

 

No Other Duties, Etc.

   74

10.09

 

Administrative Agent May File Proofs of Claim

   75

10.10

 

Guaranty Matters

   75

ARTICLE XI.

 

MISCELLANEOUS

   75

11.01

 

Amendments, Etc.

   75

11.02

 

Notices; Effectiveness; Electronic Communication

   77

11.03

 

No Waiver; Cumulative Remedies

   78

11.04

 

Expenses; Indemnity; Damage Waiver

   78

11.05

 

Concerning Joint and Several Liability of the Borrowers

   79

11.06

 

Payments Set Aside

   81

11.07

 

Successors and Assigns

   81

11.08

 

Confidentiality

   84

11.09

 

Set-off

   84

11.10

 

Interest Rate Limitation

   85

11.11

 

Counterparts

   85

11.12

 

Integration

   85

11.13

 

Survival of Representations and Warranties

   85

11.14

 

Severability

   86

11.15

 

Tax Forms

   86

11.16

 

Replacement of Lenders

   87

11.17

 

USA PATRIOT Act Notice

   88

11.18

 

Governing Law; Jurisdiction; Etc.

   88

11.19

 

Waiver of Right to Trial by Jury

   89

11.20

 

Judgment Currency

   89

 


SCHEDULES

 

1.01

   Mandatory Cost Formulae

2.01

   Commitments and Pro Rata Shares

2.03

   Existing Letters of Credit

6.09

   Environmental Matters

6.17

   Subsidiaries

8.01

   Existing Indebtedness

8.02

   Existing Liens

11.02

   Eurocurrency and Domestic Lending Offices; Notice Addresses
EXHIBITS

A

   Form of Committed Loan Notice

B

   Form of Swing Line Loan Notice

C

   Form of Note

D

   Form of Compliance Certificate

E

   Form of Assignment and Assumption

F

   Closing Funding Memorandum

G

   Form of Joinder Agreement

H

   Designated Borrower Request and Assumption Agreement

I

   Designated Borrower Notice

 


CREDIT AGREEMENT

 

This CREDIT AGREEMENT is entered into as of July 29, 2004 among ALBEMARLE CORPORATION, a Virginia corporation (the “Company”), ALBEMARLE CATALYSTS INTERNATIONAL L.L.C., a Delaware limited liability company, certain Subsidiaries of the Company party hereto pursuant to Section 2.14 (each a “Designated Borrower”), the Guarantors (defined herein), the Lenders (defined herein), BANK OF AMERICA, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and UBS SECURITIES LLC, as Syndication Agent.

 

The Company has requested that the Lenders provide $750,000,000 in revolving and term loan credit facilities, and the Lenders are willing to do so on the terms and conditions set forth herein.

 

In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

 

ARTICLE I.

DEFINITIONS AND ACCOUNTING TERMS

 

  1.01 Defined Terms.

 

As used in this Agreement, the following terms shall have the meanings set forth below:

 

Acquired Business” means the refining catalyst business of Akzo Nobel N.V.

 

Acquisition” by any Person, means the acquisition by such Person, in a single transaction or in a series of related transactions, of all or substantially all of the Property of, or of a business unit or division of, another Person or at least a majority of the securities having ordinary voting power for the election of directors, managing general partners or the equivalent of another Person, in each case whether or not involving a merger or consolidation with such other Person and whether for cash, property, services, assumption of Indebtedness, securities or otherwise.

 

Administrative Agent” means Bank of America in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

 

Administrative Agent’s Office” means, with respect to any currency, the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 11.02 with respect to such currency or such other address or account with respect to such currency as the Administrative Agent may from time to time notify the Company and the Lenders.

 

Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

 

Adjusted Eurocurrency Rate” means for any Interest Period with respect to any Eurocurrency Rate Loan, a rate per annum (rounded upward, if necessary, to the next 1/100th of 1%) determined by the Administrative Agent to be equal to the quotient obtained by dividing (a) the Eurocurrency Rate for such Eurocurrency Rate Loan for such Interest Period by (b) one minus the Eurocurrency Reserve Percentage for such Eurocurrency Rate Loan for such Interest Period.

 

Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. “Control” means the possession, directly or indirectly, of the power to direct or cause the

 


direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto. Without limiting the generality of the foregoing, a Person shall be deemed to be Controlled by another Person if such other Person possesses, directly or indirectly, power to vote 10% or more of the securities having ordinary voting power for the election of directors, managing general partners or the equivalent.

 

Aggregate Revolving Commitments” means the aggregate amount of Revolving Commitments of all the Revolving Lenders. The initial Aggregate Revolving Commitment is referenced in Section 2.01(a).

 

Agreement” means this Credit Agreement.

 

Alternative Currency” means each of British Pounds Sterling, Euro and Japanese Yen and each other lawful currency (other than Dollars) that is freely available and freely transferable and convertible into Dollars and that is approved by all the Revolving Lenders in accordance with Section 1.09.

 

Alternative Currency Equivalent” means, at any time, with respect to any amount denominated in Dollars, the equivalent amount thereof in the applicable Alternative Currency as determined by the Administrative Agent or the L/C Issuer, as the case may be, at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of such Alternative Currency with Dollars.

 

Applicable Currency” means Dollars or Alternative Currency, as applicable.

 

Applicable Rate” means, from time to time, the following percentages per annum, based upon the Debt Rating as set forth below:

 

Pricing Level


  

Debt Rating

S&P/Moody’s


   Applicable Rate
for Eurocurrency
Rate Loans
(Revolving
Loans and
Letters of Credit


   

Applicable
Rate for
Eurocurrency
Rate Loans

(Term Loan)


    Applicable
Rate for Base
Rate Loans
(Revolving
Loans)


   

Applicable
Rate for
Base Rate
Loans

(Term
Loan)


   

Facility

Fee


 

1

   BBB+/Baa1 or
better
   0.500 %   0.650 %   0.000 %   0.000 %   0.150 %

2

   BBB/Baa2    0.700 %   0.875 %   0.000 %   0.000 %   0.175 %

3

   BBB-/Baa3    0.750 %   1.000 %   0.000 %   0.000 %   0.250 %

4

   BB+/Ba1    1.050 %   1.375 %   0.050 %   0.375 %   0.325 %

5

   BB/Ba2 or
worse or unrated
   1.300 %   1.750 %   0.300 %   0.750 %   0.450 %

 

Debt Rating” means, as of any date of determination, the rating as determined by either S&P or Moody’s of the Company’s non-credit-enhanced, senior unsecured long-term debt; provided that if there is a split in the Debt Rating of S&P and Moody’s, then (a) in the case of a split between Pricing Levels 1, 2 and 3, the higher (better) of such Debt Ratings shall apply and (b) in the case of a split between Pricing Levels 3, 4 and 5, the lower (worse) of such Debt Ratings shall apply; provided, however, in the case of a split in Debt Ratings of more than one

 

2


Pricing Level, the Pricing Level that is one level higher than the Pricing Level of the lower Debt Rating shall apply.

 

Initially, the Applicable Rate shall be determined based upon the Debt Rating specified in the certificate delivered pursuant to Section 5.01(a)(ix). Thereafter, each change in the Applicable Rate resulting from a publicly announced change in the Debt Rating shall be effective, in the case of an upgrade, during the period commencing on the date of delivery by the Company to the Administrative Agent of notice thereof pursuant to Section 7.03(f) and ending on the date immediately preceding the effective date of the next such change and, in the case of a downgrade, during the period commencing on the date of the public announcement thereof and ending on the date immediately preceding the effective date of the next such change.

 

Determinations by the Administrative Agent of the appropriate Pricing Level shall be conclusive absent manifest error.

 

Applicable Time” means, with respect to any borrowings and payments in Alternative Currencies, the local times in the place of settlement for such Alternative Currencies as may be determined by the Administrative Agent or the L/C Issuer, as the case may be, to be necessary for timely settlement on the relevant date in accordance with normal banking procedures in the place of payment.

 

Applicant Borrower” has the meaning specified in Section 2.14.

 

Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

 

Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 11.07(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit E or any other form approved by the Administrative Agent.

 

Attorney Costs” means and includes all reasonable fees, expenses and disbursements of any law firm or other external counsel and, following the occurrence and during the continuation of an Event of Default, shall also include the allocated cost of internal legal services and all expenses and disbursements of internal counsel.

 

Attributable Principal Amount” means (a) in the case of capital leases, the amount of capital lease obligations determined in accordance with GAAP, (b) in the case of Synthetic Leases, an amount determined by capitalization of the remaining lease payments thereunder as if it were a capital lease determined in accordance with GAAP, (c) in the case of Securitization Transactions, the outstanding principal amount of such financing, after taking into account reserve accounts and making appropriate adjustments, as determined by the Administrative Agent in its reasonable judgment and (d) in the case of any Sale and Lease Back Transaction, the present value (discounted in accordance with GAAP at the debt rate implied in the applicable lease) of the obligations of the lessee for rental payments during the term of such lease.

 

Availability Period” means the period from and including the Closing Date to the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Revolving Commitments pursuant to Section 2.06, and (c) the date of termination of the commitment of each Lender to make Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 9.02.

 

Bank of America” means Bank of America, N.A. and its successors.

 

3


BAS” means Banc of America Securities LLC, in its capacity as joint lead arranger and joint book manager, and its successors.

 

Base Rate” means for any day a fluctuating rate per annum (rounded upward, if necessary, to the next 1/100th of 1%) equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate.” The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’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 “prime rate” announced by Bank of America 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 that bears interest based on the Base Rate. All Base Rate Loans shall be denominated in Dollars.

 

Borrower” means Albemarle Catalysts International L.L.C., a Delaware limited liability company, and, if the conditions of Section 2.14 are satisfied, the Company or any other Designated Borrower.

 

Borrowing” means a Committed Borrowing or a Swing Line Borrowing, as the context may require.

 

Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office with respect to Obligations denominated in Dollars is located and:

 

(a) if such day relates to any interest rate settings as to a Eurocurrency Rate Loan denominated in Dollars, any fundings, disbursements, settlements and payments in Dollars in respect of any such Eurocurrency Rate Loan, or any other dealings in Dollars to be carried out pursuant to this Agreement in respect of any such Eurocurrency Rate Loan, means any such day on which dealings in deposits in Dollars are conducted by and between banks in the London interbank eurodollar market;

 

(b) if such day relates to any interest rate settings as to a Eurocurrency Rate Loan denominated in Euro, any fundings, disbursements, settlements and payments in Euro in respect of any such Eurocurrency Rate Loan, or any other dealings in Euro to be carried out pursuant to this Agreement in respect of any such Eurocurrency Rate Loan, means a TARGET Day;

 

(c) if such day relates to any interest rate settings as to a Eurocurrency Rate Loan denominated in a currency other than Dollars or Euro, means any such day on which dealings in deposits in the relevant currency are conducted by and between banks in the London or other applicable offshore interbank market for such currency; and

 

(d) if such day relates to any fundings, disbursements, settlements or payments in a currency other than Dollars or Euro in respect of a Eurocurrency Rate Loan denominated in a currency other than Dollars or Euro, or any other dealings in any currency other than Dollars or Euro to be carried out pursuant to this Agreement in respect of any such Eurocurrency Rate Loan (other than any interest rate settings), means any such day on which banks are open for foreign exchange business in the principal financial center of the country of such currency.

 

4


Cash Collateralize” has the meaning specified in Section 2.03(g).

 

Change of Control” means an event or series of events by which (a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) other than Floyd D. Gottwald, Jr. or members of his family (together, the “Gottwalds”), or any investment entities owned by them, shall own directly or indirectly, beneficially or of record, shares representing more than the greater of (i) 20% and (ii) the percentage owned by the Gottwalds of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Company or any Person directly or indirectly Controlling the Company; or (b) a majority of the seats (other than vacant seats) on the board of directors of the Company or any Person directly or indirectly Controlling the Company shall at any time be occupied by persons who were neither (i) nominated by the management of the Company or by persons who were members of the board of directors as of the Closing Date or members elected by two thirds of such members, nor (ii) appointed by directors so nominated.

 

Closing Date” means the date hereof.

 

Closing Funding Memorandum” means the Closing Funding Memorandum attached hereto as Exhibit F.

 

Commitment” means the Revolving Commitment and the Term Loan Commitment.

 

Committed Borrowing” means a Revolving Borrowing or a Borrowing of the Term Loan, as appropriate.

 

Committed Loan” means a Revolving Loan or the Term Loan, as appropriate.

 

Committed Loan Notice” means a notice of (a) a Committed Borrowing, (b) a conversion of Committed Loans from one Type to the other, or (c) a continuation of Eurocurrency Rate Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.

 

Company” has the meaning specified in the introductory paragraph hereto.

 

Compliance Certificate” means a certificate substantially in the form of Exhibit D.

 

Consolidated Capital Expenditures” means, for any period, for the Consolidated Group, all capital expenditures, as determined in accordance with GAAP.

 

Consolidated Debt to Capitalization Ratio” means, as of any date of determination, the ratio of (a) Consolidated Funded Debt as of such date to (b) the sum of Consolidated Net Worth as of such date plus Consolidated Funded Debt as of such date.

 

Consolidated EBITDA” means, for any period, for the Consolidated Group, an amount equal to the sum of (a) Consolidated Net Income for such period plus (b) the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Charges for such period, (ii) the provision for federal, state, local and foreign income taxes payable by the Consolidated Group for such period, (iii) the amount of depreciation and amortization expense for such period, (iv) non-cash expenses (excluding any non-cash expense to the extent that it represents an accrual of or reserve for cash payments in any future period) and (v) one-time charges resulting from the permanent closure of facilities, the termination of employees and other costs directly associated with the Acquisition of the Acquired Business to the extent such charges were incurred not later than twelve months following the date of such Acquisition in an aggregate amount not to exceed $35,000,000, minus (c) to the extent included in

 

5


calculating such Consolidated Net Income, non-cash income during such period, all as determined in accordance with GAAP.

 

Consolidated Fixed Charge Coverage Ratio” means, as of any date of determination, the ratio of (a) the sum of (i) Consolidated EBITDA for the period of the four prior fiscal quarters ending on such date minus (ii) Consolidated Capital Expenditures for such period to (b) the sum of (i) Consolidated Interest Charges for such period plus (ii) Consolidated Scheduled Funded Debt Payments for such period plus (iii) cash dividends paid by the Company on shares of the Company’s capital stock during such period.

 

Consolidated Funded Debt” means Funded Debt of the Consolidated Group determined on a consolidated basis in accordance with GAAP.

 

Consolidated Group” means the Company and its consolidated Subsidiaries as determined in accordance with GAAP.

 

Consolidated Interest Charges” means, for any period, for the Consolidated Group, all interest expense, including the amortization of debt discount and premium, the interest component under capital leases and the implied interest component under Securitization Transactions, in each case on a consolidated basis determined in accordance with GAAP.

 

Consolidated Net Income” means, for any period for the Consolidated Group, the sum, without duplication of (i) net income of the Consolidated Group (excluding extraordinary items and related tax effects) for that period plus (ii) to the extent not included in the amount determined pursuant to clause (i) above and to the extent paid in cash to a member of the Consolidated Group, equity earnings of unconsolidated Affiliates for such period minus (iii) to the extent included in the amount determined pursuant to clause (i) above and to the extent not paid in cash to a member of the Consolidated Group, equity earnings of Affiliates that are not consolidated (on the consolidation basis) with the Company for such period minus (iv) to the extent included in the amount determined pursuant to clause (i) above, the income of any Subsidiary to the extent the payment of such income in the form of a distribution or repayment of any Indebtedness to the Borrower or a Subsidiary is not permitted, whether on account of any Organization Document restriction, any agreement, instrument, deed or lease or any Law applicable to such Subsidiary, all as determined in accordance with GAAP.

 

Consolidated Net Worth” means, as of any date of determination, consolidated shareholders’ equity of the Consolidated Group as of that date determined in accordance with GAAP (excluding, for purposes hereof, changes in the cumulative foreign currency translation adjustment and any mark to market of a derivative or hedging instrument (or any other adjustment related thereto) required under FAS 133).

 

Consolidated Scheduled Funded Debt Payments” means for any period for the Consolidated Group, the sum of all scheduled payments of principal on Consolidated Funded Debt, as determined in accordance with GAAP. For purposes of this definition, “scheduled payments of principal” (a) shall be determined without giving effect to any reduction of such scheduled payments resulting from the application of any voluntary or mandatory prepayments made during the applicable period, (b) shall be deemed to include the Attributable Indebtedness in respect of Capital Leases, Sale and Leaseback Transactions and Synthetic Leases and (c) shall not include (i) any voluntary prepayments or mandatory prepayments required pursuant to Section 2.05 or (ii) the payment at or before maturity of Indebtedness outstanding under the 364-Day Loan Agreement.

 

6


Consolidated Tangible Domestic Assets” means, as of any date, the total book value of assets of members of the Consolidated Group that are organized under the laws of any political subdivision of the United States, which assets are located in the United States, minus (i) intercompany loans and advances from such members of the Consolidated Group to other members of the Consolidated Group and (ii) the book value of intangible assets of such members of the Consolidated Group, including goodwill, patents, trade names, trademarks, copyrights, franchises, experimental expense, organizational expense, unamortized debt discount and expense and deferred assets (other than prepaid insurance and prepaid taxes), determined in accordance with GAAP.

 

Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

 

Control” has the meaning specified in the definition of “Affiliate.”

 

Credit Extension” means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.

 

Debt Rating” has the meaning set forth in the definition of “Applicable Rate.”

 

Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

 

Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

 

Default Rate” means (a) when used with respect to Obligations other than Letter of Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum; provided, however, that with respect to a Eurocurrency Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate and any Mandatory Cost) otherwise applicable to such Loan plus 2% per annum, and (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate plus 2% per annum.

 

Defaulting Lender” means any Lender that (a) has failed to fund any portion of the Committed Loans, participations in L/C Obligations or participations in Swing Line Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.

 

Deposit Account Control Agreement” means that certain Deposit Account Control Agreement, dated as of the Closing Date, among Albemarle Catalysts International L.L.C., the Company, the Administrative Agent and Bank of America, as depository bank, whereby Albemarle Catalysts International L.L.C. grants a lien on the U.S. deposit account where initial funds under this Agreement are being transferred pursuant to the Closing Funding Memorandum.

 

Designated Borrower” means any Borrower designated in accordance with the terms of Section 2.14.

 

7


Designated Borrower Notice” has the meaning specified in Section 2.14.

 

Designated Borrower Request and Assumption Agreement” has the meaning specified in Section 2.14.

 

Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any Sale and Leaseback Transaction) of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.

 

Dollar” and “$” mean lawful money of the United States.

 

Dollar Equivalent” means, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any Alternative Currency, the equivalent amount thereof in Dollars as determined by the Administrative Agent or the L/C Issuer, as the case may be, at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of Dollars with such Alternative Currency.

 

Domestic Subsidiary” means any Subsidiary that is organized under the laws of any political subdivision of the United States.

 

Dutch Pledge Agreement” means that certain Agreement of Pledge of Rights dated on or about July 29, 2004 between Albemarle Catalysts International, L.L.C., Bank of America, N.A., UBS Loan Finance LLC, Bear Stearns Corporate Lending Inc. and Banc of America Bridge LLC.

 

Eligible Assignee” means (a) a Lender; (b) an Affiliate of a Lender (other than an Affiliate that is a Foreign Lender); (c) an Approved Fund (other than an Approved Fund that is a Foreign Lender); and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent, and (ii) except with respect to the Term Loan, the L/C Issuer and the Swing Line Lender, and unless an Event of Default has occurred and is continuing, the Company (each such approval not to be unreasonably withheld or delayed, provided that it shall be reasonable for the Company to withhold consent if such Person does not provide to the Company the information required under Section 11.15). Notwithstanding the foregoing, “Eligible Assignee” shall not include the Company or any of the Company’s Affiliates or Subsidiaries.

 

EMU” means the economic and monetary union in accordance with the Treaty of Rome 1957, as amended by the Single European Act 1986, the Maastricht Treaty of 1992 and the Amsterdam Treaty of 1998, as amended from time to time.

 

EMU Legislation” means the legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency (whether known as the “euro” or otherwise).

 

Environmental Laws” means any and all federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

 

Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Company, any other

 

8


Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

 

Equity Issuance” means any issuance by any member of the Consolidated Group to any Person of (a) shares of its capital stock, (b) any shares of its capital stock pursuant to the exercise of options or warrants, (c) shares of its capital stock pursuant to the conversion of any debt securities to equity or the conversion of any class equity securities to any other class of equity securities or (d) any options or warrants relating to its capital stock (other than options or warrants issued to directors, officers and employees in the ordinary course of business pursuant to an employee stock option plan or management compensation plan).

 

ERISA” means the Employee Retirement Income Security Act of 1974.

 

ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b) or (c) of the Internal Revenue Code (and Sections 414(m) and (o) of the Internal Revenue Code for purposes of provisions relating to Section 412 of the Internal Revenue Code).

 

ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition that constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate.

 

Euro” and “EUR” mean the lawful currency of the Participating Member States introduced in accordance with the EMU Legislation.

 

Eurocurrency Rate” means for any Interest Period with respect to a Eurocurrency Rate Loan:

 

(a) the applicable Screen Rate for such Interest Period; or

 

(b) if the applicable Screen Rate shall not be available, the rate per annum determined by the Administrative Agent as the rate of interest at which deposits in the relevant currency for delivery on the first day of such Interest Period in Same Day Funds in the approximate amount of the Eurocurrency Rate Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of America’s London Branch (or other Bank of America branch or Affiliate) to major banks in the London or other offshore interbank market for such currency at their request at approximately 4:00 p.m. (London time) two Business Days prior to the first day of such Interest Period.

 

9


Eurocurrency Rate Loan” means a Committed Loan that bears interest at a rate based on the Adjusted Eurocurrency Rate. Eurocurrency Rate Loans may be denominated in Dollars or in an Alternative Currency. All Committed Loans denominated in an Alternative Currency must be Eurocurrency Rate Loans.

 

Eurocurrency Reserve Percentage” means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, carried out to five decimal places) in effect on such day, whether or not applicable to any particular 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”). The Adjusted Eurocurrency Rate for each outstanding Eurocurrency Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurocurrency Reserve Percentage.

 

Event of Default” has the meaning specified in Section 9.01.

 

Existing Credit Agreement” means the Credit Agreement dated as of September 10, 2002 among the Company, the guarantors party thereto, the banks named therein and Bank of America, N.A., as Administrative Agent, as amended.

 

Existing Letters of Credit” means the letters of credit outstanding on the Closing Date and identified on Schedule 2.03.

 

Federal Funds Rate” means, for any day, the rate per annum (rounded upward, if necessary, to the next 1/100th of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100th of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.

 

Foreign Lender” has the meaning specified in Section 11.15(a)(i).

 

FRB” means the Board of Governors of the Federal Reserve System of the United States.

 

Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

 

Funded Debt” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

 

(a) all obligations for borrowed money, whether current or long-term (including the Obligations hereunder), and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, including convertible debt instruments;

 

(b) all purchase money indebtedness (including indebtedness and obligations in respect of conditional sales and title retention arrangements, except for customary conditional sales and title retention arrangements with suppliers that are entered into in the ordinary course of business) and all indebtedness and obligations in respect of the deferred purchase price of

 

10


property or services (other than trade accounts payable incurred in the ordinary course of business and payable on customary trade terms);

 

(c) all direct obligations under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

 

(d) the Attributable Principal Amount of capital leases and Synthetic Leases;

 

(e) the Attributable Principal Amount of Securitization Transactions;

 

(f) all preferred stock and comparable equity interests providing for mandatory redemption, sinking fund or other like payments within three years of the date thereof;

 

(g) Guarantees in respect of Funded Debt of another Person;

 

(h) Funded Debt of any partnership or joint venture or other similar entity in which such Person is a general partner or joint venturer, and, as such, has personal liability for such obligations, but only to the extent there is recourse to such Person for payment thereof.

 

For purposes hereof, the amount of Funded Debt shall be determined based on the outstanding principal amount in the case of borrowed money indebtedness under clause (a) and purchase money indebtedness and the deferred purchase obligations under clause (b), based on the maximum amount available to be drawn in the case of letter of credit obligations and the other obligations under clause (c), and based on the outstanding principal amount of Funded Debt that is the subject of the Guarantees in the case of Guarantees under clause (g).

 

GAAP” means generally accepted accounting principles in the United States as in effect from time to time set forth 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, subject to the provisions of Section 1.03.

 

Governmental Authority” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

 

Guarantee” means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or

 

11


portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

 

Guarantors” means the Company, each Subsidiary of the Company identified as a “Guarantor” on the signature pages hereto and each Material Domestic Subsidiary that joins as a Guarantor pursuant to Section 7.12, together with their successors and permitted assigns.

 

Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

 

Immaterial Subsidiary” means (a) any Domestic Subsidiary of the Company that neither (i) owns assets with an aggregate book value in excess of $25,000 nor (ii) has annual revenues in excess of $25,000 and (b) any foreign Subsidiary of the Company that neither (i) owns assets with an aggregate book value in excess of $25,000,000 nor (ii) has annual revenues in excess of $25,000,000.

 

Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

 

(a) all Funded Debt;

 

(b) all contingent obligations under letters of credit (including standby and commercial letters of credit), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

 

(c) net obligations under any Swap Contract;

 

(d) Guarantees in respect of Indebtedness of another Person; and

 

(e) Indebtedness of any partnership or joint venture or other similar entity in which such Person is a general partner or joint venturer, and, as such, has personal liability for such obligations, but only to the extent there is recourse to such Person for payment thereof.

 

For purposes hereof, the amount of Indebtedness shall be determined based on Swap Termination Value in the case of net obligations under Swap Contracts under clause (c) and based on the outstanding principal amount of Indebtedness that is the subject of the Guarantees in the case of Guarantees under clause (d).

 

Indemnitees” has the meaning set forth in Section 11.04(b).

 

Interest Payment Date” means (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a Eurocurrency Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan (including a Swing Line Loan), the last Business Day of each March, June, September and December and the Maturity Date.

 

Internal Revenue Code” means the Internal Revenue Code of 1986.

 

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Interest Period” means, as to each Eurocurrency Rate Loan, the period commencing on the date such Eurocurrency Rate Loan is disbursed or converted to or continued as a Eurocurrency Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Company in its Committed Loan Notice; provided that:

 

(a) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next 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; and

 

(c) no Interest Period shall extend beyond the Maturity Date.

 

Notwithstanding the foregoing or anything to the contrary contained in this Agreement, until such time as the syndication of the Commitments under this Agreement has been completed, as determined by BAS, but at no time thereafter, the Company shall only be permitted to request Interest Periods of seven days with respect to any Borrowing of Eurocurrency Rate Loans.

 

Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) an Acquisition or (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

 

IP Rights” has the meaning set forth in Section 6.16.

 

IRS” means the United States Internal Revenue Service.

 

ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).

 

Issuer Documents” means with respect to any Letter of Credit, the Letter Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and the Company (or any Subsidiary) or in favor of the L/C Issuer and relating to any such Letter of Credit.

 

Joinder Agreement” means a joinder agreement substantially in the form of Exhibit G executed and delivered by a Material Domestic Subsidiary in accordance with the provisions of Section 7.12.

 

JV Affiliate Entity Guarantees” means the two guarantees issued by Akzo Nobel N.V. in favor of Bank One, NA relating to certain overdraft and letter of credit facilities of the JV Affiliate Entity Eurecat US Inc., being for (i) a medium term loan of US $1,100,000 granted to Eurecat US Inc., dated 27 July 2001, and (ii) a medium term loan of US $1,126,700 granted to Eurocat US Inc., dated 13 January 2004.

 

Laws” means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities,

 

13


including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

 

L/C Advance” means, with respect to each Revolving Lender, such Lender’s funding of its participation in a L/C Borrowing. All L/C Advances shall be denominated in Dollars.

 

L/C Borrowing” means an extension of credit resulting from a drawing under any Letter of Credit that has not been reimbursed on the date when made or refinanced as a Revolving Borrowing. All L/C Borrowings shall be denominated in Dollars.

 

L/C Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the renewal or increase of the amount thereof.

 

L/C Issuer” means Bank of America in its capacity as issuer of the Letters of Credit, and its successors in such capacity.

 

L/C Obligations” means as of any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit, plus the aggregate amount of all Unreimbursed Amounts in respect of Letters of Credit, including L/C Borrowings. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.

 

Lender” means each of the Persons identified as a “Lender” on the signature pages hereto and their successors and assigns and, as the context requires, includes the L/C Issuer and the Swing Line Lender.

 

Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Company and the Administrative Agent.

 

Letter of Credit” means (i) effective upon the satisfaction of the conditions set forth in Section 5.03, those Existing Letters of Credit and (ii) any letter of credit issued under the Revolving Commitments under the provisions of Section 2.03(a). Letters of Credit may be commercial letters of credit or standby letters of credit.

 

Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.

 

Letter of Credit Expiration Date” means the day that is seven days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day).

 

Letter of Credit Fee” means any of the fees described in clause (A) of Section 2.09(b).

 

Letter of Credit Sublimit” shall have the meaning given such term in Section 2.03(a)(i).

 

Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title

 

14


retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing).

 

Loan” means an extension of credit by a Lender to a Borrower under Article II in the form of a Committed Loan or a Swing Line Loan.

 

Loan Documents” means this Agreement, each Note, the Deposit Account Control Agreement, the Dutch Pledge Agreement, each Designated Borrower Request and Assumption Agreement, each Issuer Document, each Joinder Agreement, each Request for Credit Extension and each Compliance Certificate.

 

Loan Obligations” means the Revolving Loan Obligations and the Term Loan.

 

Loan Parties” means, collectively, each Borrower and each Guarantor.

 

Mandatory Cost” means, with respect to any period, the percentage rate per annum determined in accordance with Schedule 1.01.

 

Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent) or condition (financial or otherwise) of the Company or the Consolidated Group taken as a whole; (b) a material impairment of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.

 

Material Domestic Subsidiary” means any Domestic Subsidiary of the Borrower that is not an Immaterial Subsidiary; provided, however, that (i) special purpose Subsidiaries created in connection with any Securitization Transaction permitted hereunder and (ii) non wholly-owned Subsidiaries that are prohibited by their Organization Documents from becoming Guarantors hereunder shall not constitute Material Domestic Subsidiaries.

 

Maturity Date” means (a) if the Acquisition of the Acquired Business has not been consummated on or before July 31, 2004, August 1, 2004 and (b) otherwise July 29, 2009.

 

Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

 

Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

 

Note” means a promissory note made by a Borrower in favor of a Lender evidencing Loans made by such Lender, substantially in the form of Exhibit C.

 

Obligations” means, without duplication, (i) the Revolving Loan Obligations, (ii) the Term Loan, (iii) all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed

 

15


claims in such proceeding, and (iv) any Swap Contract of any Loan Party to which a Lender or any Affiliate of such Lender is a party.

 

Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

 

Outstanding Amount” means (i) with respect to Revolving Loans and Swing Line Loans on any date, the aggregate outstanding principal Dollar Equivalent thereof after giving effect to any borrowings and prepayments or repayments of Revolving Loans and Swing Line Loans, as the case may be, occurring on such date; and (ii) with respect to any L/C Obligations on any date, the Dollar Equivalent of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements of outstanding unpaid drawings under any Letters of Credit or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on such date.

 

Overnight Rate” means, for any day, (a) with respect to any amount denominated in Dollars, the greater of (i) the Federal Funds Rate and (ii) an overnight rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, and (b) with respect to any amount denominated in an Alternative Currency, the rate of interest per annum at which overnight deposits in the applicable Alternative 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 a branch or Affiliate of Bank of America in the applicable offshore interbank market for such currency to major banks in such interbank market.

 

Participant” has the meaning specified in Section 11.07(d).

 

Participating Member State” means each state so described in any EMU Legislation.

 

PBGC” means the Pension Benefit Guaranty Corporation.

 

Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Company or any ERISA Affiliate or to which the Company or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

 

Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

 

Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by the Company or, with respect to any such plan that is subject to Section 412 of the Internal Revenue Code or Title IV of ERISA, any ERISA Affiliate.

 

16


Pro Forma Basis” means, for purposes of determining compliance with the financial covenants hereunder, that the subject transaction shall be deemed to have occurred as of the first day of the period of four consecutive fiscal quarters ending as of the end of the most recent fiscal quarter for which annual or quarterly financial statements shall have been delivered in accordance with the provisions hereof. Further, for purposes of making calculations on a “Pro Forma Basis” hereunder, (i) in the case of any Disposition, (A) income statement items (whether positive or negative) attributable to the property, entities or business units that are the subject of the disposition shall be excluded to the extent relating to any period prior to the date of subject transaction, and (B) Indebtedness paid or retired in connection with the subject transaction shall be deemed to have been paid and retired as of the first day of the applicable period; (ii) in the case of any Acquisition, (A) income statement items (whether positive or negative) attributable to the property, entities or business units that are the subject of such Acquisition shall be included to the extent relating to any period prior to the date of subject transaction, and (B) Indebtedness incurred in connection with the subject transaction shall be deemed to have been incurred as of the first day of the applicable period (and interest expense shall be imputed for the applicable period assuming prevailing interest rates hereunder) and (iii) in the case of any incurrence or assumption of Indebtedness as referred to in Section 8.01(k), any Indebtedness which is retired in connection with such incurrence or assumption shall be excluded and deemed to have been retired as of the first day of the applicable period.

 

Pro Rata Share” means (i) with respect to each Revolving Lender, a fraction (expressed as percentage, carried out to the ninth decimal place), the numerator of which is the amount of the Revolving Commitment of such Lender at such time and the denominator of which is the amount of the Aggregate Revolving Commitments at such time; provided that if the Revolving Commitments shall have been terminated pursuant to Section 9.02, then the Pro Rata Share of each Lender shall be determined based on the Pro Rata Share of such Revolving Lender immediately prior to such termination and after giving effect to any subsequent assignments made pursuant to the terms hereof and (ii) with respect to each Term Loan Lender, a fraction (expressed as percentage, carried out to the ninth decimal place), the numerator of which is the principal amount of the Term Loan held by such Lender at such time and the denominator of which is the aggregate principal amount of the Term Loan at such time. The initial Pro Rata Shares of each Lender is set forth as such on Schedule 2.01.

 

Purchase Agreement” means that certain International Share and Business Sale Agreement entered into by and between Akzo Nobel N.V. and Albemarle Catalysts International, L.L.C. and the Company relating to certain companies, businesses, assets and joint ventures comprising the catalysts business unit of Akzo Nobel N.V. to be dated July 16, 2004.

 

Register” has the meaning set forth in Section 11.07(c).

 

Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

 

Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the thirty-day notice period has been waived.

 

Request for Credit Extension” means (a) with respect to a Borrowing, conversion or continuation of Committed Loans, a Committed Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice.

 

Required Lenders” means, as of any date of determination, Lenders holding in the aggregate more than fifty percent (50%) of (a) the Aggregate Revolving Commitments and the outstanding Term Loan or (b) if the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 9.02, Lenders holding in the aggregate more

 

17


than 50% of the Loan Obligations (including, in each case, the aggregate amount of each Lender’s risk participation and funded participation in L/C Obligations and Swing Line Loans); provided that the Commitment of, and the portion of the Loan Obligations held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.

 

Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer or assistant treasurer of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

 

Revaluation Date” means each of the following: (a) each date of a Borrowing of a Eurocurrency Rate Loan denominated in an Alternative Currency, (b) each date of a continuation of a Eurocurrency Rate Loan denominated in an Alternative Currency pursuant to Section 2.02; (c) each date of issuance of a Letter of Credit denominated in an Alternative Currency, (d) each date of an amendment of any such Letter of Credit having the effect of increasing the amount thereof, and (e) such additional dates as the Administrative Agent or the Required Lenders shall specify.

 

Revolving Loan Obligations” means Revolving Loans, L/C Obligations and Swing Line Loans.

 

Revolving Borrowing” means a borrowing consisting of simultaneous Revolving Loans of the same Type, in the same currency and, in the case of Eurocurrency Rate Loans, having the same Interest Period made by each of the Revolving Lenders as provided herein.

 

Revolving Commitment” means, as to each Revolving Lender, the commitment of such Lender to make Revolving Loans and to participate in L/C Obligations in an aggregate principal amount at any one time outstanding not to exceed the amount set forth as such Revolving Lender’s “Revolving Commitment” on Schedule 2.01.

 

Revolving Lenders” means each of the Lenders with Revolving Commitments hereunder.

 

Revolving Loans” has the meaning provided in Section 2.01(a).

 

Sale and Leaseback Transaction” means, with respect to the Company or any Subsidiary, any arrangement, directly or indirectly, with any person whereby the Company or such Subsidiary shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred.

 

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 Alternative Currency, same day or other funds as may be determined by the Administrative Agent or the L/C Issuer, as the case may be, to be customary in the place of disbursement or payment for the settlement of international banking transactions in the relevant Alternative Currency.

 

S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.

 

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Screen Rate” means, for any Interest Period:

 

(a) the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate that appears on the page of the Telerate screen (or any successor thereto) that displays an average British Bankers Association Interest Settlement Rate for deposits in the relevant currency (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period; or

 

(b) if the rate referenced in the preceding clause (a) does not appear on such page or service or such page or service shall cease to be available, the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in the relevant currency (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period.

 

SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

 

Securitization Transaction” means any financing or factoring or similar transaction (or series of such transactions) that has been or may be entered into by a member of the Consolidated Group pursuant to which such member of the Consolidated Group may sell, convey or otherwise transfer, or may grant a security interest in, any accounts receivable, notes receivable, rights to future lease payments or residuals or other similar rights to payment (the “Securitization Receivables”) to a special purpose Subsidiary or Affiliate or any other Person.

 

Solvent” means, with respect to any Person as of a particular date, after giving full effect to rights of contribution against or reimbursement from other Persons under applicable Law or any Contractual Obligation, that on such date (a) such Person is able to pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (b) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature in their ordinary course, (c) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s assets would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged or is to engage, (d) the fair value of the assets of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person and (e) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability reduced by the amount of any contribution or indemnity that can reasonably be expected to be received.

 

Special Notice Currency” means at any time an Alternative Currency, other than the currency of a country that is a member of the Organization for Economic Cooperation and Development at such time located in North America or Europe.

 

Spot Rate” for a currency means the rate determined by the Administrative Agent or the L/C Issuer, as applicable, to be the rate quoted by the Person acting in such capacity as the spot rate for the purchase by such Person of such currency with another currency through its principal foreign exchange trading office at approximately 11:00 a.m. on the date two Business Days prior to the date as of which the

 

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foreign exchange computation is made; provided that the Administrative Agent or the L/C Issuer may obtain such spot rate from another financial institution designated by the Administrative Agent or the L/C Issuer if the Person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency; and provided further that the L/C Issuer may use such spot rate quoted on the date as of which the foreign exchange computation is made in the case of any Letter of Credit denominated in an Alternative Currency.

 

Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Company. Notwithstanding anything to the contrary contained herein, Jordan Bromine Company Ltd. shall not be considered a Subsidiary of the Company for purposes of this Agreement.

 

Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, that are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

 

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 based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

 

Swing Line” means the revolving credit facility made available by the Swing Line Lender pursuant to Section 2.04.

 

Swing Line Borrowing” means a borrowing of a Swing Line Loan pursuant to Section 2.04.

 

Swing Line Lender” means Bank of America in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.

 

Swing Line Loan” has the meaning specified in Section 2.04(a).

 

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Swing Line Loan Notice” means a notice of a Swing Line Borrowing pursuant to Section 2.04(b), which, if in writing, shall be substantially in the form of Exhibit B.

 

Swing Line Sublimit” has the meaning specified in Section 2.04(a).

 

Synthetic Lease” means any synthetic, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease under GAAP.

 

TARGET Day” means any day on which the Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) payment system (or, if such payment system ceases to be operative, such other payment system (if any) determined by the Administrative Agent to be a suitable replacement) is open for the settlement of payments in Euro.

 

Term Loan” has the meaning specified in Section 2.01(b).

 

Term Loan Commitment” means, as to each Lender, its obligation to make its portion of the Term Loan to the Borrower pursuant to Section 2.01(b), in the principal amount set forth opposite such Lender’s name on Schedule 2.01. The aggregate principal amount of the Term Loan Commitments of all of the Lenders as in effect on the Closing Date is FOUR HUNDRED FIFTY MILLION DOLLARS ($450,000,000).

 

Term Loan Lender” means each of the Lenders with Term Loan Commitments hereunder.

 

364-Day Loan Agreement” means that certain Credit Agreement, dated as of the Closing Date, among the Company, Albemarle Catalysts International L.L.C., the guarantors party thereto, the lenders party thereto and Banc of America Bridge LLC, as administrative agent providing for a 364 day term facility.

 

Threshold Amount” means FORTY MILLION DOLLARS ($40,000,000).

 

Transaction” means a collective reference to (a) the Acquisition of the Acquired Business, (b) the refinancing of the Existing Credit Agreement and (c) the closing of the 364-Day Loan Agreement.

 

Type” means, with respect to a Committed Loan, its character as a Base Rate Loan or a Eurocurrency Rate Loan.

 

Unfunded Pension Liability” means, the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined as of the end of the most recently completed plan year in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Internal Revenue Code for the applicable plan year.

 

United States” and “U.S.” mean the United States of America.

 

Unreimbursed Amount” has the meaning set forth in Section 2.03(c)(i).

 

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  1.02 Other Interpretive Provisions.

 

With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

 

(a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

 

(b) (i) The words “herein,” “hereto,” “hereof” and “hereunder” and words of similar import when used in any Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof.

 

(ii) Article, Section, Exhibit and Schedule references are to the Loan Document in which such reference appears unless otherwise expressly referenced.

 

(iii) The term “including” is by way of example and not limitation.

 

(iv) The term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form.

 

(c) 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) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

 

  1.03 Accounting Terms.

 

(a) All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the audited financial statements for the fiscal year ended December 31, 2003, except as otherwise specifically prescribed herein.

 

(b) Notwithstanding anything herein to the contrary, determinations of compliance with the financial covenants hereunder shall be made on a Pro Forma Basis.

 

(c) The Company will provide a written summary of material changes in GAAP or in the consistent application thereof with each annual and quarterly Compliance Certificate delivered in accordance with Section 7.02(b). If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Company or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Company shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Company shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

 

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  1.04 Rounding.

 

Any financial ratios required to be maintained by the Company pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

 

  1.05 References to Agreements and Laws.

 

Unless otherwise expressly provided herein, (a) references to Organization Documents, agreements (including the Loan Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Loan Document; and (b) references to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law.

 

  1.06 Times of Day.

 

Unless otherwise specified, all references herein to times of day shall be references to New York time (Eastern daylight or standard, as applicable).

 

  1.07 Letter of Credit Amounts.

 

Unless otherwise specified, all references herein to the amount of a Letter of Credit at any time shall be deemed to mean the Dollar Equivalent of the maximum face amount of such Letter of Credit after giving effect to all increases thereof contemplated by such Letter of Credit or the Issuer Documents related thereto, whether or not such maximum face amount is in effect at such time.

 

  1.08 Exchange Rates; Currency Equivalents.

 

(a) The Administrative Agent or the L/C Issuer, as applicable, shall determine the Spot Rates as of each Revaluation Date to be used for calculating Dollar Equivalent amounts of Credit Extensions and Outstanding Amounts denominated in Alternative Currencies. Such Spot Rates shall become effective as of such Revaluation Date and shall be the Spot Rates employed in converting any amounts between the applicable currencies until the next Revaluation Date to occur. Except for purposes of financial statements delivered by Loan Parties hereunder or calculating financial covenants hereunder or except as otherwise provided herein, the applicable amount of any currency for purposes of the Loan Documents shall be such Dollar Equivalent amount as so determined by the Administrative Agent or the L/C Issuer, as applicable.

 

(b) Wherever in this Agreement in connection with a Borrowing, conversion, continuation or prepayment of a Loan or the issuance of a Letter of Credit, an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such Borrowing, Loan or Letter of Credit is denominated in an Alternative Currency, such amount shall be the relevant Alternative Currency Equivalent of such Dollar amount (rounded to the nearest unit of such Alternative Currency, with 0.5 of a unit being rounded upward), as determined by the Administrative Agent or the L/C Issuer, as the case may be.

 

  1.09 Additional Alternative Currencies.

 

The Company may from time to time request that Revolving Loans be made in a currency other than those specifically listed in the definition of “Alternative Currency”; provided that such requested

 

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currency otherwise meets the requirements set forth in such definition. Any such request shall be made to the Administrative Agent (which shall promptly notify each Revolving Lender thereof) not later than 12:00 noon twelve Business Days prior to the date of the desired Credit Extension. Each Revolving Lender shall notify the Administrative Agent, not later than 12:00 noon ten Business Days after receipt of such request whether it consents, in its sole discretion, to making Revolving Loans in such requested currency. Any failure by a Revolving Lender to respond to such request within the time period specified in the preceding sentence shall be deemed to be a refusal by such Lender to make Revolving Loans in such requested currency. If all the Revolving Lenders consent to making Revolving Loans in such requested currency, the Administrative Agent shall so notify the Company and such currency shall thereupon be deemed for all purposes to be an Alternative Currency hereunder. Upon any Revolving Lender’s refusal to make Revolving Loans in the additional requested currency, the Company may replace such Lender in accordance with Section 11.16.

 

  1.10 Redenomination of Certain Alternative Currencies.

 

(a) Each obligation of the Borrowers to make a payment denominated in the national currency unit of any member state of the European Union that adopts the Euro as its lawful currency after the date hereof shall be redenominated into Euro at the time of such adoption (in accordance with the EMU Legislation). If, in relation to the currency of any such member state, the basis of accrual of interest expressed in this Agreement in respect of that currency shall be inconsistent with any convention or practice in the London interbank market for the basis of accrual of interest in respect of the Euro, such expressed basis shall be replaced by such convention or practice with effect from the date on which such member state adopts the Euro as its lawful currency; provided that if any Committed Borrowing in the currency of such member state is outstanding immediately prior to such date, such replacement shall take effect, with respect to such Committed Borrowing, at the end of the then current Interest Period.

 

(b) Each provision of this Agreement shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time specify to be appropriate to reflect the adoption of the Euro by any member state of the European Union and any relevant market conventions or practices relating to the Euro.

 

(c) Each provision of this Agreement also shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time specify to be appropriate to reflect a change in currency of any other country and any relevant market conventions or practices relating to the change in currency.

 

ARTICLE II.

THE COMMITMENTS AND CREDIT EXTENSIONS

 

  2.01 Committed Loans.

 

(a) Revolving Loans. Subject to the terms and conditions set forth herein, each Revolving Lender severally agrees to make loans (each such loan a “Revolving Loan”) to the Borrowers in Dollars or Alternative Currencies from time to time on any Business Day; provided that after giving effect to any such Revolving Loan, (i) with regard to the Revolving Lenders collectively, the aggregate principal amount of Revolving Loan Obligations shall not exceed THREE HUNDRED MILLION DOLLARS ($300,000,000) (as such amount may be decreased in accordance with the provisions hereof, the “Aggregate Revolving Commitments”), and (ii) with regard to each Revolving Lender individually, such Lender’s Pro Rata Share of the Revolving Loan Obligations shall not exceed its respective Revolving Commitment. Revolving Loans may consist of Base Rate Loans, Eurocurrency Rate Loans, or a

 

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combination thereof, as the Company may request, and may be repaid and reborrowed in accordance with the provisions hereof.

 

(b) Term Loan. Subject to the terms and conditions set forth herein, each Term Loan Lender severally agrees to make its portion of a term loan (the “Term Loan”) in the aggregate principal amount of FOUR HUNDRED FIFTY MILLION DOLLARS ($450,000,000) to the Borrower in Dollars on the Closing Date in an amount not to exceed such Term Loan Lender’s Term Loan Commitment. Amounts repaid on the Term Loan may not be reborrowed. The Term Loan may consist of Base Rate Loans or Eurocurrency Rate Loans, as further provided herein.

 

  2.02 Borrowings, Conversions and Continuations of Committed Loans.

 

(a) Each Committed Borrowing, each conversion of Committed Loans from one Type to the other, and each continuation of Committed Loans as the same Type shall be made upon the Company’s irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 12:00 noon (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurocurrency Rate Loans denominated in Dollars or of any conversion of Eurocurrency Rate Loans denominated in Dollars to Base Rate Loans, (ii) four Business Days (or five Business Days in the case of Special Notice Currency) prior to the requested date of any Borrowing of, conversion to or continuation of Eurocurrency Rate Loans denominated in Alternative Currencies and (iii) one Business Day prior to the requested date of any Borrowing of Base Rate Loans. Each telephonic notice by the Company pursuant to this Section 2.02(b) must be confirmed promptly by delivery to the Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of the Company. Each Borrowing of, conversion to or continuation of Eurocurrency Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Except as provided in Sections 2.03(c) and 2.04(c), each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $1,000,000 or a whole multiple of $500,000 in excess thereof. Each Committed Loan Notice (whether telephonic or written) shall specify (i) whether a Committed Borrowing, a conversion of Committed Loans from one Type to the other, or a continuation of Eurocurrency Rate Loans is being requested, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Committed Loans to be borrowed, converted or continued, (iv) the Type of Committed Loans to be borrowed or to which existing Committed Loans are to be converted, (v) if applicable, the duration of the Interest Period with respect thereto, (vi) if applicable, the Alternative Currency requested with respect thereto and (vii) the applicable Borrower. If the Company fails to specify a Type of Committed Loan in a Committed Loan Notice or if the Company fails to give a timely notice requesting a conversion or continuation, then the applicable Committed Loans shall be made as, or converted to, Base Rate Loans on the last day of the Interest Period applicable thereto; provided, however, that in the case of a failure to timely request a continuation of Committed Loans denominated in an Alternative Currency, such Loans shall be continued as Eurocurrency Rate Loans in their original currency with an Interest Period of one month. No Committed Loan may be converted into or continued as a Committed Loan denominated in a different currency, but instead must be prepaid in the original currency of such Loan and reborrowed in the other currency.

 

(b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount (and currency) of its Pro Rata Share of the applicable Committed Loans, and if no timely notice of a conversion or continuation is provided by the Company, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans or continuation of Committed Loans denominated in an Alternative Currency, in each case as described in the preceding subsection. In the case of a Committed Borrowing, each Lender shall make the amount of its Committed Loan available to the Administrative Agent in Same Day Funds at the

 

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Administrative Agent’s Office for the Applicable Currency not later than 1:00 p.m., in the case of any Committed Loan denominated in Dollars, and not later than the Applicable Time specified by the Administrative Agent in the case of any Committed Loan denominated in Alternative Currency, in each case on the Business Day specified in the applicable Committed Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 5.02 (and, if such Borrowing is the initial Credit Extension, Section 5.01), the Administrative Agent shall make all funds so received available to the applicable Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of such Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Company; provided, however, that (A) if, on the date of a Committed Borrowing in Dollars, there are L/C Borrowings outstanding, then the proceeds of such Borrowing shall be applied, first, to the payment in full of any such L/C Borrowings, and second, to the applicable Borrower as provided above and (B) the funds constituting the initial Loans shall be subject to the Closing Funding Memorandum.

 

(c) Except as otherwise provided herein, a Eurocurrency Rate Loan may be continued or converted only on the last day of the Interest Period for such Eurocurrency Rate Loan. During the existence of a Default or Event of Default, no Loans may be requested as, converted to or continued as Eurocurrency Rate Loans without the consent of the Required Lenders, and the Required Lenders may demand that (i) any or all of the then outstanding Eurocurrency Rate Loans denominated in Dollars be converted immediately to Base Rate Loans and (ii) any or all of the then outstanding Eurocurrency Rate Loans denominated in an Alternative Currency be prepaid on the last day of the then current Interest Period with respect thereto.

 

(d) The Administrative Agent shall promptly notify the Company and the Lenders of the interest rate applicable to any Interest Period for Eurocurrency Rate Loans upon determination of such interest rate. The determination of the Adjusted Eurocurrency Rate by the Administrative Agent shall be conclusive in the absence of manifest error. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Company and the Lenders of any change in Bank of America’s prime rate used in determining the Base Rate promptly following the public announcement of such change.

 

(e) After giving effect to all Committed Borrowings, all conversions of Committed Loans from one Type to the other, and all continuations of Committed Loans as the same Type, there shall not be more than ten Interest Periods in effect with respect to Committed Loans.

 

  2.03 Letters of Credit.

 

(a) The Letter of Credit Commitment.

 

(i) Letter of Credit Commitment. Subject to the terms and conditions set forth herein,

 

(A) the L/C Issuer agrees, in reliance upon the agreements of the other Revolving Lenders set forth herein, (1) on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit in Dollars or Alternative Currencies for the account of a Borrower or any of its Subsidiaries, and to amend or renew Letters of Credit previously issued by it, in accordance with the provisions hereof, and (2) to honor drafts under Letters of Credit, and

 

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(B) the Revolving Lenders severally agree to participate in the Letters of Credit as provided herein;

 

provided that (x) the aggregate principal amount of L/C Obligations shall not exceed the sum of THIRTY-FIVE MILLION DOLLARS ($35,000,000) (as such amount may be decreased in accordance with the provisions hereof, the “Letter of Credit Sublimit”), (y) with regard to the Revolving Lenders collectively, the aggregate principal amount of Revolving Loan Obligations shall not exceed the Aggregate Revolving Commitments, and (z) with regard to each Revolving Lender individually, such Lender’s Pro Rata Share of the Revolving Loan Obligations shall not exceed its respective Revolving Commitment. Subject to the terms and conditions hereof, the Borrowers’ ability to obtain Letters of Credit shall be fully revolving and accordingly a Borrower may obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed. Existing Letters of Credit that are Letters of Credit shall be deemed to have been issued hereunder and shall be subject to and governed by the terms and conditions hereof.

 

(ii) The L/C Issuer shall be under no obligation to issue any Letter of Credit if:

 

(A) the issuance of such Letter of Credit would violate one or more policies of the L/C Issuer;

 

(B) such Letter of Credit is in an initial amount less than $25,000, in the case of a commercial Letter of Credit, or $100,000, in the case of a standby Letter of Credit, or is to be denominated in a currency other than Dollars or Alternative Currencies;

 

(C) except as otherwise agreed by the Administrative Agent and the L/C Issuer, such Letter of Credit is to be denominated in a currency other than Dollars or an Alternative Currency; or

 

(D) the L/C Issuer does not as of the issuance date of such requested Letter of Credit issue Letters of Credit in the requested currency.

 

(iii) The L/C Issuer shall not issue any Letter of Credit if:

 

(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing such Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that the L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or expense that was not applicable on the Closing Date and that the L/C Issuer in good faith deems material to it;

 

(B) subject to Section 2.03(b)(ii), the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance or last renewal, unless Revolving Lenders having more than 50% of the Revolving Commitments (or, if the commitment to make Loans and L/C Credit Extensions has been terminated, Revolving Lenders holding more than 50% of the Revolving Loan Obligations

 

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(including, in each case, the aggregate amount of such Lender’s risk participation and funded participation in L/C Obligations and Swing Line Loans) have approved such expiry date; or

 

(C) the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all of the Revolving Lenders have approved such expiry date.

 

(iv) The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) the L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.

 

(v) The L/C Issuer shall not issue or amend any Letter of Credit if (A) one or more applicable conditions contained in Article V shall not then be satisfied and the L/C Issuer shall have received written notice thereof from any Lender, the Administrative Agent or any Loan Party on or prior to the Business Day prior to the requested date of issuance or amendment of such Letter of Credit, or (B) the Commitments have been terminated pursuant to Section 9.02.

 

(vi) The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (A) provided to the Administrative Agent in Article X with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in Article X included the L/C Issuer with respect to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuer.

 

(b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Renewal Letters of Credit.

 

(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Company or the applicable Borrower delivered to the L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Company or such Borrower. Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent not later than 12:00 noon at least three Business Days (or such later date and time as the L/C Issuer may agree in a particular instance in its sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount and Applicable Currency thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; and (G) such other matters as the L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and (D) such other matters as the L/C Issuer may require. Additionally, the Company shall furnish to the L/C Issuer and the Administrative Agent such other documents and information pertaining to such requested Letter

 

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of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or the Administrative Agent may require.

 

(ii) Promptly after receipt of any Letter of Credit Application, the L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Company or the applicable Borrower and, if not, the L/C Issuer will provide the Administrative Agent with a copy thereof. Upon receipt by the L/C Issuer of confirmation from the Administrative Agent that the requested issuance or amendment is permitted in accordance with the terms hereof, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the applicable Borrower or enter into the applicable amendment, as the case may be, in each case in accordance with the L/C Issuer’s usual and customary business practices. 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 L/C Issuer a risk participation in such Letter of Credit in an amount equal to the product of such Lender’s Pro Rata Share times the amount of such Letter of Credit.

 

(iii) If the Company or the applicable Borrower so requests in any applicable Letter of Credit Application, the L/C Issuer may, in its sole and absolute discretion, agree to issue a Letter of Credit that has automatic extension provisions (each, an “Auto-Extension Letter of Credit”); provided that any such Auto-Extension Letter of Credit must permit the L/C Issuer to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “Non-Extension Notice Date”) in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the L/C Issuer, the Company or the applicable Borrower shall not be required to make a specific request to the L/C Issuer for any such extension. Once an Auto-Extension Letter of Credit has been issued, the applicable Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to permit the extension of such Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided, however, that the L/C Issuer shall not permit any such extension if (A) it has determined that it would not be permitted, or would have no obligation at such time to issue such Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of Section 2.03(a) or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is five Business Days before the Non-Extension Notice Date (1) from the Administrative Agent that the requisite applicable Lenders have elected not to permit such extension or (2) from the Administrative Agent, any Lender or the Company that one or more of the applicable conditions specified in Section 5.02 is not then satisfied, and in each such case directing the L/C Issuer not to permit such extension.

 

(iv) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C Issuer will also deliver to the Company and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.

 

(c) Drawings and Reimbursements; Funding of Participations.

 

(i) Upon any drawing under any Letter of Credit, the L/C Issuer shall notify the Company and the Administrative Agent thereof. In the case of a Letter of Credit denominated in an Alternative Currency, the applicable Borrower shall reimburse the L/C Issuer in such Alternative Currency, unless (A) the L/C Issuer (at its option) shall have specified in such notice that it will require reimbursement in Dollars, or (B) in the absence of any such requirement for

 

29


reimbursement in Dollars, the Company shall have notified the L/C Issuer promptly following receipt of the notice of drawing that the applicable Borrower will reimburse the L/C Issuer in Dollars. In the case of any such reimbursement in Dollars of a drawing under a Letter of Credit denominated in an Alternative Currency, the L/C Issuer shall notify the Company of the Dollar Equivalent of the amount of the drawing promptly following the determination thereof. Not later than 12:00 noon on the date of any payment by the L/C Issuer under a Letter of Credit to be reimbursed in Dollars, or the Applicable Time on the date of any payment by the L/C Issuer under a Letter of Credit to be reimbursed in an Alternative Currency (each such date, an “Honor Date”), the applicable Borrower shall reimburse the L/C Issuer through the Administrative Agent in an amount equal to the amount of such drawing and in the Applicable Currency. If a Borrower fails to so reimburse the L/C Issuer by such time, the Administrative Agent shall promptly notify each Lender of the Honor Date, the amount of the unreimbursed drawing (expressed in Dollars in the amount of the Dollar Equivalent thereof in the case of a Letter of Credit denominated in an Alternative Currency) (the “Unreimbursed Amount”), and the amount of such Lender’s Pro Rata Share thereof. In such event, the applicable Borrower shall be deemed to have requested a Committed Borrowing of Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in Section 2.02 for the principal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the Aggregate Revolving Commitments and the conditions set forth in Section 5.02 (other than the delivery of a Committed Loan Notice). Any notice given by the L/C Issuer or the Administrative Agent pursuant to this Section 2.03(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.

 

(ii) Each Lender shall upon any notice pursuant to Section 2.03(c)(i) make funds available to the Administrative Agent for the account of the L/C Issuer, in Dollars, at the Administrative Agent’s Office for Dollar denominated payments in an amount equal to its Pro Rata Share of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of Section 2.03(c)(iii), each Lender that so makes funds available shall be deemed to have made a Committed Loan that is a Base Rate Loan to the applicable Borrower in such amount. The Administrative Agent shall remit the funds so received to the L/C Issuer in Dollars, or if requested by the L/C Issuer, the equivalent amount thereof in an Alternative Currency as determined by the Administrative Agent at such time on the basis of the Spot Rate (determined as of such funding date) for the purchase of such Alternative Currency with Dollars.

 

(iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Committed Borrowing of Base Rate Loans for any reason, the applicable Borrower shall be deemed to have incurred from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each applicable Lender’s payment to the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section 2.03.

 

(iv) Until each applicable Lender funds its Committed Loan or L/C Advance pursuant to this Section 2.03(c) to reimburse the L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lender’s Pro Rata Share of such amount shall be solely for the account of the L/C Issuer.

 

30


(v) Each Lender’s obligation to make Committed Loans or L/C Advances to reimburse the L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section 2.03(c), shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any set-off, counterclaim, recoupment, defense or other right that such Lender may have against the L/C Issuer, the Company, any Subsidiary or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default or Event of Default, (C) non-compliance with the conditions set forth in Section 5.02, or (D) any other occurrence, event or condition, whether or not similar to any of the foregoing. No such making of an L/C Advance shall relieve or otherwise impair the obligation of a Borrower to reimburse the L/C Issuer for the amount of any payment made by the L/C Issuer under any Letter of Credit, together with interest as provided herein.

 

(vi) If any Lender fails to make available to the Administrative Agent for the account of the L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.03(c) by the time specified in Section 2.03(c)(ii), the L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the L/C Issuer at a rate per annum equal to the applicable Overnight Rate from time to time in effect. A certificate of the L/C Issuer submitted to any applicable Lender (through the Administrative Agent) with respect to any amounts owing under this clause (vi) shall be conclusive absent manifest error.

 

(d) Repayment of Participations.

 

(i) At any time after the L/C Issuer has made a payment under any Letter of Credit and has received from any applicable Lender such Lender’s L/C Advance in respect of such payment in accordance with Section 2.03(c), if the Administrative Agent receives for the account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Company or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will promptly distribute to such Lender its Pro Rata Share thereof (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s L/C Advance was outstanding) in Dollars and in the same funds as those received by the Administrative Agent.

 

(ii) If any payment received by the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(i) is required to be returned under any of the circumstances described in Section 11.06 (including pursuant to any settlement entered into by the L/C Issuer in its discretion), each applicable Lender shall pay to the Administrative Agent for the account of the L/C Issuer its Pro Rata Share thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the applicable Overnight Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.

 

(e) Obligations Absolute. The obligation of each Borrower to reimburse the L/C Issuer for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:

 

(i) any lack of validity or enforceability of such Letter of Credit, this Agreement, any other Loan Document or any other agreement or instrument relating thereto;

 

31


(ii) the existence of any claim, counterclaim, set-off, defense or other right that the Company or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;

 

(iii) any draft, demand, certificate or other document presented under such 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 such Letter of Credit;

 

(iv) any payment by the L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by the L/C Issuer under such 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 such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law;

 

(v) any adverse change in the relevant exchange rates or in the availability of the relevant Alternative Currency to the Company or any Subsidiary or in the relevant currency markets generally; or

 

(vi) 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.

 

The Company shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Company’s instructions or other irregularity, the Company will immediately notify the L/C Issuer. The Company and the applicable Borrower shall be conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid.

 

(f) Role of L/C Issuer. Each Lender and each Borrower agree that, in paying any drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and 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. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any of the respective correspondents, participants or assignees of the L/C Issuer 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 requisite applicable Lenders; (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 document or instrument related to any Letter of Credit or Issuer Document. The Company and the applicable Borrower hereby assume 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 the applicable Borrower’s pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any of the respective correspondents, participants or assignees of the L/C Issuer, shall be liable or responsible for any of the matters described in clauses (i) through (v) of Section 2.03(e); provided, however, that anything in such clauses to the contrary

 

32


notwithstanding, the Borrowers may have a claim against the L/C Issuer, and the L/C Issuer may be liable to the Borrowers, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the applicable Borrower that such Borrower proves were caused by the L/C Issuer’s willful misconduct or gross negligence or the L/C Issuer’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, the L/C Issuer 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 the L/C Issuer 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, that may prove to be invalid or ineffective for any reason.

 

(g) Cash Collateral. (i) Upon the request of the Administrative Agent, (A) if the L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Borrowing, or (B) if, as of the Letter of Credit Expiration Date, any L/C Obligation for any reason remains outstanding, the Company shall (or shall cause the applicable Borrower to), in each case, immediately Cash Collateralize the then Outstanding Amount of all L/C Obligations.

 

(ii) The Administrative Agent may, at any time and from time to time after the initial deposit of Cash Collateral, request that additional Cash Collateral be provided in order to protect against the results of exchange rate fluctuations.

 

(iii) Sections 2.05 and 9.02(c) set forth certain additional requirements to deliver Cash Collateral hereunder. For purposes of this Section 2.03, Section 2.05 and Section 9.02(c), “Cash Collateralize” means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Administrative Agent and the L/C Issuer (which documents are hereby consented to by the Lenders). Derivatives of such term have corresponding meanings. The Company and/or the applicable Borrower hereby grants to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash Collateral shall be maintained in blocked, non-interest bearing deposit accounts at Bank of America.

 

(h) Applicability of ISP and UCP. Unless otherwise expressly agreed by the L/C Issuer and the Company when a Letter of Credit is issued (including any such agreement applicable to an Existing Letter of Credit), (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce (the “ICC”) at the time of issuance shall apply to each commercial Letter of Credit.

 

(i) Letter of Credit Fees. The Borrowers shall pay Letter of Credit fees as set forth in Section 2.09.

 

(j) Conflict with Issuer Documents. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.

 

(k) Letters of Credit Issued for Subsidiaries. Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary, the applicable Borrower shall be obligated to reimburse the L/C Issuer hereunder for any and all drawings

 

33


under such Letter of Credit. Each Borrower hereby acknowledges that the issuance of Letters of Credit for the account of Subsidiaries inures to the benefit of such Borrower, and that such Borrowers’ business derives substantial benefits from the businesses of such Subsidiaries.

 

  2.04 Swing Line Loans.

 

(a) Swing Line Loans. Subject to the terms and conditions set forth herein, the Swing Line Lender agrees to make revolving loans (the “Swing Line Loans” ) to the Borrowers in Dollars on any Business Day during the Availability Period; provided that (i) the aggregate principal amount of Swing Line Loans shall not exceed THIRTY-FIVE MILLION DOLLARS ($35,000,000) (as such amount may be decreased in accordance with the provisions hereof, the “Swing Line Sublimit”), (ii) with regard to the Revolving Lenders collectively, the aggregate principal amount of Revolving Loan Obligations shall not exceed the Aggregate Revolving Commitments, and (iii) with regard to each Revolving Lender individually, such Lender’s Pro Rata Share of the Revolving Loan Obligations shall not exceed its respective Revolving Commitment. Swing Line Loans shall be comprised solely of Base Rate Loans, and may be repaid and reborrowed in accordance with the provisions hereof. Immediately upon the making of a Swing Line Loan, each Revolving Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Swing Line Lender a participation interest in such Swing Line Loan in an amount equal to its Pro Rata Share thereof.

 

(b) Borrowing Procedures. Each Swing Line Borrowing shall be made upon the Company’s irrevocable notice to the Swing Line Lender and the Administrative Agent, which may be given by telephone. Each such notice must be received by the Swing Line Lender and the Administrative Agent not later than 2:00 p.m. on the requested borrowing date, and shall specify (i) the amount to be borrowed, which shall be a minimum of $500,000, and a multiple of $100,000 in excess thereof, (ii) the requested borrowing date, which shall be a Business Day and (iii) the applicable Borrower. Each such telephonic notice must be confirmed promptly by delivery to the Swing Line Lender and the Administrative Agent of a written Swing Line Loan Notice, appropriately completed and signed by a Responsible Officer of the Company. Promptly after receipt by the Swing Line Lender of any telephonic Swing Line Loan Notice, the Swing Line Lender will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has also received such Swing Line Loan Notice and, if not, the Swing Line Lender will notify the Administrative Agent (by telephone or in writing) of the contents thereof. Unless the Swing Line Lender has received notice (by telephone or in writing) from the Administrative Agent (including at the request of any Lender) prior to 12:00 noon on the date of the proposed Swing Line Borrowing (A) directing the Swing Line Lender not to make such Swing Line Loan as a result of the limitations set forth in the proviso to the first sentence of Section 2.04(a), or (B) that one or more of the applicable conditions specified in Article V is not then satisfied, then, subject to the terms and conditions hereof, the Swing Line Lender will, not later than 3:00 p.m. on the borrowing date specified in such Swing Line Loan Notice, make the amount of its Swing Line Loan available to the applicable Borrower.

 

(c) Refinancing of Swing Line Loans.

 

(i) The Swing Line Lender at any time in its sole and absolute discretion may request, on behalf of the Company (which hereby irrevocably requests and authorizes the Swing Line Lender to so request on its behalf), that each Revolving Lender make a Revolving Loan that is a Base Rate Loan in an amount equal to such Lender’s Pro Rata Share of the amount of Swing Line Loans then outstanding. Such request shall be made in writing (which written request shall be deemed to be a Committed Loan Notice for purposes hereof) and in accordance with the requirements of Section 2.02, without regard to the minimum and multiples specified therein for the principal amount of Base Rate Loans, and without regard to the unutilized portion of the Aggregate Revolving Commitments or the conditions set forth in Section 5.02. The Swing Line

 

34


Lender shall furnish the Company with a copy of the applicable Committed Loan Notice promptly after delivering such notice to the Administrative Agent. Each Revolving Lender shall make an amount equal to its Pro Rata Share of the amount specified in such Committed Loan Notice available to the Administrative Agent in immediately available funds for the account of the Swing Line Lender at the Administrative Agent’s Office not later than 2:00 p.m. on the day specified in such Committed Loan Notice, whereupon, subject to Section 2.04(c)(ii), each Revolving Lender that so makes funds available shall be deemed to have made a Revolving Loan that is a Base Rate Loan to the applicable Borrower in such amount. The Administrative Agent shall remit the funds so received to the Swing Line Lender.

 

(ii) If for any reason any Swing Line Loan cannot be refinanced by such a Revolving Borrowing in accordance with Section 2.04(c)(i), the request for Revolving Loans that are Base Rate Loans submitted by the Swing Line Lender as set forth herein shall be deemed to be a request by the Swing Line Lender that each of the Revolving Lenders fund its risk participation in the relevant Swing Line Loan and each Revolving Lender’s payment to the Administrative Agent for the account of the Swing Line Lender pursuant to Section 2.04(c)(i) shall be deemed payment in respect of such participation.

 

(iii) If any Revolving Lender fails to make available to the Administrative Agent for the account of the Swing Line Lender any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.04(c) by the time specified in Section 2.04(c)(i), the Swing Line Lender shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the Swing Line Lender at a rate per annum equal to the Federal Funds Rate from time to time in effect. A certificate of the Swing Line Lender submitted to any Revolving Lender (through the Administrative Agent) with respect to any amounts owing under this clause (iii) shall be conclusive absent manifest error.

 

(iv) Each Revolving Lender’s obligation to make Revolving Loans or to purchase and fund risk participations in Swing Line Loans, in each case, pursuant to this Section 2.04(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any set-off, counterclaim, recoupment, defense or other right that such Lender may have against the Swing Line Lender, the Company or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default or Event of Default, (C) the conditions set forth in Section 5.02, or (D) any other occurrence, event or condition, whether or not similar to any of the foregoing. No such purchase or funding of risk participations shall relieve or otherwise impair the obligation of the Borrowers to repay Swing Line Loans, together with interest as provided herein.

 

(d) Repayment of Participations.

 

(i) At any time after any Revolving Lender has purchased and funded a risk participation in a Swing Line Loan, if the Swing Line Lender receives any payment on account of such Swing Line Loan, the Swing Line Lender will distribute to such Lender its Pro Rata Share of such payment (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s risk participation was funded) in the same funds as those received by the Swing Line Lender.

 

(ii) If any payment received by the Swing Line Lender in respect of principal or interest on any Swing Line Loan is required to be returned by the Swing Line Lender under any

 

35


of the circumstances described in Section 11.06 (including pursuant to any settlement entered into by the Swing Line Lender in its discretion), each Revolving Lender shall pay to the Swing Line Lender its Pro Rata Share thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned, at a rate per annum equal to the Federal Funds Rate. The Administrative Agent will make such demand upon the request of the Swing Line Lender. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.

 

(e) Interest for Account of Swing Line Lender. The Swing Line Lender shall be responsible for invoicing the Company for interest on the Swing Line Loans. Until each Revolving Lender funds its Revolving Loan or risk participation pursuant to this Section 2.04 to refinance such Lender’s Pro Rata Share of any Swing Line Loan, interest in respect of such Pro Rata Share shall be solely for the account of the Swing Line Lender.

 

(f) Payments Directly to Swing Line Lender. The applicable Borrower shall make all payments of principal and interest in respect of the Swing Line Loans made to it directly to the Swing Line Lender.

 

  2.05 Prepayments.

 

(a) Each Borrower may, upon notice from the Company to the Administrative Agent, at any time or from time to time voluntarily prepay Committed Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Administrative Agent not later than 12:00 noon (A) three Business Days prior to any date of prepayment of Eurocurrency Rate Loans denominated in Dollars, (B) four Business Days (or five Business Days in the case of prepayment of Loans denominated in Special Notice Currencies) prior to any date of prepayment of Eurocurrency Rate Loans denominated in Alternative Currencies, and (C) on the date of prepayment of Base Rate Loans; (ii) any prepayment of Eurocurrency Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof; and (iii) any prepayment of Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment, the Type(s) of Committed Loans to be prepaid, and the amount of such prepayment to be applied to Revolving Loans and to the Term Loan (provided that (y) if the Company does not specify the Committed Loans to which such prepayment is to be applied, such prepayment shall be applied pro rata to all Committed Loans outstanding on the date thereof and (z) if Eurocurrency Rate Loans are to be prepaid, the Company shall specify the Interest Period(s) of such Loans). The Administrative Agent will promptly notify each applicable Lender of its receipt of each such notice, and of the amount of such Lender’s Pro Rata Share of such prepayment. If such notice is given by the Company, the applicable Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a Eurocurrency Rate Loan shall be accompanied by all accrued interest thereon, together with any additional amounts required pursuant to Section 3.05. Each such prepayment shall be applied to the applicable Committed Loans of the Lenders in accordance with their respective Pro Rata Shares thereof.

 

(b) Each Borrower may, upon notice from the Company to the Swing Line Lender (with a copy to the Administrative Agent), at any time or from time to time, voluntarily prepay Swing Line Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Swing Line Lender and the Administrative Agent not later than 2:00 p.m. on the date of the prepayment, and (ii) any such prepayment shall be in a minimum principal amount of $100,000. Each such notice shall specify the date and amount of such prepayment. If such notice is given by the Company, the

 

36


applicable Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein.

 

(c) If at any time (i) the Dollar Equivalent of the outstanding principal amount of Revolving Loan Obligations shall be in excess of the Aggregate Revolving Commitments, or (ii) the Dollar Equivalent of the outstanding principal amount of L/C Obligations shall be in excess of the Letter of Credit Sublimit, the Borrowers shall, within two Business Days, make prepayment on or provide Cash Collateral in respect of the Revolving Loan Obligations in an amount sufficient to eliminate the difference. The Administrative Agent may, at any time and from time to time after the initial deposit of such Cash Collateral, request additional Cash Collateral be provided in order to protect against the results of further exchange rate fluctuations.

 

  2.06 Termination or Reduction of Commitments.

 

The Company may, upon notice from the Company to the Administrative Agent, terminate the Aggregate Revolving Commitments or permanently reduce the Aggregate Revolving Commitments to an amount not less than the Outstanding Amount of the Revolving Loan Obligations; provided that (i) any such notice shall be received by the Administrative Agent not later than 12:00 noon five Business Days prior to the date of termination or reduction and (ii) any such partial reduction shall be in an aggregate amount of $10,000,000 or any whole multiple of $1,000,000 in excess thereof. The Administrative Agent will promptly notify the Lenders of any such notice of termination or reduction of the Aggregate Revolving Commitments. Any reduction of the Aggregate Revolving Commitments shall be applied to the Commitment of each Lender according to its Pro Rata Share thereof. All facility fees accrued until the effective date of any termination of the Aggregate Revolving Commitments shall be paid on the effective date of such termination.

 

  2.07 Repayment of Loans.

 

(a) Each Borrower shall repay to the Lenders on the Maturity Date the aggregate principal amount of Revolving Loans made to such Borrower outstanding on such date.

 

(b) Each Borrower shall repay each Swing Line Loan made to such Borrower on the earlier to occur of (i) the date ten Business Days after such Loan is made and (ii) the Maturity Date.

 

(c) Each Borrower shall repay the outstanding principal amount of the Term Loan made to such Borrower in installments on the dates and in the amounts set forth in the table below (as such installments may hereafter be adjusted as a result of prepayments made pursuant to Section 2.05), unless accelerated sooner pursuant to Section 9.02:

 

Payment Dates


   Principal
Amortization
Payment


September 30, 2004

   $ 11,250,000

December 31, 2004

   $ 11,250,000

March 31, 2005

   $ 11,250,000

June 30, 2005

   $ 11,250,000

September 30, 2005

   $ 11,250,000

December 31, 2005

   $ 11,250,000

March 31, 2006

   $ 11,250,000

June 30, 2006

   $ 11,250,000

September 30, 2006

   $ 11,250,000

December 31, 2006

   $ 11,250,000

March 31, 2007

   $ 11,250,000

June 30, 2007

   $ 11,250,000

September 30, 2007

   $ 11,250,000

December 31, 2007

   $ 11,250,000

March 31, 2008

   $ 11,250,000

June 30, 2008

   $ 11,250,000

September 30, 2008

   $ 90,000,000

December 31, 2008

   $ 90,000,000

March 31, 2009

   $ 90,000,000

 

37


  2.08 Interest.

 

(a) Subject to the provisions of subsection (b) below, (i) each Eurocurrency Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the sum of (A) the Adjusted Eurocurrency Rate for such Interest Period plus (B) the Applicable Rate plus (C) (in the case of a Eurocurrency Rate Loan of any Lender which is lent from a Lending Office in the United Kingdom or a Participating Member State) the Mandatory Cost; (ii) each Base Rate 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 Rate; and (iii) each 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 Rate.

 

(b) (i) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

 

38


(ii) If any amount (other than principal of any Loan) payable by any Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

 

(iii) Upon the request of the Required Lenders, while any Event of Default exists, the Borrowers shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

 

(iv) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

 

(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

 

  2.09 Fees.

 

(a) Facility Fees. The Loan Parties shall pay to the Administrative Agent for the account of each Revolving Lender in accordance with its Pro Rata Share, a facility fee in Dollars equal to the Applicable Rate times the actual daily amount of the Aggregate Revolving Commitments (or, if the Aggregate Revolving Commitments have terminated, on the Outstanding Amount of all Revolving Loan Obligations), regardless of usage. Such facility fee shall accrue at all times during the Availability Period (and thereafter so long as any Revolving Loan Obligations remain outstanding), including at any time during which one or more of the conditions in Article V is not met.

 

The facility fees set forth in this Section 2.09(a) shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the Maturity Date (and, if applicable, thereafter on demand). The facility fees shall be calculated quarterly in arrears, and if there is any change in the Applicable Rate during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect.

 

(b) Letter of Credit Fees. The Loan Parties shall pay (A) to the Administrative Agent for the account of each Revolving Lender in accordance with its Pro Rata Share a Letter of Credit fee for each Letter of Credit equal to the Applicable Rate times the Dollar Equivalent of the daily maximum amount available to be drawn under such Letter of Credit (whether or not such maximum amount is then in effect under such Letter of Credit) and (B) directly to the L/C Issuer for its own account a fronting fee with respect to each Letter of Credit in an amount equal to 1/8 of 1% per annum on the Dollar Equivalent of the daily maximum amount available to be drawn thereunder.

 

The letter of credit fees set forth in this Section 2.09(b) shall be computed on a quarterly basis in arrears and shall be due and payable on the last Business Day of each March, June, September and December (commencing with the first such date to occur after the issuance of such Letter of Credit) and on the Letter of Credit Expiration Date. If there is any change in the Applicable Rate during any quarter, the daily maximum amount of each Letter of Credit shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. In addition, the Loan Parties shall pay directly to the L/C Issuer for its own account the customary issuance,

 

39


presentation, amendment and other processing fees, and other standard costs and charges, of the L/C Issuer relating to letters of credit as from time to time in effect. Such fees and charges are due and payable on demand and are nonrefundable.

 

(c) Other Fees.

 

(i) The Loan Parties shall pay to the Administrative Agent for its own account an annual administrative fee in an amount and at the times as agreed in writing from time to time by the Company and the Administrative Agent. Such fee shall be fully earned when paid and shall not be refundable for any reason whatsoever.

 

(ii) The Loan Parties shall pay to the Lenders such fees as shall have been separately agreed upon in writing in the amounts and at the times so specified. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

 

  2.10 Computation of Interest and Fees.

 

All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America’s “prime 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 fees or interest, as applicable, being paid than if computed on the basis of a 365-day year) or, in the case of interest in respect of Loans denominated in Alternative Currencies as to which market practice differs from the foregoing, in accordance with such market practice. Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.12(a), bear interest for one day.

 

  2.11 Evidence of Debt.

 

(a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrowers and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of any Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrowers shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lender’s Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.

 

(b) In addition to the accounts and records referred to in subsection (a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit and Swing Line Loans. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.

 

40


  2.12 Payments Generally; Administrative Agent’s Clawback.

 

(a) General. All payments to be made by the Borrowers shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein and except with respect to principal of and interest on Loans denominated in an Alternative Currency, all payments by the Borrowers hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the applicable Administrative Agent’s Office in Dollars and in Same Day Funds not later than 2:00 p.m. on the date specified herein. Except as otherwise expressly provided herein, all payments by the Borrowers hereunder with respect to principal and interest on Loans denominated in an Alternative Currency shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the applicable Administrative Agent’s Office in such Alternative Currency and in Same Day Funds not later than the Applicable Time specified by the Administrative Agent on the dates specified herein. Without limiting the generality of the foregoing, the Administrative Agent may require that any payments due under this Agreement be made in the United States. If, for any reason, any Borrower is prohibited by any Law from making any required payment hereunder in an Alternative Currency, such Borrower shall make such payment in Dollars in the Dollar Equivalent of the Alternative Currency payment amount. The Administrative Agent will promptly distribute to each Lender its Pro Rata Share (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent (i) after 2:00 p.m., in the case of payments in Dollars, or (ii) after the Applicable Time specified by the Administrative Agent in the case of payments in an Alternative Currency, shall in each case be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by any Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.

 

(b) (i) Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed time of any Committed Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Committed Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 and may, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Committed Borrowing available to the Administrative Agent, then the applicable Lender and the applicable Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in Same Day Funds with interest thereon, for each day from and including the date such amount is made available to such Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the Overnight Rate and (B) in the case of a payment to be made by such Borrower, the interest rate applicable to Base Rate Loans. If such Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to such Borrower the amount of such interest paid by such Borrower for such period. If such Lender pays its share of the applicable Committed Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Committed Loan included in such Committed Borrowing. Any payment by such Borrower shall be without prejudice to any claim such Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.

 

(ii) Payments by Borrowers; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from a Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the L/C Issuer

 

41


hereunder that such Borrower will not make such payment, the Administrative Agent may assume that such Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the L/C Issuer, as the case may be, the amount due. In such event, if such Borrower has not in fact made such payment, then each of the Lenders or the L/C Issuer, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the L/C Issuer, in Same Day Funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Overnight Rate.

 

A notice of the Administrative Agent to any Lender or Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.

 

(c) Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender to any Borrower as provided in the foregoing provisions of this Article II, and such funds are not made available to such Borrower by the Administrative Agent because the conditions to the applicable Credit Extension set forth in Article V are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.

 

(d) Obligations of Lenders Several. The obligations of the Lenders hereunder to make Committed Loans, to fund participations in Letters of Credit and Swing Line Loans and to make payments pursuant to Section 11.04(c) are several and not joint. The failure of any Lender to make any Committed Loan, to fund any such participation or to make any payment under Section 11.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Committed Loan, to purchase its participation or to make its payment under Section 11.04(c).

 

(e) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

 

  2.13 Sharing of Payments.

 

If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of the Committed Loans made by it, or the participations in L/C Obligations or in Swing Line Loans held by it resulting in such Lender’s receiving payment of a proportion of the aggregate amount of such Committed Loans or participations and accrued interest thereon greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Committed Loans and subparticipations in L/C Obligations and Swing Line Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Committed Loans and other amounts owing them, provided that:

 

(i) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and

 

42


(ii) the provisions of this Section shall not be construed to apply to (x) any payment made by a Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Committed Loans or subparticipations in L/C Obligations or Swing Line Loans to any assignee or participant, other than to the Company or any Subsidiary thereof (as to which the provisions of this Section shall apply).

 

Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Loan Party in the amount of such participation.

 

  2.14 Designated Borrowers.

 

(a) The Company may at any time, upon not less than 10 Business Days’ notice from the Company to the Administrative Agent (or such shorter period as may be agreed by the Administrative Agent in its sole discretion), designate itself or any one or more Material Domestic Subsidiaries of the Company (an “Applicant Borrower”) as a Designated Borrower to receive Loans hereunder by delivering to the Administrative Agent (which shall promptly deliver counterparts thereof to each Lender) a duly executed notice and agreement in substantially the form of Exhibit H (a “Designated Borrower Request and Assumption Agreement”). The parties hereto acknowledge and agree that prior to any Applicant Borrower becoming entitled to utilize the credit facilities provided for herein the Administrative Agent and the Lenders shall have received such supporting resolutions, incumbency certificates, opinions of counsel and other documents or information, in form, content and scope reasonably satisfactory to the Administrative Agent, as may be required by the Administrative Agent or the Required Lenders in their sole discretion, and Notes signed by such new Borrowers to the extent any Lenders so require. If the Administrative Agent agrees that an Applicant Borrower shall have satisfied all of the requirements of this Section 2.14 and, therefore, be entitled to receive Loans hereunder, then promptly following receipt of all such requested resolutions, incumbency certificates, opinions of counsel and other documents or information, the Administrative Agent shall send a notice in substantially the form of Exhibit I (a “Designated Borrower Notice”) to the Company and the Lenders specifying the effective date upon which the Applicant Borrower shall constitute a Designated Borrower for purposes hereof, whereupon each of the Lenders agrees to permit such Designated Borrower to receive Loans hereunder, on the terms and conditions set forth herein, and each of the parties agrees that such Designated Borrower otherwise shall be a Borrower for all purposes of this Agreement; provided that no Request for Credit Extension may be submitted by or on behalf of such Designated Borrower until the date three Business Days after such effective date.

 

(b) The Obligations of the Borrowers shall be joint and several in nature as more specifically addressed in Section 11.05.

 

(c) Albemarle Catalysts International, L.L.C. and each other Subsidiary of the Company that is or becomes a “Designated Borrower” pursuant to this Section 2.14 hereby irrevocably appoints the Company as its agent for all purposes relevant to this Agreement and each of the other Loan Documents, including (i) the giving and receipt of notices, (ii) the execution and delivery of all documents, instruments and certificates contemplated herein and all modifications hereto, and (iii) the receipt of the proceeds of any Loans made by the Lenders, to any such Borrower hereunder. Any acknowledgment, consent, direction, certification or other action which might otherwise be valid or effective only if given or taken by all Borrowers, or by each Borrower acting singly, shall be valid and effective if given or taken only by the Company, whether or not any such other Borrower joins therein. Any notice, demand,

 

43


consent, acknowledgement, direction, certification or other communication delivered to the Company in accordance with the terms of this Agreement shall be deemed to have been delivered to each Borrower.

 

(d) The Company may from time to time, upon not less than 10 Business Days’ notice from the Company to the Administrative Agent (or such shorter period as may be agreed by the Administrative Agent in its sole discretion), terminate any Material Domestic Subsidiary’s status as a Designated Borrower, provided that there are no outstanding Loans or L/C Obligations payable by such Designated Borrower or other amounts payable by such Designated Borrower on account of any Credit Extensions made to it, as of the effective date of such termination (unless such Loans and other Obligations have been assumed by another Borrower). The Administrative Agent will promptly notify the Lenders of any such termination of a Designated Borrower’s status.

 

(e) Notwithstanding anything to the contrary herein, as of the Closing Date, the only Borrower is Albemarle Catalysts International, L.L.C. No other Persons may become a Borrower except in accordance with this Section 2.14. Only the Company and wholly-owned Material Domestic Subsidiaries of the Company may become Designated Borrowers.

 

ARTICLE III.

TAXES, YIELD PROTECTION AND ILLEGALITY

 

  3.01 Taxes.

 

(a) Except as otherwise expressly provided herein, any and all payments by the respective Borrowers to or for the account of the Administrative Agent or any Lender under any Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding (i) in the case of the Administrative Agent and each Lender, any and all present and future taxes imposed on or measured by its income or gross receipts, and franchise taxes imposed on it, by a jurisdiction (the “Taxing Jurisdiction”) as a result of (A) the Administrative Agent or such Lender, as the case may be, being organized under the Laws of or maintaining a lending office in the Taxing Jurisdiction or (B) the Administrative Agent or such Lender, as the case may be, booking Loans made by it in the Taxing Jurisdiction and (ii) in the case of a Foreign Lender, any taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and all liabilities with respect thereto, that are imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or are attributable to such Foreign Lender’s failure or inability (other than as a result of a change in any applicable law, treaty or governmental rule, regulation or order) to comply with Section 11.15, except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrowers with respect to such taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and all liabilities with respect thereto, pursuant to this Section 3.01 (all such non-excluded taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and liabilities with respect thereto being hereinafter referred to as “Taxes” and all such excluded taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and liabilities with respect thereto being hereinafter referred to as “Excluded Taxes”). If any Borrower shall be required by any Laws to deduct any Taxes from or in respect of any sum payable under any Loan Document to the Administrative Agent or any Lender, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section), the Administrative Agent or such Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions, (iii) such Borrower shall pay the full amount deducted to

 

44


the relevant taxation authority or other authority in accordance with applicable Laws, and (iv) within thirty days after the date of such payment, such Borrower shall furnish to the Administrative Agent (which shall forward the same to such Lender) the original or a certified copy of a receipt evidencing payment thereof.

 

(b) In addition, each Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies that arise from the execution, delivery, performance (other than payment of amounts owing under the Loan Documents), enforcement or registration of, or otherwise similarly with respect to, any Loan Document (hereinafter referred to as “Other Taxes”).

 

(c) Each Borrower agrees to indemnify the Administrative Agent and each Lender for (i) the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section) paid by the Administrative Agent and such Lender and (ii) any liability (including additions to tax, penalties, interest and expenses) arising therefrom or with respect thereto, in each case whether or not such Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority; provided, however, that no Borrower shall have any obligation to indemnify any party hereunder for Taxes, Other Taxes or any other liability that arises from such party’s own gross negligence or willful misconduct. Payment under this subsection (d) shall be made within sixty days after the date the Lender or the Administrative Agent makes a written demand therefor; provided, however, that notwithstanding any other provision of this Section 3.01, if the Administrative Agent or any Lender requests indemnification or compensation for Taxes or Other Taxes pursuant to this Section 3.01 more than 120 days after the earlier of (i) the date on which the Administrative Agent or such Lender, as the case may be, makes payment of such Taxes or Other Taxes, and (ii) the date on which the appropriate Governmental Authority makes written demand on the Administrative Agent or such Lender, as the case may be, for payment of such Taxes or Other Taxes, then the applicable Borrower shall not be obligated to indemnify or reimburse the Administrative Agent or such Lender, as the case may be, for such Taxes or Other Taxes.

 

(d) Treatment of Certain Refunds. If the Administrative Agent, a Lender or the L/C Issuer determines, in good faith, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by a Borrower or with respect to which a Borrower has paid additional amounts pursuant to this Section 3.01, it shall pay an amount equal to such refund to such Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by such Borrower under this Section 3.01 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent, such Lender or the L/C Issuer and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that the applicable Borrower, upon the request of the Administrative Agent, such Lender or the L/C Issuer, agrees to repay the amount paid over to such Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender or the L/C Issuer in the event the Administrative Agent, such Lender or the L/C Issuer is required to repay such refund to such Governmental Authority. This paragraph shall not be construed to require the Administrative Agent, any Lender or the L/C Issuer to make available its tax returns (or any other information relating to its taxes that it deems confidential) to any Borrower or any other Person.

 

  3.02 Illegality.

 

If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurocurrency Rate Loans in the Applicable Currency, or to determine or charge interest rates based upon the Adjusted Eurocurrency Rate, or any Governmental Authority has imposed material restrictions on the

 

45


authority of such Lender to purchase or sell, or to take deposits of, any Applicable Currency in the applicable interbank market, then, on notice thereof by such Lender to the Company through the Administrative Agent, any obligation of such Lender to make or continue Eurocurrency Rate Loans in the Applicable Currency or to convert Base Rate Loans to Eurocurrency Rate Loans in the Applicable Currency shall be suspended until such Lender notifies the Administrative Agent and the Company that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrowers shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable and such Eurocurrency Rate Loans are denominated in Dollars, convert all Eurocurrency Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurocurrency Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurocurrency Rate Loans. Upon any such prepayment or conversion, the Borrowers shall also pay accrued interest on the amount so prepaid or converted. Each Lender agrees to designate a different Lending Office if such designation will avoid the need for such notice and will not, in the good faith judgment of such Lender, otherwise be materially disadvantageous to such Lender. If such Lender does not designate a different Lending Office to avoid the need for such notice, the Company may replace such Lender in accordance with Section 11.16.

 

  3.03 Inability to Determine Rates.

 

If the Administrative Agent determines in connection with any request for a Eurocurrency Rate Loan or a conversion to or continuation thereof that (i) deposits in the Applicable Currency are not being offered to banks in the applicable offshore interbank market for such currency for the applicable amount and Interest Period of such Eurocurrency Rate Loan, (ii) adequate and reasonable means do not exist for determining the Eurocurrency Rate for such Eurocurrency Rate Loan, or (iii) the Eurocurrency Rate for such Eurocurrency Rate Loan does not adequately and fairly reflect the cost to the Lenders of funding such Eurocurrency Rate Loan, the Administrative Agent will promptly notify the Company and all Lenders. Thereafter, the obligation of the Lenders to make or maintain Eurocurrency Rate Loans in the Applicable Currency shall be suspended until the Administrative Agent revokes such notice. Upon receipt of such notice, the Company may revoke any pending request for a Borrowing, conversion or continuation of Eurocurrency Rate Loans or, failing that, will be deemed to have converted such request into a request for a Committed Borrowing of Base Rate Loans in the amount specified therein.

 

  3.04 Increased Cost and Reduced Return; Capital Adequacy.

 

(a) If any Lender determines that as a result of the introduction of or any change in or in the interpretation of any Law following the date hereof, or such Lender’s compliance therewith, there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining Eurocurrency Rate Loans or (as the case may be) issuing or participating in Letters of Credit, or a reduction in the amount received or receivable by such Lender in connection with any of the foregoing (excluding for purposes of this subsection (a) any such increased costs or reduction in amount resulting from (i) Taxes, Other Taxes and Excluded Taxes (as to which Section 3.01 shall govern), (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or any foreign jurisdiction or any political subdivision of either thereof under the Laws of which such Lender is organized or has its Lending Office, and (iii) reserve requirements utilized, as to Eurocurrency Rate Loans, in the determination of the Adjusted Eurocurrency Rate), then from time to time upon demand of such Lender (with a copy of such demand to the Administrative Agent), the Borrowers shall pay to such Lender such additional amounts as will compensate such Lender for such increased cost or reduction.

 

(b) If any Lender determines that the introduction of any Law regarding capital adequacy or any change therein or in the interpretation thereof following the date hereof, or compliance by such Lender (or its Lending Office) therewith, has the effect of reducing the rate of return on the capital of

 

46


such Lender or any corporation controlling such Lender as a consequence of such Lender’s obligations hereunder (taking into consideration its policies with respect to capital adequacy and such Lender’s desired return on capital), then from time to time upon demand of such Lender (with a copy of such demand to the Administrative Agent), the Borrowers shall pay to such Lender such additional amounts as will compensate such Lender for such reduction; provided that each such Lender shall make demand for compensation hereunder no later than ninety days after becoming aware of such effect.

 

(c) Notwithstanding anything to the contrary in this Section 3.04, no Borrower shall be required to pay to any Lender additional amounts under this Section 3.04 for Taxes, Other Taxes and Excluded Taxes (Section 3.01 shall govern the obligation of the Borrowers to pay additional amounts for Taxes, Other Taxes and Excluded Taxes).

 

  3.05 Funding Losses.

 

Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Company shall promptly compensate (or cause the applicable Designated Borrower to compensate) such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:

 

(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);

 

(b) any failure by any Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Company or the applicable Designated Borrower;

 

(c) any failure by any Borrower to make payment of any Loan or drawing under any Letter of Credit (or interest due thereon) denominated in an Alternative Currency on its scheduled due date or any payment thereof in a different currency; or

 

(d) any assignment of a Eurocurrency Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Company pursuant to Section 11.16;

 

including any foreign exchange losses and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Company shall also pay (or shall cause the applicable Designated Borrower to pay) any reasonable customary administrative fees charged by such Lender in connection with the foregoing.

 

For purposes of calculating amounts payable by the Borrowers to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurocurrency Rate Loan made by it at the Eurocurrency Rate used in determining the Adjusted Eurocurrency Rate for such Loan by a matching deposit or other borrowing in the applicable offshore interbank market for such currency for a comparable amount and for a comparable period, whether or not such Eurocurrency Rate Loan was in fact so funded.

 

  3.06 Matters Applicable to all Requests for Compensation.

 

(a) A certificate of the Administrative Agent or any Lender claiming compensation under this Article III and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, the Administrative Agent or such Lender may use any reasonable averaging and attribution methods.

 

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(b) Upon any Lender’s making a claim for compensation under Section 3.01 or 3.04, the Company may replace such Lender in accordance with Section 11.16.

 

  3.07 Survival.

 

The obligations of each Borrower under this Article III shall survive termination of the Aggregate Revolving Commitments and repayment of all other Obligations hereunder.

 

ARTICLE IV.

GUARANTY

 

  4.01 The Guaranty.

 

Each of the Guarantors hereby jointly and severally guarantees to each Lender, each Affiliate of a Lender that enters into a Swap Contract, and the Administrative Agent as hereinafter provided, as primary obligor and not as surety, the prompt payment of the Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof. The Guarantors hereby further agree that if any of the Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise), the Guarantors will, jointly and severally, promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) in accordance with the terms of such extension or renewal.

 

Notwithstanding any provision to the contrary contained herein or in any other of the Loan Documents or Swap Contracts, the obligations of each Guarantor under this Agreement and the other Loan Documents shall be limited to an aggregate amount equal to the largest amount that would not render such obligations subject to avoidance under the Debtor Relief Laws or any comparable provisions of any applicable state law.

 

  4.02 Obligations Unconditional.

 

The obligations of the Guarantors under Section 4.01 are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Loan Documents or Swap Contracts, or any other agreement or instrument referred to therein, or any substitution, release, impairment or exchange of any other guarantee of or security for any of the Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 4.02 that the obligations of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Each Guarantor agrees that such Guarantor shall have no right of subrogation, indemnity, reimbursement or contribution against any Borrower or any other Guarantor for amounts paid under this Article IV until such time as the Obligations have been paid in full and the Commitment have expired or terminated. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of any Guarantor hereunder, which shall remain absolute and unconditional as described above:

 

(a) at any time or from time to time, without notice to any Guarantor, the time for any performance of or compliance with any of the Obligations shall be extended, or such performance or compliance shall be waived;

 

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(b) any of the acts mentioned in any of the provisions of any of the Loan Documents, any Swap Contract between any Loan Party and any Lender, or any Affiliate of a Lender, or any other agreement or instrument referred to in the Loan Documents or such Swap Contracts shall be done or omitted;

 

(c) the maturity of any of the Obligations shall be accelerated, or any of the Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Loan Documents, any Swap Contract between any Loan Party and any Lender, or any Affiliate of a Lender, or any other agreement or instrument referred to in the Loan Documents or such Swap Contracts shall be waived or any other guarantee of any of the Obligations or any security therefor shall be released, impaired or exchanged in whole or in part or otherwise dealt with;

 

(d) any Lien granted to, or in favor of, the Administrative Agent or any Lender or Lenders as security for any of the Obligations shall fail to attach or be perfected; or

 

(e) any of the Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Guarantor).

 

With respect to its obligations hereunder, each Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Administrative Agent or any Lender exhaust any right, power or remedy or proceed against any Person under any of the Loan Documents, any Swap Contract between any Loan Party and any Lender, or any Affiliate of a Lender, or any other agreement or instrument referred to in the Loan Documents or such Swap Contracts, or against any other Person under any other guarantee of, or security for, any of the Obligations.

 

  4.03 Reinstatement.

 

The obligations of the Guarantors under this Article IV shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Obligations is rescinded or must be otherwise restored by any holder of any of the Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each Guarantor agrees that it will indemnify the Administrative Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees and expenses of counsel) incurred by the Administrative Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law.

 

  4.04 Certain Additional Waivers.

 

Each Guarantor agrees that such Guarantor shall have no right of recourse to security for the Obligations, except through the exercise of rights of subrogation pursuant to Section 4.02 and through the exercise of rights of contribution pursuant to Section 4.06.

 

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  4.05 Remedies.

 

The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the other hand, the Obligations may be declared to be forthwith due and payable as provided in Section 9.02 (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 9.02) for purposes of Section 4.01 notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Obligations being deemed to have become automatically due and payable), the Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of Section 4.01.

 

  4.06 Rights of Contribution.

 

The Guarantors agree among themselves that, in connection with payments made hereunder, each Guarantor shall have contribution rights against the other Guarantors as permitted under applicable law. Such contribution rights shall be subordinate and subject in right of payment to the obligations of such Guarantors under the Loan Documents and no Guarantor shall exercise such rights of contribution until all Obligations have been paid in full and the Commitments have terminated.

 

  4.07 Guarantee of Payment; Continuing Guarantee.

 

The guarantee in this Article IV is a guaranty of payment and not of collection, is a continuing guarantee, and shall apply to all Obligations whenever arising.

 

ARTICLE V.

CONDITIONS PRECEDENT TO CREDIT EXTENSIONS

 

  5.01 Conditions of Initial Credit Extension.

 

The obligation of each Lender to make its initial Credit Extension hereunder in accordance with the Closing Funding Memorandum is subject to satisfaction of the following conditions precedent:

 

(a) The Administrative Agent’s receipt of the following, each of which shall be originals or facsimiles (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent and its legal counsel:

 

(i) executed counterparts of this Agreement by the Administrative Agent, each Lender and each Loan Party;

 

(ii) a Note executed by the Borrowers in favor of each Lender requesting a Note;

 

(iii) counterparts of the following documents, duly executed by all the parties thereto, in a form acceptable to the Administrative Agent: (A) Closing Funding Memorandum, (B) Deposit Account Control Agreement, (C) Dutch Pledge Agreement, (D) a Foreign Exchange Risk Indemnity Letter from the Company and Albemarle

 

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Catalysts International L.L.C. to the Administrative Agent, and (E) a payoff letter and instructions regarding the Existing Credit Agreement from the Company;

 

(iv) copies of the Organization Documents of each Loan Party certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation or organization, where applicable, and certified by a secretary or assistant secretary of such Loan Party to be true and correct as of the Closing Date;

 

(v) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party;

 

(vi) such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed, and that each of the Loan Parties is validly existing, in good standing and qualified to engage in business in its state of organization or formation, the state of its principal place of business and each other jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect;

 

(vii) a favorable opinion of Hunton & Williams, counsel to the Loan Parties, and a favorable opinion of NantaDutilh, special counsel to the Administrative Agent, regarding the Dutch Pledge Agreement, in each case addressed to the Administrative Agent and each Lender, dated as of the Closing Date, and in form and substance reasonably satisfactory to the Administrative Agent;

 

(viiii) a certificate of a Responsible Officer of the Company either (A) attaching copies of all consents, licenses and approvals required in connection with the Transaction and the execution, delivery and performance by the Loan Parties and the validity against such Loan Parties of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required;

 

(ix) a certificate signed by a Responsible Officer of the Company certifying (A) that the conditions specified in Sections 5.02(a) and (b) have been satisfied and (B) the current Debt Ratings;

 

(x) (1) consolidated financial statements of the Company and its Subsidiaries for the fiscal years ended December 31, 2001, December 31, 2002 and December 31, 2003, including balance sheets and income and cash flow statements, in each case audited by independent public accountants of recognized national standing and prepared in conformity with GAAP;

 

(2) consolidated financial statements of the Acquired Business for the fiscal year ended December 31, 2003, including balance sheets and income and cash flow statements, in each case in the form furnished to the Company by the seller of the Acquired Business;

 

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(3) unaudited consolidated financial statements of the Company and its Subsidiaries and of the Acquired Business for the fiscal quarters ending March 31, 2004, including balance sheets and statements of income or operations, shareholders’ equity and cash flows (which, in the case of the financial statements of the Acquired Business, shall be limited to statements of income or operations in the form provided to the Company by the seller of the Acquired Business);

 

(4) pro forma consolidated financial statements of the Company and its Subsidiaries (after giving effect to the Transaction) for each quarter during the first year of this Agreement and for each year thereafter until the Maturity Date including balance sheets and statements of income or operations, shareholders’ equity and cash flows; and

 

(5) a certificate from a Responsible Officer of the Company demonstrating that upon giving effect to the initial Credit Extensions and the consummation of the Transaction, the Company is in compliance with the financial covenants set forth in Section 8.08.

 

(b) Since April 17, 2004, there shall have not occurred (i) the destruction of all or substantially all of the properties of the Acquired Business located in Amsterdam, the Netherlands or in Pasadena, Texas, or (ii) any other event that has or is likely to have a material adverse effect on the Acquired Business, taken as a whole, and not arising as a result of the announcement of the Acquisition thereof.

 

(c) The 364-Day Loan Agreement shall have become effective.

 

(d) Any fees required to be paid on or before the Closing Date shall have been paid, subject to the provisions of the Closing Funding Memorandum.

 

(e) The Company shall have paid all Attorney Costs of the Administrative Agent to the extent invoiced prior to or on the Closing Date, plus such additional amounts of Attorney Costs as shall constitute its reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Company and the Administrative Agent).

 

  5.02 Conditions to all Credit Extensions.

 

The obligation of each Lender to honor any Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type, or a continuation of Committed Loans as the same Type) is subject to the following conditions precedent:

 

(a) The representations and warranties of the Company and each other Loan Party contained in Article VI or any other Loan Document, or that are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct on and as of the date of such Credit Extension, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and except that for purposes of this Section 5.02, (i) the representations and warranties contained in subsections (a) and (b) of Section 6.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 7.01 and (ii) solely with respect to the initial Credit Extensions made on the Closing Date, the representation and warranty contained in subsection (c) of Section 6.05 shall not be applicable.

 

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(b) No Default shall exist, or would result from such proposed Credit Extension.

 

(c) The Administrative Agent and, if applicable, the L/C Issuer or the Swing Line Lender shall have received a Request for Credit Extension in accordance with the requirements hereof.

 

(d) If the applicable Borrower is a Designated Borrower, then the conditions of Section 2.14 to the designation of such Borrower as a Designated Borrower shall have been met to the satisfaction of the Administrative Agent.

 

(e) In the case of a Credit Extension to be denominated in an Alternative Currency, there shall not have occurred any change in national or international financial, political or economic conditions or currency exchange rates or exchange controls which in the reasonable opinion of the Administrative Agent, the Required Lenders (in the case of any Loans to be denominated in an Alternative Currency) or the L/C Issuer (in the case of any Letter of Credit to be denominated in an Alternative Currency) would make it impracticable for such Credit Extension to be denominated in the relevant Alternative Currency.

 

Each Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type or a continuation of Eurocurrency Rate Loans) submitted by the Company shall be deemed to be a representation and warranty that the conditions specified in Sections 5.02(a) and (b) have been satisfied on and as of the date of the applicable Credit Extension.

 

  5.03 Conditions to Release of Initial Credit Extensions.

 

Upon the satisfaction of the following conditions precedent, the Administrative Agent shall authorize the release of the proceeds of the initial Loans to the Borrower in accordance with the Closing Funding Memorandum:

 

(a) The Administrative Agent shall be satisfied that the loans and other obligations under the Existing Credit Agreement have been repaid (or will be repaid on August 2, 2004 with the initial Loans made hereunder on the Closing Date) and the commitments thereunder have been terminated or will be terminated effective August 2, 2004.

 

(b) The acquisition of the Acquired Business shall have been consummated in accordance with the terms of the Purchase Agreement and in material compliance with applicable law and regulatory approvals (including Hart-Scott-Rodino clearance) and third party consents, all material conditions precedent to the obligations of the buyer under the Purchase Agreement shall have been satisfied. The aggregate purchase price of the Acquired Business shall not exceed 625,000,000 Euro (plus post-closing adjustments related to working capital and pension assets not to exceed 40,000,000 Euro). Since July 16, 2004, the Purchase Agreement shall not have been altered, amended or otherwise changed or supplemented in any material respect or any material condition therein waived, without the prior written consent of the Administrative Agent. The Administrative Agent shall have received a copy, certified by a Responsible Officer of the Company as true and complete, of the Purchase Agreement as originally executed and delivered, together with all exhibits and schedules.

 

(c) After giving effect to the Transaction and the initial Credit Extensions hereunder on the Closing Date, there shall be at least $175,000,000 of availability under the Aggregate Revolving Commitments.

 

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(d) Since April 17, 2004, there shall have not occurred (i) the destruction of all or substantially all of the properties of the Acquired Business located in Amsterdam, the Netherlands or in Pasadena, Texas, or (ii) any other event that has or is likely to have a material adverse effect on the Acquired Business, taken as a whole, and not arising as a result of the announcement of the Acquisition thereof.

 

ARTICLE VI.

REPRESENTATIONS AND WARRANTIES

 

The Loan Parties represent and warrant to the Administrative Agent and the Lenders that:

 

  6.01 Existence, Qualification and Power; Compliance with Laws.

 

Each Loan Party (a) is a corporation, partnership or limited liability company duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, (c) is duly qualified and is licensed and in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license, and (d) is in compliance with all Laws; except in each case referred to in clause (b)(i), (c) or (d), to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect.

 

  6.02 Authorization; No Contravention.

 

The execution, delivery and performance by each Loan Party of each Loan Document to which such Person is party, have been duly authorized by all necessary corporate or other organizational action, and do not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, (i) any Contractual Obligation to which such Person is a party or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law.

 

  6.03 Governmental Authorization; Other Consents.

 

No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document.

 

  6.04 Binding Effect.

 

This Agreement and each other Loan Document has been duly executed and delivered by each Loan Party that is party thereto. This Agreement and each other Loan Document constitutes a legal, valid and binding obligation of each Loan Party that is party thereto, enforceable against each such Loan Party in accordance with its terms.

 

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  6.05 Financial Statements; No Material Adverse Change.

 

(a) The audited consolidated balance sheet of the Consolidated Group for the fiscal year ended December 31, 2003, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year, including the notes thereto (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of the Consolidated Group as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Consolidated Group as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.

 

(b) The unaudited consolidated financial statements of the Consolidated Group for the fiscal quarter ended March 31, 2004, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal quarter (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of the Consolidated Group as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments; and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Consolidated Group as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.

 

(c) Since December 31, 2003, there has been no event or circumstance, either individually or in the aggregate, that has had or would be reasonably be expected to have a Material Adverse Effect.

 

  6.06 Litigation.

 

There are not any actions, suits or proceedings at law or in equity or by or before any governmental instrumentality or other agency now pending or, to the knowledge of the Loan Parties, threatened (and reasonably likely to be commenced) against or affecting any member of the Consolidated Group or any property or rights of the Consolidated Group as to which there is a reasonable likelihood of an adverse determination and which, if adversely determined, would individually or in the aggregate materially impair the right of the Consolidated Group taken as a whole to carry on business substantially as now being conducted or would result in a Material Adverse Effect.

 

  6.07 No Default.

 

(a) Neither the Company nor any Subsidiary is in default under or with respect to any Contractual Obligation that would reasonably be expected to have a Material Adverse Effect.

 

(b) No Default or Event of Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.

 

  6.08 Ownership of Property; Liens.

 

Each member of the Consolidated Group has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The property of the Consolidated Group is subject to no Liens, other than Liens permitted by Section 8.02.

 

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  6.09 Environmental Compliance.

 

Except as set forth in Schedule 6.09: (a) the Consolidated Group is in compliance in all material respects with all applicable Environmental Laws, except where the failure to do so would not be reasonably likely, individually or in the aggregate, to result in a Material Adverse Effect; (b) no member of the Consolidated Group has received notice of any material failure so to comply, which non-compliance neither has been remedied nor is being contested in good faith by such member of the Consolidated Group nor is the subject of such member’s good faith efforts to achieve compliance; (c) the Consolidated Group’s facilities do not manage any Hazardous Materials in violation in any applicable Environmental Law, except where such violation would not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect; and (d) the Company is aware of no events, conditions or circumstances involving environmental pollution or contamination or employee health or safety that would be reasonably likely to result in a Material Adverse Effect.

 

  6.10 Insurance.

 

The properties of the Consolidated Group are insured with financially sound and reputable insurance companies not Affiliates of the Company, in such amounts (after giving effect to any self-insurance compatible with the following standards), with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or its Subsidiaries operate.

 

  6.11 Taxes.

 

Each member of the Consolidated Group has filed all federal, state and other material tax returns and reports required to be filed, and have paid all federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those that are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Company or any Subsidiary that would, if made, have a Material Adverse Effect.

 

  6.12 ERISA Compliance.

 

(a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Internal Revenue Code and other federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the knowledge of the Company, nothing has occurred that would prevent, or cause the loss of, such qualification. The Company and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Internal Revenue Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Internal Revenue Code has been made with respect to any Plan.

 

(b) There are no pending or, to the best knowledge of the Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that would reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or would reasonably be expected to result in a Material Adverse Effect.

 

(c) Other than as would not reasonably be expected to result in liability in excess of $15,000,000, (i) no ERISA Event has occurred or is reasonably expected to occur, (ii) neither the

 

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Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA and other contributions payable in accordance with the terms of such Pension Plan or applicable law), and (iii) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred that, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan.

 

(d) No Pension Plan, individually, has any Unfunded Pension Liability in excess of $10,000,000, and the Pension Plans, on a consolidated basis, do not have any Unfunded Pension Liability.

 

(e) Neither the Company nor any ERISA Affiliate has engaged in a transaction that is subject to Sections 4069 or 4212(c) of ERISA.

 

  6.13 Margin Regulations; Investment Company Act; Public Utility Holding Company Act.

 

(a) No Borrower is engaged or will engage, principally or as one of its important activities, in the business of purchasing or carrying “margin stock” within the meaning of Regulation U issued by the FRB, as in effect from time to time, or extending credit for the purpose of purchasing or carrying “margin stock,” and the Credit Extensions hereunder will not be used to purchase or carry “margin stock” in violation of Regulation U or to extend credit to others for the purpose of purchasing or carrying “margin stock,” or for any purpose that would violate or be inconsistent with the provisions of Regulation X issued by the FRB, as in effect from time to time.

 

(b) None of the Company, any Person Controlling the Company, or any Subsidiary (i) is a “holding company,” or a “subsidiary company” of a “holding company,” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company,” within the meaning of the Public Utility Holding Company Act of 1935, or (ii) is or is required to be registered as an “investment company” under the Investment Company Act of 1940.

 

  6.14 Disclosure.

 

The Company has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Company represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

 

  6.15 Compliance with Laws.

 

Each of the Company and each Subsidiary is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being

 

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contested in good faith by appropriate proceedings or (b) the failure to comply therewith would not reasonably be expected to have a Material Adverse Effect.

 

  6.16 Intellectual Property; Licenses, Etc.

 

To the knowledge of the Loan Parties, the Consolidated Group owns, or possess the right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights (collectively, “IP Rights”) that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the knowledge of the Loan Parties, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company or any Subsidiary infringes upon any rights held by any other Person. No claim or litigation regarding any of the foregoing is pending or, to the knowledge of the Loan Parties, threatened, that would reasonably be expected to have a Material Adverse Effect.

 

  6.17 Subsidiaries.

 

Set forth on Schedule 6.17 is a complete and accurate list as of the Closing Date of each Subsidiary of the Company (after giving effect to the Acquisition of the Acquired Business), together with (i) the jurisdiction of formation, (ii) an indication of whether such Subsidiary is a Material Domestic Subsidiary, and (iii) the ownership percentage of the Company or any Subsidiary therein.

 

  6.18 Solvency.

 

As of the Closing Date, Albemarle Catalysts International, L.L.C. is Solvent. The Company and its Subsidiaries, on a consolidated basis, are Solvent.

 

ARTICLE VII.

AFFIRMATIVE COVENANTS

 

So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, the Loan Parties shall and shall cause each of their respective Subsidiaries to:

 

  7.01 Financial Statements.

 

Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:

 

(a) as soon as available, but in any event within ninety days after the end of each fiscal year of the Company, a consolidated balance sheet of the Consolidated Group as of the end of such fiscal year, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing reasonably acceptable to the Required Lenders, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit;

 

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(b) as soon as available, but in any event within fifty days after the end of each of the first three fiscal quarters of each fiscal year of the Company, a consolidated balance sheet of the Consolidated Group as of the end of such fiscal quarter, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal quarter and for the portion of the Company’s fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and certified by a Responsible Officer of the Company as fairly presenting the financial condition, results of operations, shareholders’ equity and cash flows of the Consolidated Group in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes; and

 

(c) to the extent available using commercially reasonable efforts, as soon as available, but in any event within 120 days after the Closing Date, such audited and unaudited financial statements of the Acquired Business as would be required by Regulations S-X and S-K to be included or incorporated by reference in a registration statement filed by Company at such time with the Securities and Exchange Commission for an offering of securities registered under the Securities Act of 1933.

 

As to any information contained in materials furnished pursuant to Section 7.02(d), the Company shall not be separately required to furnish such information under clause (a) or (b) above, but the foregoing shall not be in derogation of the obligation of the Company to furnish the information and materials described in subsections (a) and (b) above at the times specified therein.

 

  7.02 Certificates; Other Information.

 

Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:

 

(a) concurrently with the delivery of the financial statements referred to in Section 7.01(a), a certificate of its independent certified public accountants certifying such financial statements and stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default under the financial covenants set forth herein or, if any such Default or Event of Default shall exist, stating the nature and status of such event;

 

(b) concurrently with the delivery of the financial statements referred to in Sections 7.01(a) and (b), a duly completed Compliance Certificate signed by a Responsible Officer of the Company, (i) setting forth computations in reasonable detail satisfactory to the Administrative Agent demonstrating (A) compliance with the financial covenants contained herein (provided that solely with respect to the fiscal quarter ending June 30, 2004, the Company shall not be required to demonstrate compliance with the Consolidated Debt to Capitalization Ratio as of such fiscal quarter end until September 30, 2004) and (B) compliance with Section 8.11, (ii) certifying that no Default or Event of Default exists as of the date thereof (or, to the extent a Default or Event of Default exists, the nature and extent thereof and the proposed actions of the Loan Parties with respect thereto) and (iii) including a summary of all material changes in GAAP and in the consistent application thereof, the effect on the financial covenants resulting therefrom, and a reconciliation between calculation of the financial covenants before and after giving effect to such changes (which certificate may be delivered by electronic mail or by facsimile, with an executed original to follow within five Business Days);

 

(c) promptly after requested by the Administrative Agent on behalf of any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the

 

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board of directors (or the audit committee of the board of directors) of the Company by independent accountants in connection with the accounts or books of the Company or any Subsidiary, or any audit of any of them;

 

(d) promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of the Company, and copies of all annual, regular, periodic and special reports and registration statements that the Company may file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934, and not otherwise required to be delivered to the Administrative Agent pursuant hereto; and

 

(e) promptly, such additional information regarding the business, financial or corporate affairs of the Company or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent, on behalf of any Lender, may from time to time reasonably request.

 

Documents required to be delivered pursuant to Section 7.01(a) or (b) or Section 7.02(d) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Company posts such documents, or provides a link thereto on the Company’s website on the internet at the website address listed on Schedule 11.02; or (ii) on which such documents are posted on the Company’s behalf on IntraLinks/IntraAgency or another relevant website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) the Company shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Company to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Company shall notify (which may be by facsimile or electronic mail) the Administrative Agent and each Lender of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Company shall be required to provide paper copies of the Compliance Certificates required by Section 7.02(b) to the Administrative Agent and each of the Lenders. Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Company with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

 

  7.03 Notices.

 

Promptly notify the Administrative Agent and each Lender:

 

(a) of the occurrence of any Default;

 

(b) of any matter that has resulted or would reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Company or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Company or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Company or any Subsidiary, including pursuant to any applicable Environmental Laws;

 

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(c) of the occurrence of any ERISA Event;

 

(d) of any material change in accounting policies or financial reporting practices by the Company or any Subsidiary;

 

(e) of any litigation, investigation or proceeding affecting any Loan Party in which the amount involved would reasonably be expected to have a Material Adverse Effect, or in which injunctive relief or similar relief is sought, which relief, if granted, would reasonably be expected to have a Material Adverse Effect; and

 

(f) if unrated, any announcement by Moody’s or S&P of any Debt Rating, or if rated, any announcement by Moody’s or S&P of any change or possible change in a Debt Rating.

 

Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of the Company setting forth details of the occurrence referred to therein and stating what action the Company has taken and proposes to take with respect thereto. Each notice pursuant to Section 7.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.

 

  7.04 Payment of Obligations.

 

Pay and discharge as the same shall become due and payable, all its obligations and liabilities, including (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary; (b) all lawful claims that, if unpaid, would by law become a Lien upon its property; and (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness.

 

  7.05 Preservation of Existence, Etc.

 

(a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization except in a transaction permitted by Section 8.03; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which would reasonably be expected to have a Material Adverse Effect.

 

  7.06 Maintenance of Properties.

 

(a) Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; (b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; and (c) use the standard of care typical in the industry in the operation and maintenance of its facilities.

 

  7.07 Maintenance of Insurance.

 

Maintain with financially sound and reputable insurance companies not Affiliates of the Company, insurance with respect to its properties and business against loss or damage of the kinds

 

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customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts (after giving effect to any self-insurance compatible with the following standards) as are customarily carried under similar circumstances by such other Persons.

 

  7.08 Compliance with Laws.

 

Comply in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, write, injunction or decree is being contested in good faith by appropriate proceedings; or (b) the failure to comply therewith would not reasonably be expected to have a Material Adverse Effect.

 

  7.09 Books and Records.

 

(a) Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company or such Subsidiary, as the case may be; and (b) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Company or such Subsidiary, as the case may be.

 

  7.10 Inspection Rights.

 

Upon the request of the Administrative Agent on behalf of any Lender, permit representatives and independent contractors of the Administrative Agent and each Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of the Company and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; provided, however, that when an Event of Default exists the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the expense of the Company at any time during normal business hours and without advance notice.

 

  7.11 Use of Proceeds.

 

Use the proceeds of the Credit Extensions (a) to pay a portion of the purchase price of the Acquisition of the Acquired Business (including fees and expenses related thereto), (b) for general corporate purposes, (c) to refinance existing Indebtedness, (d) to finance acquisitions, (e) to repurchase common stock of the Company, (f) for working capital and (g) for Capital Expenditures, in each case, of the Company and its Subsidiaries provided that in no event shall the proceeds of the Credit Extensions be used in contravention of any Law or of any Loan Document.

 

  7.12 Joinder of Guarantors.

 

Within thirty (30) days after the acquisition or formation of any Material Domestic Subsidiary or any existing Subsidiary becoming a Material Domestic Subsidiary, cause such Material Domestic Subsidiary to be joined as a Guarantor hereunder. The Company will, in connection with any such joinder, promptly cause to be delivered to the Administrative Agent an executed Joinder Agreement, together with supporting resolutions, incumbency certificates, organizational documents, opinions of counsel and such other information as shall be reasonably requested by the Administrative Agent, all in form and substance reasonably acceptable to the Administrative Agent.

 

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  7.13 ERISA Compliance.

 

Do, and cause each of its ERISA Affiliates to do, each of the following: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan that is qualified under Section 401(a) of the Code to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412 of the Code.

 

ARTICLE VIII.

NEGATIVE COVENANTS

 

So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, no Loan Party shall nor shall it permit any of its Subsidiaries to, directly or indirectly:

 

  8.01 Indebtedness.

 

Create, incur, assume or suffer to exist any Indebtedness, except:

 

(a) Indebtedness under the Loan Documents;

 

(b) Indebtedness outstanding on the date hereof (after giving effect to the Acquisition of the Acquired Business) and listed on Schedule 8.01 and any refinancings, refundings, renewals or extensions thereof; provided that the aggregate principal amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder;

 

(c) Guarantees of the Company or any Subsidiary in respect of Indebtedness otherwise permitted hereunder of the Company or any wholly-owned Subsidiary;

 

(d) obligations (contingent or otherwise) of the Company or any Subsidiary existing or arising under any Swap Contract, provided that (i) 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, investments, assets, or property held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person, and not for purposes of speculation or taking a “market view;” and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party;

 

(e) Indebtedness of the Company or any Subsidiary incurred after the Closing Date in respect of capital leases, Synthetic Leases and purchase money obligations for fixed or capital assets within the limitations set forth in Section 8.02(i); provided, however, that the aggregate amount of all such Indebtedness at any one time outstanding shall not exceed $35,000,000;

 

(f) unsecured Indebtedness in an aggregate principal amount not to exceed $450,000,000 that is incurred under the 364-Day Loan Agreement on the Closing Date and any refinancings, refundings, renewals or extensions thereof; provided that the aggregate principal amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses

 

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reasonably incurred, in connection with such refinancing and no Liens are granted in connection therewith;

 

(g) intercompany Indebtedness among the Company and its Subsidiaries, provided that if such Indebtedness is owing from a Subsidiary that is not a Loan Party to a Loan Party, the extension of credit by the Loan Party to such non-Loan Party is not prohibited by Section 8.03;

 

(h) Indebtedness in respect of Securitization Transactions; provided that the aggregate Attributable Principal Amount in connection with such Securitization Transactions shall not at any time be in excess of (i) $100,000,000 with respect to the Loan Parties and (ii) $100,000,000 with respect to Subsidiaries that are not Loan Parties;

 

(i) to the extent constituting Indebtedness, environmental remediation or similar obligations of the Company or any Subsidiary not to exceed $50,000,000 in the aggregate;

 

(j) unsecured Indebtedness of the Company or any Subsidiary to procure the release of the JV Affiliate Entity Guarantees pursuant to § 8.1.1 of the Purchase Agreement;

 

(k) other unsecured Indebtedness of any Loan Party provided that the Company shall have delivered to the Administrative Agent a certificate demonstrating that, upon giving effect on a Pro Forma Basis to the incurrence of such Indebtedness, the Loan Parties would be in compliance with the financial covenants set forth in Section 8.08 as of the most recent fiscal quarter end with respect to which the Administrative Agent has received the financial statements pursuant to Section 7.01(a) or (b); and

 

(l) other unsecured Indebtedness of any Subsidiary that is not a Loan Party in an aggregate principal amount not to exceed 10% of Consolidated Net Worth at any time outstanding.

 

  8.02 Liens.

 

Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than the following:

 

(a) Liens pursuant to any Loan Document;

 

(b) Liens existing on the date hereof (after giving effect to the Acquisition of the Acquired Business) and listed on Schedule 8.02 and any renewals or extensions thereof, provided that the property covered thereby is not increased;

 

(c) Liens for taxes not yet due or that are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;

 

(d) carriers,’ warehousemen’s, mechanics,’ materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business that are not overdue for a period of more than thirty days or that are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the applicable Person;

 

(e) pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA;

 

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(f) deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety bonds (other than bonds related to judgments or litigation, which are covered in subsection (h) below), performance bonds and other obligations of a like nature incurred in the ordinary course of business;

 

(g) easements, rights-of-way, restrictions and other similar encumbrances affecting real property that, in the aggregate, are not substantial in amount, and that do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;

 

(h) Liens securing judgments for the payment of money in an aggregate amount not in excess of the Threshold Amount (except to the extent covered by independent third-party insurance as to which the insurer has acknowledged in writing its obligation to cover), unless any such judgment remains undischarged for a period of more than forty-five consecutive days during which execution is not effectively stayed;

 

(i) Liens securing, or in respect of, Indebtedness permitted by Section 8.01(e); provided that (i) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (ii) the Indebtedness secured thereby does not exceed the cost or fair market value, whichever is lower, of the property being acquired on the date of acquisition;

 

(j) Liens on property or assets of the Company or any Subsidiary granted in connection with Sale and Leaseback Transactions, provided that the aggregate Attributable Principal Amount in connection with such Sale and Leaseback Transactions shall not at any time be in excess of $100,000,000;

 

(k) Liens on property or assets of the Company or any Subsidiary granted in connection with Securitization Transactions permitted by Section 8.01(h);

 

(l) Liens on the property and assets of any Person to the extent such Liens are existing at the time such Person becomes a member of the Consolidated Group, provided such Liens are not created in contemplation thereof and do not extend to any property or assets of any other member of the Consolidated Group;

 

(m) Liens on property or assets of the Company and any Subsidiary granted in connection with environmental remediation or similar obligations with respect to such property or assets not to exceed $50,000,000 in the aggregate; and

 

(n) Liens other than those referred to in subparagraphs (a) through (m) above, provided, however, that the aggregate amount of all Indebtedness that is secured or evidenced by such Liens does not at any time exceed an amount equal to 10% of Consolidated Net Worth.

 

  8.03 Investments.

 

Make Investments in Subsidiaries, joint ventures or other entities or enterprises that are organized outside the United States and its political subdivisions, unless after giving effect thereto the Loan Parties are in compliance with Section 8.11.

 

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  8.04 Mergers, Dispositions, etc.

 

Merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) or any capital stock of any Subsidiary, except that:

 

(a) Any member of the Consolidated Group may purchase and sell inventory in the ordinary course of business;

 

(b) If at the time thereof and immediately after giving effect thereto no Default or Event of Default shall have occurred and be continuing: (i) any wholly owned Subsidiary or any other person may merge into the Company in a transaction in which the Company is the surviving corporation, (ii) any wholly owned Subsidiary may merge into or consolidate with any other wholly owned Subsidiary in a transaction in which the surviving entity is a wholly owned Subsidiary and no Person other than the Company or a wholly owned Subsidiary receives any consideration therefor, provided that, if either wholly owned Subsidiary is a Domestic Subsidiary, the surviving entity is a Domestic Subsidiary and if either wholly owned Subsidiary is a Borrower, the surviving entity is a Borrower, and (iii) so long as (A) the Debt Ratings of the surviving corporation are better than or equal to the Debt Ratings of the Company and (B) the surviving corporation agrees in writing to assume the obligations of the Company under this Agreement, the Company may merge into or consolidate with any other Person;

 

(c) The Company may sell 100% of the capital stock of any Subsidiary for fair market value, as determined in good faith by the Company’s board of directors, provided (i) such sale does not constitute a sale of all or substantially all of the Company’s assets, (ii) after giving effect thereto, the Company remains in compliance with Section 8.11 and (iii) if such sale involves the capital stock of a Borrower, the Company or another Borrower shall agree in writing to assume the obligations of such Borrower under this Agreement;

 

(d) The Company may sell any portion of the capital stock of any Subsidiary (other than a Borrower) in connection with the establishment of a joint venture for the purpose of developing or continuing a product or business related to any of the Company’s existing lines of business as of the date of this Agreement; and

 

(e) Any Subsidiary (other than a Loan Party) may dissolve, liquidate or wind up its affairs at any time provided that such dissolution, liquidation or winding up, as applicable, does not have or could not reasonably be expected to have a Material Adverse Effect.

 

In connection with any disposition permitted hereunder of any Subsidiary that is a Guarantor, such Guarantor shall be released from its obligations under the Guaranty in accordance with the provisions hereof.

 

  8.05 Change in Nature of Business.

 

Engage in any material line of business substantially different from those lines of business conducted by the Consolidated Group on the date hereof or any business substantially related or incidental thereto.

 

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  8.06 Transactions with Affiliates.

 

Enter into any transaction of any kind with any Affiliate of the Company, whether or not in the ordinary course of business, other than on fair and reasonable terms substantially as favorable to the Company or such Subsidiary as would be obtainable by the Company or such Subsidiary at the time in a comparable arm’s length transaction with a Person other than an Affiliate, provided that the foregoing restriction shall not apply to transactions between or among Loan Parties.

 

  8.07 Use of Proceeds.

 

Use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose, in each case in violation of, or for a purpose that violates, or would be inconsistent with, Regulation T, U or X of the FRB.

 

  8.08 Financial Covenants.

 

(a) Consolidated Fixed Charge Coverage Ratio. Permit the Consolidated Fixed Charge Coverage Ratio as of the end of any fiscal quarter of the Company to be less than 1.25:1.00.

 

(b) Consolidated Debt to Capitalization Ratio. Permit the Consolidated Debt to Capitalization Ratio as of the end of any fiscal quarter of the Company to be greater than (i) prior to the earlier of (A) the first anniversary of the Closing Date and (B) the first Equity Issuance of the Company subsequent to the Closing Date, 65% and (ii) thereafter, 60%.

 

  8.09 ERISA.

 

At any time engage in a transaction that is subject to Section 4069 or 4212(c) of ERISA, or permit any Plan to (a) engage in any non-exempt “prohibited transaction” (as defined in Section 4975 of the Code); (b) fail to comply with ERISA or any other applicable Laws; or (c) incur any material “accumulated funding deficiency” (as defined in Section 302 of ERISA), that, with respect to each event listed above, would reasonably be expected to have a Material Adverse Effect.

 

  8.10 Burdensome Agreements.

 

(a) Enter into, or permit to exist, any Contractual Obligation that encumbers or restricts the ability of any such Person to (i) pay dividends or make any other distributions to any member of the Consolidated Group with respect to its capital stock or any other interest or participation in, or measured by, its profits, (ii) pay any Indebtedness or other obligation owed to any Loan Party, (iii) make loans or advances to any Loan Party, (iv) sell, lease or transfer any of its assets to any Loan Party or (v) act as a Loan Party pursuant to the Loan Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except (in respect of any of the matters referred to in clauses (i)-(iv) above) for (1) this Agreement and the other Loan Documents, (2) any document or instrument governing Indebtedness incurred pursuant to Section 8.01(e), provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith, (3) the 364-Day Loan Agreement (and any refinancings thereof permitted by Section 8.01(f)), (4) customary restrictions and conditions contained in any agreement relating to a sale of assets not prohibited by Section 8.04 pending the consummation of such sale, (5) any agreement in effect at the time of Acquisition of any Subsidiary so long as such agreement was not entered into in connection with such Acquisition and no other member of the

 

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Consolidated Group is subject thereto and (6) customary non-assignment or non-subletting provisions in Contractual Obligations.

 

(b) Enter into, or permit to exist, any Contractual Obligation that prohibits or otherwise restricts the existence of any Lien upon any of its assets in favor of the Administrative Agent (for the benefit of the Lenders) for the purpose of securing the Obligations, whether now owned or hereafter acquired, except (i) any document or instrument governing Indebtedness incurred pursuant to Section 8.01(e), provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith, (ii) the 364-Day Loan Agreement (and any refinancings thereof permitted by Section 8.01(f)), (iii) pursuant to customary restrictions and conditions contained in any agreement relating to a sale of assets not prohibited by Section 8.04, pending the consummation of such sale, (iv) customary non-assignment provisions in Contractual Obligations, (v) restrictions on encumbering the assets or the capital stock (or other ownership interests) in joint ventures set forth in the Organization Documents of such joint venture and