EXHIBIT 99.1
EXECUTION COPY
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PREFERRED STOCK PURCHASE AND RECAPITALIZATION AGREEMENT
by and among
KKTY HOLDING COMPANY, L.L.C.
and
KATY INDUSTRIES, INC.
Dated as of March 29, 2001
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TABLE OF CONTENTS
Page
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ARTICLE I THE OFFER.................................................................................................. 2
SECTION 1.1. The Offer......................................................................................... 2
SECTION 1.2. Offer Documents................................................................................... 3
SECTION 1.3. Certain Actions................................................................................... 4
SECTION 1.4. Payment for Offer Shares Tendered and Accepted.................................................... 7
ARTICLE II PREFERRED STOCK PURCHASE.................................................................................. 8
SECTION 2.1. Purchase and Sale................................................................................. 8
SECTION 2.2. Closing........................................................................................... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF KATY................................................................... 9
SECTION 3.1. Organization, Qualification, Etc.................................................................. 9
SECTION 3.2. Capitalization.................................................................................... 10
SECTION 3.3. Corporate Authority Relative to this Agreement; No Violation...................................... 11
SECTION 3.4. Reports and Financial Statements.................................................................. 11
SECTION 3.5. Accounts Receivable, Accounts Payable and Inventory............................................... 12
SECTION 3.6. Indebtedness; No Undisclosed Liabilities.......................................................... 13
SECTION 3.7. [Reserved]........................................................................................ 13
SECTION 3.8. Customers and Suppliers........................................................................... 13
SECTION 3.9. No Violation of Law............................................................................... 13
SECTION 3.10. Transactions with Affiliates...................................................................... 14
SECTION 3.11. [Reserved]........................................................................................ 14
SECTION 3.12. Environmental, Health and Safety Laws and Regulations............................................. 14
SECTION 3.13. Employee Benefit Matters.......................................................................... 15
SECTION 3.14. Absence of Certain Changes or Events.............................................................. 18
SECTION 3.15. Investigations; Litigation........................................................................ 19
SECTION 3.16. Products.......................................................................................... 19
SECTION 3.17. Securities Filings................................................................................ 19
SECTION 3.18. Tax Matters....................................................................................... 19
SECTION 3.19. Intellectual Property............................................................................. 20
SECTION 3.20. Severance Payments................................................................................ 21
SECTION 3.21. Title to Properties............................................................................... 21
SECTION 3.22. Licenses.......................................................................................... 22
SECTION 3.23. Insurance......................................................................................... 23
SECTION 3.24. Material Contracts................................................................................ 23
SECTION 3.25. Rights Agreement.................................................................................. 24
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER............................................................ 25
SECTION 4.1. Organization, Qualification, Etc................................................................. 25
SECTION 4.2. Corporate Authority Relative to this Agreement; No Violation..................................... 25
SECTION 4.3. Litigation....................................................................................... 26
SECTION 4.4. Ownership of Katy Stock.......................................................................... 26
SECTION 4.5. No Required Vote of Purchaser Shareholders....................................................... 26
SECTION 4.6. Securities Filings............................................................................... 26
SECTION 4.7. Loan Commitments................................................................................. 26
SECTION 4.8. Purchase for Investment.......................................................................... 27
ARTICLE V COVENANTS AND AGREEMENTS................................................................................ 27
SECTION 5.1. Conduct of Business by Katy and the Subsidiaries................................................. 27
SECTION 5.2. Investigation.................................................................................... 29
SECTION 5.3. Cooperation...................................................................................... 30
SECTION 5.4. Employee Benefit Plans........................................................................... 30
SECTION 5.5. Filings; Other Action............................................................................ 30
SECTION 5.6. [Reserved]........................................................................................31
SECTION 5.7. Anti-takeover Statute............................................................................ 31
SECTION 5.8. No Solicitation by Katy.......................................................................... 31
SECTION 5.9. Rights Agreement................................................................................. 33
SECTION 5.10. Public Announcements............................................................................. 33
SECTION 5.11. Indemnification of Directors and Officers........................................................ 33
SECTION 5.12. Additional Reports............................................................................... 34
SECTION 5.13. Update Disclosure; Breaches...................................................................... 34
SECTION 5.14. Corporate Governance............................................................................. 35
SECTION 5.15. Registration Rights.............................................................................. 36
ARTICLE VI CONDITIONS TO CLOSING.................................................................................. 36
SECTION 6.1. Conditions to Each Party's Obligation to Close................................................... 36
SECTION 6.2. Conditions to Obligations of Katy to Close....................................................... 37
SECTION 6.3. Conditions to Obligations of Purchaser to Close.................................................. 37
ARTICLE VII TERMINATION, WAIVER, AMENDMENT AND CLOSING............................................................ 38
SECTION 7.1. Termination or Abandonment....................................................................... 38
SECTION 7.2. Termination Fee.................................................................................. 39
SECTION 7.3. Approval of Board of Directors Required.......................................................... 40
ARTICLE VIII MISCELLANEOUS........................................................................................ 41
SECTION 8.1. Non-Survival of Representations and Warranties; Specific Enforcement;
Limitation..................................................................................... 41
SECTION 8.2. Expenses......................................................................................... 41
SECTION 8.3. Counterparts; Effectiveness...................................................................... 41
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SECTION 8.4. Governing Law............................................................................ 41
SECTION 8.5. Notices.................................................................................. 42
SECTION 8.6. Assignment; Binding Effect............................................................... 43
SECTION 8.7. Severability............................................................................. 43
SECTION 8.8. Miscellaneous............................................................................ 43
SECTION 8.9. Headings................................................................................. 43
SECTION 8.10. Finders or Brokers...................................................................... 44
SECTION 8.11. Amendment............................................................................... 44
SECTION 8.12. Waiver.................................................................................. 44
ANNEX I
ANNEX II
EXHIBIT A
EXHIBIT B
EXHIBIT C
Schedule 3.1
Schedule 3.2(a)
Schedule 3.2(b)
Schedule 3.2(c)
Schedule 3.3
Schedule 3.5(a)
Schedule 3.5(b)
Schedule 3.5(c)
Schedule 3.5(d)
Schedule 3.6
Schedule 3.8
Schedule 3.10
Schedule 3.12
Schedule 3.13(a)
Schedule 3.13(c)
Schedule 3.13(g)
Schedule 3.14
Schedule 3.15
Schedule 3.16
Schedule 3.19
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Schedule 3.21
Schedule 3.22
Schedule 3.23
Schedule 3.24
Schedule 5.1
Schedule 6.2
Schedule 6.3
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PREFERRED STOCK PURCHASE AND RECAPITALIZATION AGREEMENT
THIS PREFERRED STOCK PURCHASE AND RECAPITALIZATION AGREEMENT, dated as of
March 29, 2001 (this "Agreement"), is among KKTY HOLDING COMPANY, L.L.C.
("Purchaser") and KATY INDUSTRIES, INC. ("Katy").
WHEREAS, Katy is a corporation duly organized and existing under the laws
of the State of Delaware, and Purchaser is a limited liability company duly
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Katy and Purchaser have
approved the transactions contemplated by this Agreement (the
"Recapitalization") on the terms and subject to the conditions set forth in this
Agreement, and the Board of Directors of Katy has determined that the Offer (as
defined in Section 1.1) and the Preferred Stock Purchase (as defined below) are
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fair to and in the best interests of Katy's shareholders;
WHEREAS, Purchaser has simultaneously entered into a binding term sheet,
attached hereto as Exhibit B, with Bankers Trust Company to refinance the
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existing loans of Katy (the "Refinancing");
WHEREAS, as a condition to Purchaser entering into this Agreement, Katy
has entered into a letter of intent dated March 6, 2001 with respect to the sale
of Xxxxxxxx Metals, L.P. ("Xxxxxxxx") for a cash purchase price equal to
$21,000,000, and such letter of intent remains in full force and effect as of
the date hereof;
WHEREAS, at Purchaser's request, certain members of Katy's management,
directors, officers and other shareholders (collectively the "Agreement
Shareholders") are simultaneously entering into a stock voting and tender
agreement with Purchaser (the "Voting Agreement") pursuant to which the
Agreement Shareholders have agreed to vote with respect to certain questions
that may be put to such Agreement Shareholders, in each case, in accordance with
the terms and conditions of the Voting Agreement and to tender certain of their
Common Shares in the Offer;
WHEREAS, to effectuate the Recapitalization, Katy and Purchaser each desire
that Purchaser (i) commence a cash tender offer to purchase up to 2,500,000
outstanding shares (the "Offer Shares") of common stock, $1.00 par value per
share, of Katy (the "Katy Common Stock"), inclusive of their respective
associated common stock purchase rights (the "Rights") issued pursuant to the
Rights Agreement, dated as of January 13, 1995, as amended (the "Rights
Agreement"), between Katy and La Salle National Bank, as Rights Agent (the
shares of Katy Common Stock and the associated Rights are referred to herein as
"Common Shares") and (ii) purchase from Katy not less than 400,000 shares of
newly issued preferred stock, $100.00 par value per share (the "Convertible
Preferred Stock"), convertible at a ratio of twelve and one-half Common Shares
per share of Convertible Preferred Stock (equivalent to $8.00 per Common Share)
into an aggregate of not less than 5,000,000 Common Shares, for a purchase price
of $100.00 per share (or an aggregate purchase price of $ 40,000,000) (the
"Preferred Stock Purchase"), in each case, on the terms and subject to the
conditions set forth in this Agreement and the Offer Documents (as defined in
Section 1.2 hereof), and the Board of Directors
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of Katy has approved such tender offer and such Preferred Stock Purchase and has
resolved to recommend to its shareholders that they consider acceptance of the
tender offer and the tender of all or part of their Common Shares pursuant
thereto and that they authorize the Convertible Preferred Stock and the issuance
of Common Shares upon conversion of the Convertible Preferred Stock and approve
the terms of the Preferred Stock Purchase at a meeting of the shareholders of
Katy (the "Shareholder Meeting");
WHEREAS, simultaneously with entering into this Agreement, Purchaser and
Katy have executed a term sheet, attached hereto as Exhibit C, providing for the
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terms and conditions of the Convertible Preferred Stock;
WHEREAS, Exhibit A to this Agreement sets forth the pages hereof on which
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the capitalized terms are defined;
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with the Offer and the Preferred Stock
Purchase and also to prescribe various conditions to the Offer and the Preferred
Stock Purchase; and
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
The Offer
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SECTION 1.1. The Offer.
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(a) Concurrently with the date the definitive proxy statement for the
Shareholder Meeting is first mailed to Katy's shareholders (the "Offer
Commencement Date"), Purchaser shall commence (within the meaning of Rule 14d-2
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) an offer to purchase (the "Offer") the Offer Shares at a price of $8.00
per Share, net to the seller of such Offer Shares in cash (such amount, or any
greater amount per Offer Share paid pursuant to the Offer, being hereinafter
referred to as the "Offer Consideration"), subject to the provisions of this
Agreement, provided that this Agreement shall not have been terminated pursuant
to Article VII and that no fact, occurrence or circumstance shall exist which
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would result in a failure to satisfy any of the conditions (to the extent not
waived by Purchaser) set forth in Annex I (the "Purchaser Closing Conditions"),
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and provided further that the Offer Shares shall in no event represent more than
29.9% of the outstanding voting securities of Katy. The obligation of Purchaser
to consummate the Offer, accept for payment and to pay for the Offer Shares
validly tendered in the Offer and not withdrawn shall be expressly subject to
(i) satisfaction of the Purchaser Closing Conditions (to the extent not waived
by Purchaser), including, without limitation, the condition that the number of
Offer
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Shares (up to the maximum of 2,500,000) which shall have been validly tendered
and not withdrawn prior to the expiration of the Offer, together with the Common
Shares into which the Convertible Preferred Stock to be purchased by Purchaser
are convertible, shall represent not less than a majority of the Katy Common
Stock issuable and outstanding, calculated on a fully diluted basis (exclusive
of outstanding Options), on the Closing Date, and (ii) pro rata acceptance for
payment of Common Shares tendered as specified in Section 1.4(b) if the total
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number of Common Shares tendered exceeds the maximum of 2,500,000. The initial
expiration date of the Offer shall be midnight, New York City time, on the later
of (i) the date immediately succeeding the date of the Shareholder Meeting fixed
in the definitive proxy statement and (ii) the 20/th/ Business Day after the
Offer Commencement Date; provided, however, that, subject to the requirements of
applicable law, the term of the Offer shall be extended by Purchaser if so
requested by Katy if the Purchaser Closing Conditions (other than the Minimum
Condition, the condition set forth in paragraph (ii) of the first paragraph of
Annex I and the conditions set forth in subclauses (j), (n) and (p) of Annex I)
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shall have been satisfied as of the date of the request, and may in any case be
extended in the sole discretion of Purchaser, for a period of up to twenty (20)
Business Days, provided, however, that in no event shall the Offer be extended
beyond June 30, 2001. For purposes of this Agreement, the term "Business Day"
shall mean any day, other than Saturday, Sunday or a United States federal
holiday.
(b) [Reserved]
(c) Without the prior written consent of Katy, Purchaser shall not
decrease the Offer Consideration or change the form of consideration payable in
the Offer, reduce the minimum number of Offer Shares that is a condition to the
Offer, increase the maximum number of Offer Shares to be purchased pursuant to
the Offer, impose additional conditions to the Offer or amend any other term of
the Offer in any manner adverse to Katy or to the holders of Katy Common Stock.
SECTION 1.2. Offer Documents.
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On the Offer Commencement Date, Purchaser shall file or cause to be filed
with the Securities and Exchange Commission (the "SEC") a Tender Offer Statement
on Schedule TO (the "Schedule TO") with respect to the Offer which shall contain
the offer to purchase and related letter of transmittal (such Schedule TO,
letter of transmittal and other ancillary Offer documents and instruments
pursuant to which the Offer will be made, including any other documents required
to be filed with the SEC as part of or incorporated by reference in the Schedule
TO, together with any supplements or amendments thereto, the "Offer Documents")
and shall contain (or shall be amended in a timely manner to contain) all
information which is required to be included therein in accordance with the
Exchange Act and the rules and regulations thereunder and other applicable law;
provided, however, that no agreement or representation is hereby made or shall
be made by Purchaser with respect to information supplied by Katy or with
respect to Katy information derived from the Katy SEC Reports which is included
or incorporated by reference in the Offer Documents. Purchaser and Katy each
agrees promptly to correct any information provided by them for use in the Offer
Documents if and to the
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extent that such information shall have become false or misleading in any
material respect and to promptly notify in writing each other party hereto of
the nature and cause of such changes. To the extent information in the Offer
Documents needs to be modified or corrected pursuant to applicable law, the
parties hereto agree to cooperate in good faith to make such modifications or
corrections and to file and disseminate them as required by applicable law.
SECTION 1.3. Certain Actions.
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(a) Katy hereby approves of and consents to the Offer and represents and
warrants that Katy's Board of Directors (at a meeting duly called and held) has
(i) determined that each of this Agreement and the transactions contemplated
hereby, including the Offer and the Preferred Stock Purchase, are fair to and in
the best interests of Katy and its shareholders, (ii) Unanimously approved (with
all references to the term "Unanimously" being deemed to refer to actions taken
by all current members of Katy's Board of Directors, except for Xxxxxxx X.
Xxxxxxx) this Agreement and the transactions contemplated hereby, including the
Offer and the Preferred Stock Purchase, so that section 203 of the General
Corporation Law of Delaware ("DGCL") shall not prevent any business combination
(as defined in section 203 of the DGCL) between Katy and any person that becomes
an interested stockholder (as defined in section 203 of DGCL) of Katy as a
result of the Offer, the Preferred Stock Purchase, or any other transaction
contemplated by the Agreement, (iii) Unanimously recommended that the holders of
Common Shares consider acceptance of the Offer and the tender of all or part of
their Common Shares pursuant to the Offer, (iv) taken all actions necessary or
appropriate so that the execution of this Agreement and the consummation of the
transactions contemplated hereby (including without limitation the Offer, the
Preferred Stock Purchase, the conversion of the Convertible Preferred Stock and
the Voting Agreement) do not and will not result in the ability of any person to
exercise any rights under the Rights Agreement or enable or require the rights
to separate from the Common Shares to which they are attached or to be triggered
or become exercisable, (v) Unanimously nominated and recommended for election as
directors of Katy the nominees designated by Purchaser (the "Purchaser
Designees"), who, if elected by the shareholders, will constitute a majority of
such Board of Directors, (vi) Unanimously approved and recommended that the
holders of Common Shares approve and adopt an amendment to Katy's Certificate of
Incorporation authorizing (A) election of directors in two classes, with
staggered terms of office, and (B) 600,000 shares of Convertible Preferred
Stock, on substantially the terms and conditions set forth in Exhibit C, (vii)
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Unanimously recommended that the holders of Common Shares approve the Preferred
Stock Purchase and the issuance of Common Shares upon the conversion of the
Convertible Preferred Stock in accordance with the terms of the Convertible
Preferred Stock, (viii) authorized Katy to prepare and file with the SEC within
five (5) Business Days after the date of this Agreement (and Katy shall use its
reasonable best efforts to cause such filing within five(5) Business Days) a
preliminary proxy statement with respect to the election of directors and the
approvals by the holders of Common Shares referred to in clauses (vi) and (vii)
at the Shareholder Meeting, directed the officers of Katy to use their
reasonable best efforts to have the proxy statement cleared by the SEC under the
Exchange Act, and authorized and directed the distribution of the definitive
form of such proxy statement to the holders of the Common
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Shares and the solicitation of proxies from such holders (such definitive proxy
statement, the accompanying notice of the Shareholder Meeting and the form of
proxy, and any documents, instruments or other proxy materials used in the
solicitation of proxies, including any documents required to be filed with the
SEC as part of or incorporated by reference in such proxy materials, together
with any supplements or amendments thereto, the "Proxy Statement"), and (ix)
Unanimously approved an amendment to the By-Laws of Katy reducing the number of
directors constituting the whole board of Katy to nine (9).
(b) Katy hereby consents to the inclusion in the Proxy Statement (unless
the Board of Directors, after consultation with outside legal counsel determines
that this would be inconsistent with the directors' fiduciary duties under
applicable law) of the recommendation of its Board of Directors referred to in
Section 1.3(a). Katy hereby agrees to use its reasonable best efforts to file
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with the SEC, within five (5) Business Days of the date of this Agreement, the
preliminary Proxy Statement, which will contain (subject to the fiduciary duties
of the Board of Directors as advised by outside legal counsel) such
recommendation of the Board of Directors of Katy with respect to the election of
directors, the Recapitalization and the other transactions contemplated hereby
and otherwise comply with section 14(a) of the Exchange Act, the rules and
regulations thereunder and other applicable law. Katy covenants that the Proxy
Statement shall contain (or shall be amended in a timely manner to contain) the
information which is required to be included therein in accordance with the
Exchange Act and the rules and regulations thereunder and other applicable law
and shall otherwise comply in all material respects with the Exchange Act and
the rules and regulations thereunder and any other applicable law. Katy and
Purchaser each agree promptly to correct any information provided by them for
use in the Proxy Statement if and to the extent that such information shall have
become false or misleading in any material respect and Katy further agrees to
take all lawful action necessary to cause the Proxy Statement as so corrected to
be filed promptly with the SEC and disseminated to the holders of Common Shares,
in each case as and to the extent required by applicable law. Purchaser and its
counsel shall be given an opportunity to review and comment upon the Proxy
Statement and any amendments thereto prior to the filing thereof with the SEC.
In addition, Katy agrees to provide Purchaser and its counsel in writing with
any comments or other communications that Katy or its counsel may receive from
time to time from the SEC or its staff with respect to the Proxy Statement
promptly after the receipt of such comments or other communications.
(c) Katy hereby consents to the inclusion in the Offer Documents (unless
the Board of Directors, after consultation with outside legal counsel determines
that this would be inconsistent with the directors' fiduciary duties under
applicable law) of the recommendation of its Board of Directors referred to in
Section 1.3(a). Katy hereby agrees to file with the SEC, simultaneously with the
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filing by Purchaser of the Offer Documents, a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto, the "Schedule 14D-9") which, in itself or by reference to the Offer
Documents, will contain (subject to the fiduciary duties of the Board of
Directors as advised by outside legal counsel) such recommendation of the Board
of Directors of Katy with respect to the Offer and otherwise comply with Rule
14d-9 under the Exchange Act. Katy covenants
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that the Schedule 14D-9 shall contain (or shall be amended in a timely manner to
contain) the information which is required to be included therein in accordance
with the Exchange Act and the rules and regulations thereunder and other
applicable law and shall otherwise comply in all material respects with the
Exchange Act and the rules and regulations thereunder and any other applicable
law. Katy and Purchaser each agree promptly to correct any information provided
by them for use in the Schedule 14D-9 if and to the extent that such information
shall have become false or misleading in any material respect and Katy further
agrees to take all lawful action necessary to cause the Schedule 14D-9 as so
corrected to be filed promptly with the SEC and disseminated to the holders of
Common Shares, in each case as and to the extent required by applicable law.
Purchaser and its counsel shall be given an opportunity to review and comment
upon the Schedule 14D-9 and any amendments thereto prior to the filing thereof
with the SEC. In addition, Katy agrees to provide Purchaser and its counsel in
writing with any comments or other communications that Katy or its counsel may
receive from time to time from the SEC or its staff with respect to the Schedule
14D-9 promptly after the receipt of such comments or other communications. In
connection with the Offer, Katy shall (or shall cause its transfer agent to)
promptly furnish Purchaser with mailing labels, security position listings and
all available listings or computer files containing the names and addresses of
the record holders of Common Shares as of the latest practicable date and shall
furnish Purchaser with such information and assistance (including updated lists
of shareholders, mailing labels and lists of security positions) as Purchaser or
its agents may reasonably request in communicating the Offer to the record and
beneficial holders of Common Shares. Subject to the requirements of applicable
law, and except for such actions as are necessary to disseminate the Offer
Documents and any other documents necessary to consummate the Offer, the
Preferred Stock Purchase and the election of the directors, Purchaser shall hold
in confidence the information contained in such labels and lists or other form,
shall use such information only in connection with the Offer, the Preferred
Stock Purchase and the election of the directors, and, if the Offer or this
Agreement is terminated in accordance with its terms, shall deliver promptly to
Katy (or destroy and certify to Katy the destruction of) all copies of such
information then in its possession.
(d) Purchaser covenants that the Offer Documents shall contain (or shall
be amended in a timely manner to contain) the information which is required to
be included therein in accordance with the Exchange Act and the rules and
regulations thereunder and other applicable law and shall otherwise comply in
all material respects with the Exchange Act and the rules and regulations
thereunder and any other applicable law. Purchaser agrees promptly to correct
any information provided by it for use in the Offer Documents if and to the
extent that such information shall have become false or misleading in any
material respect and Purchaser further agrees to take all lawful action
necessary to cause the Offer Documents as so corrected to be filed promptly with
the SEC and disseminated to the holders of Katy Common Stock, in each case as
and to the extent required by applicable law. Katy and its counsel shall be
given an opportunity to review and comment upon the Offer Documents and any
amendments thereto prior to the filing thereof with the SEC. In addition,
Purchaser agrees to provide Katy and its counsel in writing with any comments or
other communications that Purchaser or its counsel may receive
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from time to time from the SEC or its staff with respect to the Offer Documents
promptly after the receipt of such comments or other communications.
SECTION 1.4. Payment for Offer Shares Tendered and Accepted
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(a) Depository. On the Closing Date, Purchaser shall deliver (or cause to
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be delivered) to La Salle Bank N.A., or another bank or trust company designated
by it (the "Depository"), for the benefit of the holders of Common Shares who
have tendered pursuant to the Offer in accordance with this Article I, funds
sufficient to make payment of the Offer Consideration payable pursuant to
Section 1.1(a).
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(b) Payment Procedures. Upon surrender of the certificates evidencing the
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Offer Shares (the "Certificates") to the Depository, together with a letter of
transmittal, duly executed, and such other documents as may reasonably be
requested by the Depository in accordance with the terms of the Offer, and upon
the Purchaser's determination to accept the Offer Shares evidenced thereby,
subject to pro rata acceptance of tendered Common Shares as set forth below, the
holder of such Certificate shall be entitled to receive the Offer Consideration
for each such Offer Share and the Certificate so surrendered shall forthwith be
registered in the name of Purchaser. In the event of a transfer of ownership of
any Offer Share which is not registered in the transfer records of Katy, cash
may be paid to a person other than the person in whose name the Certificate so
surrendered is registered if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer. In the event the Common Shares
tendered pursuant to the Offer exceed 2,500,000 Common Shares and Purchaser has
determined to accept the Offer Shares for payment, the Depository shall reduce
the number of Common Shares accepted for payment from each holder of Common
Shares so tendered on a pro rata basis, so that the number of Offer Shares
accepted for payment does not exceed 2,500,000.
(c) Lost Certificates. If any Certificate shall have been lost, stolen or
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destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Purchaser,
the posting by such person of a bond in such reasonable amount as the Purchaser
may direct as indemnity against any claim that may be made against Purchaser or
the Depository with respect to such Certificate, the Depository will issue in
exchange for such lost, stolen or destroyed Certificate the Offer Consideration
pursuant to this Agreement.
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(d) Withholding Rights. Purchaser shall be entitled but not required to
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deduct and withhold, or cause the Depository to deduct and withhold, from
consideration otherwise payable pursuant to this Agreement to any holder of
securities such amounts as are required to be deducted and withheld with respect
to the making of such payment under the Internal Revenue Code of 1986, as
amended (the "Code"), or any provision of state, local or foreign tax law . To
the extent that amounts are so withheld, (A) such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the Certificates in respect of which such deduction and withholding was made,
and (B) Purchaser shall provide, or cause the Depository to provide, to the
holders of such securities written notice of the amounts so deducted or
withheld.
ARTICLE II
Preferred Stock Purchase
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SECTION 2.1. Purchase and Sale.
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Subject to the terms and conditions set forth in this Agreement, Katy
agrees to sell to Purchaser and Purchaser agrees to purchase from Katy, subject
to the Purchaser Closing Conditions, 400,000 shares of Convertible Preferred
Stock for a purchase price of $100 per share or an aggregate of $40,000,000 in
cash (the "Preferred Purchase Price"). The Preferred Purchase Price shall be
delivered on the Closing Date by wire transfer of funds to the order of Katy.
Katy will deliver the Convertible Preferred Stock to Purchaser against payment
of the Preferred Purchase Price on the Closing Date. Delivery of the Convertible
Preferred Stock shall be deemed made upon delivery to Purchaser of a certificate
or certificates representing the Convertible Preferred Stock together with
evidence that such issuance and sale has been registered on the records of Katy.
SECTION 2.2. Closing.
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The consummation of the Preferred Stock Purchase will take place
concurrently with the acceptance for payment of the Offer Shares (collectively
referred to herein as the "Closing") at such time and date to be specified by
the parties (the "Closing Date"), which shall be no later than the second
Business Day after satisfaction or waiver of the conditions set forth in Article
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VI, unless another time or date is agreed to by the parties hereto, provided
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that in no event shall the Closing Date be later than June 30, 2001. The Closing
will be held at the offices of Hunton & Xxxxxxxx, 000 Xxxx Xxxxxx, 00/xx/ Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000-0000 or as otherwise agreed to by the parties hereto.
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ARTICLE III
Representations and Warranties of Katy
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Except as set forth in the schedules hereto, in a manner that identifies by
section number or by the content of the disclosure each provision of this
Agreement to which such disclosure relates, Katy represents and warrants to
Purchaser that:
SECTION 3.1. Organization, Qualification, Etc.
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Katy is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the corporate power and
authority to own and lease its properties and assets and to carry on its
business as it is now being conducted and is duly qualified to do business and
is in good standing in each jurisdiction in which the ownership of its
properties or the conduct of its business requires such qualification, except
for jurisdictions in which such failure to be so qualified or to be in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect (as hereinafter defined) on the Katy Group. Except as set forth on
Schedule 3.2(a), Katy owns, directly or indirectly, all of the capital stock of
---------------
each of the corporations and all of the equity interest of each of the other
entities set forth on Schedule 3.1 (each a "Subsidiary" and collectively, the
------------
"Subsidiaries"). Except as set forth on Schedule 3.1, each Subsidiary is duly
------------
and validly organized and in good standing under the laws of the jurisdiction
listed on Schedule 3.1, and each Subsidiary is duly qualified as a foreign
------------
corporation or other entity in good standing in each jurisdiction where the
conduct of its business requires such qualification, except where the failure to
be so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on the Katy Group. Except as set forth in Schedule 3.2(a), Katy
---------------
does not own, and does not have any obligation to acquire, any equity interest
in any business enterprise other than the Subsidiaries. As used in this
Agreement, any reference to any state of facts, event, change or effect having a
"Material Adverse Effect" on or with respect to the Katy Group or Purchaser
means such state of facts, event, change or effect that has had, or would
reasonably be expected to have, a material adverse effect on the financial
condition, businesses, operations, properties (including tangible properties),
results of operations, assets (including, without limitation, any Material
Contract) or prospects of Katy and the Subsidiaries (collectively, the "Katy
Group"), taken as a whole, or of Purchaser, as the case may be; provided,
however , that none of the following shall be deemed in themselves, either alone
or in combination, to constitute, and none of the following shall be taken into
account in determining whether there has been or will be, a Material Adverse
Effect on or with respect to the Katy Group: any adverse circumstance, change
in, or effect relating to (i) the announcement or pendency of the Offer or the
Preferred Stock Purchase, (ii) compliance with the terms of, or the taking of
any action required or contemplated by, this Agreement or (iii) actions required
to be taken under applicable laws, rules or regulations, so long as any such
action does not disproportionately affect the Katy Group, taken as a whole; and
provided, further, that a change in the market price or trading volume of the
Katy Common Stock shall not, in itself, be deemed to constitute a Material
Adverse Effect on or with respect to the Katy Group.
9
SECTION 3.2. Capitalization.
--------------
(a) The authorized capital stock of Katy consists of Twenty-Five Million
(25,000,000) shares of Katy Common Stock, $1.00 par value per share. As of the
date of this Agreement, 9,822,204 shares of Katy Common Stock (of which
1,428,146 are treasury shares) are issued and 8,394,058 shares are outstanding.
All the outstanding shares of Katy Common Stock have been validly issued and are
fully paid and non-assessable. The issued and outstanding capital stock of each
Subsidiary is set forth on Schedule 3.2(a) hereto and, except as set forth on
---------------
Schedule 3.2(a), Katy or a Subsidiary owns and holds all such capital stock.
---------------
(b) Except as set forth on Schedule 3.2(b), neither Katy nor any
---------------
Subsidiary is a party to, or is aware of, any voting agreement, voting trust or
similar agreement or arrangement relating to any class or series of its capital
stock, or any agreement or arrangement providing for registration rights with
respect to any capital stock or other securities thereof.
(c) As of the date of this Agreement, there were outstanding options to
purchase an aggregate of 347,450 Common Shares under Katy's 1995 Long-Term
Incentive Plan, outstanding options to purchase an aggregate of 323,900 Common
Shares, stock appreciation rights covering 207,030 Common Shares and 31,350
Common Shares of unvested restricted stock outstanding under Katy's 1997 Long-
Term Incentive Plan, and outstanding options to purchase 88,000 Common Shares
under Katy's Nonemployee Director Stock Option Plan (such plans collectively
referred to as the "Katy Stock Option Plans", and each option under the Katy
Stock Option Plans referred to as an "Option"), as set forth on Schedule 3.2(c).
---------------
Other than as set forth in this Section 3.2 or on Schedule 3.2(c) there are not
----------- ---------------
now, and on the Closing Date there will not be, any (i) shares of capital stock
or other equity securities of Katy issuable upon exercise of Options other than
Common Shares issuable pursuant to the exercise of the stock options or stock
appreciation rights described in this Section 3.2(c) (ii) other outstanding
--------------
awards under the Katy Stock Option Plans, or (iii) outstanding options,
warrants, scrip, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of any class of capital stock of Katy or any Subsidiary, or
contracts, understandings or arrangements to which Katy or any Subsidiary is a
party, or by which any of them is or may be bound, to issue additional shares of
its capital stock or options, warrants, scrip or rights to subscribe for, or
securities or rights convertible into or exchangeable for, any additional shares
of its capital stock, other than the Convertible Preferred Stock purchased by
Purchaser under this Agreement.
(d) The authorized units of Contico International, L.L.C. a Delaware
limited liability company and a Subsidiary ("Contico"), consists solely of Ten
Thousand (10,000) common units (the "Contico Common Units"), all of which are
issued, outstanding and owned by Katy, and Three Hundred Twenty-Nine (329)
preferred units (the "Contico Preferred Units"), all of which are issued,
outstanding and owned by Newcastle Industries, Inc. All of the outstanding
Contico Common Units and Contico Preferred Units have been validly issued, are
fully paid and non-assessable.
10
(e) Upon approval by the vote of a majority of the holders of the
outstanding Common Shares entitled to vote at the Shareholder Meeting, 600,000
shares of Convertible Preferred Stock will be duly authorized. Upon purchase of
the Convertible Preferred Stock by Purchaser in accordance with the terms of
this Agreement, the shares of Convertible Preferred Stock to be issued to
Purchaser will be validly issued, fully paid and non-assessable.
SECTION 3.3. Corporate Authority Relative to this Agreement; No
--------------------------------------------------
Violation.
---------
Katy has the corporate power and authority to enter into this Agreement, to
carry out its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Katy and, except for the approval by
Katy's shareholders, no other corporate proceedings on the part of Katy or any
Subsidiary are necessary to authorize this Agreement and the transactions
contemplated hereby. The Board of Directors of Katy has determined that the
Recapitalization is in the best interest of Katy and its shareholders. This
Agreement has been duly and validly executed and delivered by Katy and, assuming
this Agreement constitutes a valid and binding agreement of the other party
hereto, this Agreement constitutes a valid and binding agreement of Katy,
enforceable against Katy in accordance with its terms, except insofar as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by general equitable principles, whether applied in a proceeding at law or in
equity. Except as set forth on Schedule 3.3, neither Katy nor any Subsidiary is
------------
subject to or obligated under any charter, by-law or contract provision or any
license, franchise or permit, or subject to any law, order or decree, that would
be breached or violated by Katy's execution or performance of this Agreement or
the consummation of the transactions contemplated hereby. Other than in
connection with or in compliance with the provisions of Delaware law, the
Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act
(collectively, the "Katy Required Approvals"), no authorization, consent or
approval of, or filing with, any governmental body or authority in the United
States of America is necessary for the consummation by Katy of the
Recapitalization.
SECTION 3.4. Reports and Financial Statements.
--------------------------------
Since January 1, 1998, Katy has timely filed all reports, registration
statements and other filings, together with any amendments required to be made
with respect thereto, that it has been required to file with the SEC under the
Securities Act and the Exchange Act. All such reports, registration statements
and other filings (including all notes, exhibits and schedules thereto and
documents incorporated by reference therein) filed by Katy with the SEC,
together with any amendments thereto, are collectively referred to as the "Katy
SEC Reports". As of the respective dates of their filing (and, in the case of
registration statements and proxy statements, on the dates of effectiveness and
the dates of mailing, respectively) with the SEC, the Katy SEC Reports complied
in all material respects with the Securities Act, the Exchange Act and the rules
and regulations of the SEC thereunder, and did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or
11
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Each of the consolidated financial
statements (including any related notes or schedules) included in the Katy SEC
Reports was prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis (except as may be noted therein or in the
notes or schedules thereto) and complied in all material respects with the rules
and regulations of the SEC, and such consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Katy Group as of the dates thereof and the results of operations, cash flows and
changes in shareholders' equity for the periods then ended (subject, in the case
of the unaudited interim financial statements, to normal year-end audit
adjustments on a basis consistent with past periods).
SECTION 3.5. Accounts Receivable, Accounts Payable and Inventory.
---------------------------------------------------
For the purposes of this Agreement, the term "Accounts Receivable" shall
mean all trade accounts receivable and all notes, bonds and other evidences of
indebtedness relating to, and rights to receive payments arising out of, sales
made in the conduct of the business by Katy or any Subsidiary, and the security
agreements related thereto, including any rights of Katy or any Subsidiary with
respect to any third party collection proceedings or any other action, suit,
proceeding or arbitration by any person or any investigation by any government
body. The term "Accounts Payable" shall mean all accounts payable of Katy or any
Subsidiary as such would be construed under GAAP. The term "Inventory" shall
mean inventory, raw materials, work-in-progress, finished goods, consigned
goods, merchandise, products under research and development, demonstration
equipment, packaging materials and other accessories related thereto which are
held at, or are in transit from or to, the locations at which the business of
Katy or any Subsidiary is conducted, or located at supplier's premises or
customer's premises on consignment, in each case, which are used or held for use
in the conduct of the business of Katy or any Subsidiary, including any of the
foregoing purchased subject to any conditioned sales or title retention
agreement in favor of any other person, together with all rights against
suppliers of such inventories. All Accounts Receivable (net of allowances for
doubtful accounts) reflected on the September 30, 2000 balance sheet attached
hereto as Schedule 3.5(a) (the "Reference Balance Sheet"), and all Accounts
---------------
Receivable arising subsequent to September 30, 2000 (net of allowances for
doubtful accounts), (a) have arisen from bona fide sales transactions in the
ordinary course of business on ordinary trade terms, (b) represent valid and
binding obligations due to Katy, enforceable in accordance with their terms, and
(c) have been collected or are collectible in the ordinary course of business in
the aggregate recorded amounts thereof in accordance with their terms, except to
the extent reserved against and except for such lack of enforceability or
collectibility, individually or in the aggregate, as would not have a Material
Adverse Effect on the Katy Group. Schedule 3.5(b) lists any obligor which
---------------
together with all of its affiliates owed uncollected amounts to Katy or any
Subsidiary in an aggregate amount of $100,000 or more as of September 30, 2000.
All Accounts Payable which are due and owing have been or will be paid in full
in the ordinary course and, to the knowledge of any executive officer (within
the meaning of Rule 3b-7 under the Exchange Act) of Katy ("Katy's Knowledge"),
no third party has claimed otherwise, except for such claims as would not have a
Material Adverse Effect on the Katy Group. Schedule 3.5(c) sets forth all
---------------
Accounts Payable which
12
were individually in excess of $50,000 as of December 31, 2000 and which were
also more than thirty (30) days past due under their payment terms as of
December 31, 2000. Except as set forth on Schedule 3.5(d), all Inventory
---------------
consists of a quality and quantity usable and salable in the ordinary course of
business consistent with past practice, subject to normal and customary
allowances in the industry for spoilage, damage and outdated items. Except as
set forth on Schedule 3.5(d), all items included in the Inventory are the
---------------
property of Katy or a Subsidiary, as the case may be, free and clear of any
lien, have not been pledged as collateral, are not held on consignment from
others and conform in all material respects to all standards applicable to such
Inventory or its use or sale imposed by any law.
SECTION 3.6. Indebtedness; No Undisclosed Liabilities.
----------------------------------------
Schedule 3.6 lists all indebtedness of the Katy Group as of September 30,
------------
2000 for borrowed money or for the deferred purchase price of property or
services, directly or indirectly created, incurred or assumed or guaranteed by
Katy and its Subsidiaries or with respect to which Katy or any Subsidiary has
otherwise become directly or indirectly liable, including, without limitation,
all capital lease obligations. Neither Katy nor any Subsidiary has any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, except (a) liabilities or obligations reflected (i) in any of the
Katy SEC Reports, or (ii) on Schedule 3.6, (b) liabilities incurred after
------------
September 30, 2000 in the ordinary course of business consistent with past
practice, (c) the obligation to pay fees and expenses of Katy's attorneys and
accountants and of Bear Xxxxxxx & Co. Inc. in accordance with its agreement with
Katy dated January 8, 2001 relating to the provision of a fairness opinion and
(d) liabilities or obligations which would not have a Material Adverse Effect on
the Katy Group.
SECTION 3.7. [Reserved].
--------
SECTION 3.8. Customers and Suppliers.
-----------------------
Schedule 3.8 lists the top 25 customers and the top 25 suppliers of the
------------
Katy Group based on aggregate sales and purchases for each of (i) the twelve
months ended December 31, 1999 and (ii) the nine months ended September 30,
2000. Except as set forth on Schedule 3.8, to Katy's Knowledge, as of the date
------------
of this Agreement, no such customer or supplier of Katy or any Subsidiary is in
the process of or intends to terminate its business relationship or pricing
scheme with Katy or such Subsidiary, nor has any such customer or supplier
during the past twelve months substantially decreased, or threatened to
substantially decrease, its usage of Katy's or such Subsidiary's production or
its services or supplies to Katy or such Subsidiary, other than normal seasonal
variances in the ordinary course of business, and other than any such decreases
as would not, individually or in the aggregate, materially and adversely affect
the operating income of the Katy Group.
SECTION 3.9. No Violation of Law.
-------------------
None of the business or operations of Katy or any Subsidiary is being
conducted in violation of any law, ordinance or regulation of any governmental
body or authority except (a) as specifically
13
disclosed in the schedules hereto or in any of the Katy SEC Reports and (b) for
violations or possible violations which would not have, individually or in the
aggregate, a Material Adverse Effect on the Katy Group.
SECTION 3.10. Transactions with Affiliates.
----------------------------
For purposes of this Section 3.10, the term "Affiliate" shall mean (a) any
------------
person who is the beneficial owner of 5% or more of the voting securities of
Katy, (b) any director or officer of Katy or any Subsidiary, (c) any person,
firm or corporation that directly or indirectly controls, is controlled by or is
under common control with, Katy or any Subsidiary (other than any other member
of the Katy Group) and (d) any member of the immediate family of any of the
foregoing persons. Except as set forth on Schedule 3.10, or in the Katy SEC
-------------
Reports, since January 1, 1998 neither Katy nor any Subsidiary has in the
ordinary course of business or otherwise (a) purchased, leased or otherwise
acquired any property or assets or obtained any services (except with respect to
services rendered in the ordinary course of business as a director, officer or
employee of Katy or any Subsidiary) in return for consideration of more than
$60,000 in any 12 month period from any Affiliate, (b) sold, leased or otherwise
disposed of any property or assets or provided services (except with respect to
remuneration for services rendered in the ordinary course of business as a
director, officer or employee of Katy or any Subsidiary) in return for
consideration of more than $60,000 in any 12 month period to any Affiliate, (c)
entered into or modified in any manner any Contract with any Affiliate, or (d)
borrowed any money from, or made or forgiven any loan or advance to, any
Affiliate. Except as set forth in Schedule 3.10 or in the Katy SEC Reports, (i)
-------------
the Contracts of the Katy Group do not include any obligation or commitment in
excess of $60,000 in any 12 month period with any Affiliate (except with respect
to remuneration for services rendered in the ordinary course of business as a
director, officer or employee of Katy or any Subsidiary), (ii) the assets of the
Katy Group do not include any receivable or other obligation or commitment in
excess of $60,000 in any 12 month period from any Affiliate and (iii) the
liabilities of the Katy Group do not include any payable or other obligation or
commitment in excess of $60,000 in any 12 month period to or for any Affiliate
(except with respect to remuneration for services rendered in the ordinary
course of business as a director, officer or employee of Katy or any
Subsidiary). Except as set forth in Schedule 3.10, no officer or director of
-------------
Katy or any Subsidiary has any ownership interest in any property, real or
personal, tangible or intangible, including without limitation, inventions,
patents, trademarks or trade names, used in or pertaining to the businesses of
the Katy Group.
SECTION 3.11. [Reserved]
--------
SECTION 3.12. Environmental, Health and Safety Laws and Regulations.
-----------------------------------------------------
Except as set forth on Schedule 3.12, the Katy SEC Reports, or as would not
-------------
have a Material Adverse Effect on the Katy Group, Katy and its Subsidiaries (i)
have obtained or are in the process of obtaining (as specifically set forth in
Schedule 3.12) all applicable permits, licenses and other authorizations which
-------------
are required under foreign, federal, state or local laws relating to pollution
or
14
protection of the environment or to human health and safety, including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials or wastes into ambient
air, surface water, ground water or land or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes by such entity (or, to the extent Katy is so obligated, its
agents) ("Environmental, Health and Safety Laws"); (ii) are in compliance with
all terms and conditions of such required permits, licenses and authorizations,
and also are in compliance with all other applicable limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables required pursuant to applicable Environmental, Health and Safety Laws
or contained in any regulation, code, order, decree, judgment, notice or demand
letter issued, entered, promulgated or approved thereunder, and to Katy's
Knowledge, no proposed or scheduled changes in law will require expenditures in
excess of $500,000 to maintain compliance with the Environmental, Health and
Safety Laws at the Katy facilities in the next 12 months; (iii) have no
liability of any kind whatsoever, whether known or unknown, under any
Environmental, Health and Safety Laws, individually or in the aggregate, that
would have a Material Adverse Effect on the Katy Group; and (iv) represent that
no event, condition, circumstance, activity, practice, incident, action or plan
is reasonably likely to interfere with or prevent continued compliance with the
Environmental Health and Safety Laws or would give rise to any common law or
statutory liability, or otherwise form the basis of any claim, action, suit or
proceeding, based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling or Katy's
emission, discharge or release into the environment, of any pollutant,
contaminant, or hazardous or toxic material or waste, which liability, claim,
action, suit or proceeding, individually or in the aggregate, would have a
Material Adverse Effect on the Katy Group. Notwithstanding any of the
representations and warranties contained elsewhere in Article III, environmental
-----------
and health and safety matters shall be governed exclusively by this Section 3.12
------------
and by Section 3.22 with respect to Licenses required by Environmental, Health
------------
and Safety Laws.
SECTION 3.13. Employee Benefit Matters.
------------------------
(a) Schedule 3.13(a) sets forth and Katy has made available to Purchaser
----------------
copies of the governing documents, summary plan descriptions, returns, reports,
financial statements, actuarial reports and related employee communications of
the following kinds of employee benefit plans (individually, a "Katy Benefit
Plan," and collectively, the "Katy Benefit Plans") which are sponsored,
maintained or contributed to by Katy or any Subsidiary or any corporation,
trade, business or entity under common control with Katy within the meaning of
sections 414(b), (c), (m) or (o) of the Code (each, an "ERISA Affiliate") for
the benefit of the employees of Katy or any Subsidiary:
(i) each "employee benefit plan", as such term is defined in
section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (including, but not limited to, employee benefit plans
which are not subject to the provisions of ERISA); and
15
(ii) each policy or practice described in an employee handbook,
stock option plan, restricted stock plan, collective bargaining agreement,
cash or stock bonus plan or arrangement, incentive award plan or
arrangement, severance pay plan, policy, or agreement, deferred
compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment
agreement, and each other employee benefit plan, agreement, arrangement,
program, practice, or understanding which is not described in Section
-------
3.13(a)(i).
----------
(b) There has been made available to Purchaser, with respect to each
Katy Benefit Plan required to file such report and description, the most recent
report on Form 5500 and the summary plan description. There has been made
available to Purchaser with respect to each Katy Benefit Plan which is a defined
benefit plan subject to the minimum funding requirements of ERISA the most
recent actuarial valuation prepared by the actuaries for the plan.
(c) Except for the Katy Benefit Plans disclosed in Schedule 3.13(c),
----------------
Katy and the Subsidiaries do not contribute to or have an obligation to
contribute to any employee benefit plan that is subject to section 302 of ERISA,
section 412 of the Code, or Title IV of ERISA (including, without limitation, a
multiemployer plan within the meaning of section 3(37) of ERISA). Assets of any
single-employer qualified plan listed in Schedule 3.13(c) are at least equal to
----------------
liabilities accrued to the Closing Date as of the date of the most recently
audited financial statements of Katy and its Subsidiaries.
(d) No complete or partial withdrawal liability (within the meaning of
section 4201 of ERISA) with respect to any multiemployer plan (within the
meaning of section 3(37) of ERISA) has been incurred, which withdrawal liability
has not been satisfied and, to Katy's Knowledge, no liability is expected to be
incurred.
(e) Except as would not have, individually or in the aggregate, a
Material Adverse Effect on the Katy Group (excluding for purposes of applying
the foregoing standard of materiality the representation in clauses (A) and (B)
of subparagraph (vi) below, which shall not be subject to any standard of
materiality):
(i) Each Katy Benefit Plan conforms to and has been administered
and operated in compliance with its governing documents and applicable laws
and regulations whether domestic or foreign, including, where applicable,
ERISA and the Code, and neither Katy nor any of its Subsidiaries is in
default of its respective obligations under any Katy Benefit Plan, and, to
Katy's Knowledge, there have been no defaults or violations by any other
party to the Katy Benefit Plans;
(ii) Each Katy Benefit Plan intended to be qualified under section
401 of the Code (A) satisfies in form the requirements of such section
except to the extent amendments are not required by law to be made until a
date after the Closing Date, (B) has received a favorable determination
letter from the Internal Revenue Service regarding such qualified status,
(C) has
16
not, since receipt of the most recent favorable determination letter, been
amended, except for amendments for which the period for requesting a
favorable determination letter has not expired, and (D) has not been
operated in a way that would adversely affect its qualified status;
(iii) There are no actions, suits, or claims pending (other than
routine claims for benefits) or, to Katy's Knowledge, threatened against,
or with respect to, any of the Katy Benefit Plans or their assets;
(iv) No act, omission or transaction has occurred which would result
in imposition on Katy or any Subsidiary of (A) breach of fiduciary duty
liability damages under section 409 of ERISA; (B) a civil penalty assessed
pursuant to subsections (c), (i) or (1) of section 502 of ERISA; (C) a tax
imposed pursuant to Chapter 43 of Subtitle D of the Code; (D) a lien upon
property or rights under section 302 (f)(l)(A)and (B) of ERISA for failure
to make a required payment to a plan; or (E) the Pension Benefit Guaranty
Corporation instituting proceedings to terminate the plan;
(v) There is no matter pending (other than routine qualification
determination filings) with respect to any of the Katy Benefit Plans before
any governmental authority;
(vi) With respect to each Katy Benefit Plan, (A) no liability to the
Pension Benefit Guaranty Corporation has been incurred, which liability has
not been satisfied (other than for premiums not yet due), (B) no
accumulated funding deficiency, whether or not waived, within the meaning
of section 302 of ERISA or section 412 of the Code has been incurred, and
(C) no event has occurred, and, to Katy's Knowledge, there exists no
condition or set of circumstances in connection with which Katy or any
Subsidiary would reasonably, directly or indirectly, be expected to become
subject to any liability under ERISA, the Code or any applicable law except
liability for benefit claims and payments in the ordinary course; and
(vii) Except for the conversion of the Convertible Preferred Stock
into Common Shares, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (A) require
Katy or any Subsidiary to make payments of money or other property to, make
a larger contribution to, or pay greater, more accelerated or supplementary
benefits or provide other rights under, including, without limitation,
funding liabilities that are currently unfunded, any Katy Benefit Plan than
it otherwise would, whether or not some other subsequent action or event
(together with the Recapitalization) would be required to cause such
payment or provision to be triggered, or (B) create or give rise to any
additional vested rights or service credits under any Katy Benefit Plan.
(f) Except for the conversion of the Convertible Preferred Stock into
Common Shares, in connection with the consummation of the Recapitalization no
payments of money or other property, acceleration of benefits, or provisions of
other rights have or will be made hereunder, under any agreement contemplated
herein, or under the Katy Benefit Plans that would be reasonably likely to
17
result in imposition of sanctions or taxes imposed under sections 280G and 4999
of the Code, whether or not some other subsequent action or event would be
required to cause such payment, acceleration, or provision to be triggered.
(g) Except for the Katy Benefit Plans disclosed in Schedule 3.13(g), no
----------------
Katy Benefit Plan which is an employee welfare plan provides benefits (whether
or not insured) with respect to any current or former employee of Katy or its
Subsidiaries, which continue beyond their retirement or other termination of
service other than coverage mandated by section 4980 of the Code or sections
601-609 of ERISA or comparable provisions of state law.
SECTION 3.14. Absence of Certain Changes or Events.
------------------------------------
Since September 30, 2000, except as contemplated by this Agreement or
except as disclosed in the Katy SEC Reports or in this Agreement (including the
schedules hereto) and except as permitted pursuant to Section 5.1, Katy and the
-----------
Subsidiaries have conducted their businesses only in the ordinary and usual
course, and there has not been (i) any Material Adverse Effect on the Katy
Group; (ii) any material change by Katy or any Subsidiary in its accounting
methods, principles or practices other than as required by GAAP or applicable
law; (iii) any revaluation by Katy or any Subsidiary of any of their respective
assets, including, without limitation, writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course of
business; (iv) any entry by Katy or any Subsidiary into any material commitment
or transaction, other than in the ordinary course of business; (v) any
declaration, setting aside or payment of any dividends or distributions in
respect of Common Shares or any redemption, purchase or other acquisition of any
of its securities or any securities of Katy or any Subsidiary, except for
regular dividends not in excess of $0.075 per Common Share per quarter; (vi) any
damage, destruction or loss (whether or not covered by insurance) materially
adversely affecting the properties or business of Katy or any Subsidiary; (vii)
any increase in indebtedness for borrowed money other than an increase as a
result of indebtedness for borrowings incurred in the ordinary course of
business; (viii) any granting of a security interest in or lien on any material
property or assets of Katy or any Subsidiary, other than any such security
interest or lien permitted by the Amended and Restated Credit Agreement dated as
of December 11, 1998 among Katy, Bank of America National Trust and Savings
Association, La Salle National Bank, and the other parties named therein
(including, without limitation, such security interests or liens contemplated by
the definitions of "Perfection Date" and "Permitted Liens" under that
Agreement); or (ix) except as disclosed in Schedule 3.14, any increase in or
-------------
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other employee
benefit plan or any other increase in the compensation payable or to become
payable to any officers or key employees of Katy or any Subsidiary other than
those that are required under existing contractual arrangements and other than
increases in base salaries in the ordinary course of business.
18
SECTION 3.15. Investigations; Litigation.
--------------------------
Except as described in any of the Katy SEC Reports or as set forth in
Schedule 3.15, as of the date of this Agreement:
-------------
(a) to Katy's Knowledge, no investigation or review by any governmental
body or authority with respect to Katy or any Subsidiary is pending nor has any
governmental body or authority notified Katy or any Subsidiary in writing of an
intention to conduct the same; and
(b) there are no actions, suits or proceedings pending (or, to Katy's
Knowledge, threatened) against or affecting Katy or any Subsidiary, or any of
their respective properties, at law or in equity, before any federal, state,
local or foreign governmental body or authority.
With respect to each matter set forth on Schedule 3.15, such Schedule sets
-------------
forth a summary of the subject matter together with a description of action
taken by Katy or its Subsidiaries with respect thereto.
SECTION 3.16. Products.
--------
Except as set forth on Schedule 3.16, neither Katy nor any Subsidiary has
-------------
experienced product recall or warranty claims in excess of 2% of the aggregate
gross sales for such company in any of the past five years. Except as set forth
on Schedule 3.16, with regard to products and goods manufactured by Katy or any
-------------
Subsidiary prior to the Closing Date, there is no liability with regard to the
sale, purchase or consumption of such products or goods which will have a
Material Adverse Effect on the Katy Group and, to Katy's Knowledge, there are no
circumstances or events which are likely to give rise to such a liability.
SECTION 3.17. Securities Filings.
------------------
None of the information with respect to the Katy Group to be included in
any of the Offer Documents, the Schedule 14D-9, the Proxy Statement or any other
filings made with the SEC in connection with the Recapitalization (collectively,
the "Securities Filings") contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that no representation is made hereby
with respect to information supplied in writing by or on behalf of Purchaser or
any of the Purchaser Designees specifically for inclusion in the Securities
Filings.
SECTION 3.18. Tax Matters.
-----------
(a) (i) All Tax Returns required to be filed by or on behalf of Katy or any
of its Subsidiaries, and each affiliated, combined, consolidated or unitary
group of which Katy or any of its Subsidiaries is a member (a "Current Katy
Group"), or (ii) to Katy's Knowledge, all Tax Returns required to be filed on
behalf of each combined, consolidated or unitary tax group of which Katy or any
of its Subsidiaries has
19
been a member within ten years prior to the date hereof but is not currently a
member, but only insofar as any such Tax Return relates to a taxable period
which includes Katy or any of its Subsidiaries and which ends on a date within
the last ten years (a "Past Katy Group", together with Current Katy Groups, a
"Katy Affiliated Group") have been timely filed and are complete and accurate
except to the extent any failure to file or any inaccuracies in such filed Tax
Returns would not, individually or in the aggregate, have a Material Adverse
Effect on the Katy Group. All Taxes due and owing by Katy or any of its
Subsidiaries, any Current Katy Group or, to Katy's Knowledge, any Past Katy
Group have been accurately and timely paid, or are being contested in good
faith, and appropriate reserves therefor, determined in accordance with GAAP,
have been included in the financial statements referred to in Section 3.4,
-----------
except to the extent any failure to pay or reserve would not, individually or in
the aggregate, have a Material Adverse Effect on the Katy Group. There is no
audit examination, deficiency, refund litigation, proposed adjustment or matter
in controversy with respect to any Taxes due and owing by Katy, any Current Katy
Group or, to Katy's Knowledge, any Past Katy Group which would, individually or
in the aggregate, have a Material Adverse Effect on the Katy Group. All
assessments for Taxes due and owing by Katy, any Current Katy Group or, to
Katy's Knowledge, any Past Katy Group with respect to completed and settled
examinations or concluded litigation have been paid. As soon as practicable
after the public announcement of this Agreement, Katy will provide Purchaser
with written schedules of (i) the taxable years of Katy for which the statutes
of limitations with respect to federal income Taxes have not expired, and (ii)
with respect to federal income Taxes those years for which examinations have
been completed, those years for which examinations are presently being
conducted, and those years for which examinations have not yet been initiated.
Katy and each Subsidiary has complied with all rules and regulations relating to
the withholding of Taxes, except to the extent any such failure to comply would
not, individually or in the aggregate, have a Material Adverse Effect on the
Katy Group.
For purposes of this Agreement: (i) "Taxes" means any and all federal,
state, local, foreign or other taxes of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any taxing authority, including, without limitation,
taxes or other charges on or with respect to income, franchises, windfall or
other profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation,
or net worth, and taxes or other charges in the nature of excise, withholding,
ad valorem or value added, and (ii) "Tax Return" means any return, filing,
report or similar statement (including the attached schedules) required to be
filed with respect to any Tax, including, without limitation, any information
return, claim for refund, amended return or declaration of estimated Tax.
SECTION 3.19. Intellectual Property.
---------------------
"Intellectual Property" means foreign and domestic patents, patent
applications, designs, utility models, and all improvements and developments
relating thereto, trademarks (common law and registered), trademark registration
applications, service marks (common law and registered), service
20
xxxx registration applications, trade names, copyrights, copyright
registrations, copyright applications, domain names, domain registrations, trade
secrets, know-how, and other proprietary information. Katy or a Subsidiary owns,
or holds licenses or sublicenses for, or otherwise has the right to use, all of
the Intellectual Property used by Katy or such Subsidiary in the conduct of its
respective business as currently conducted, except where such failure to do so
would not, individually or in the aggregate, have a Material Adverse Effect on
the Katy Group. Except as set forth on Schedule 3.19, Schedule 3.19 includes all
------------- -------------
of the owned, issued, registered, licensed or sublicensed Intellectual Property
used by Katy or a Subsidiary in the conduct of their respective businesses as
currently conducted, except for such Intellectual Property that is not,
individually or in the aggregate, material to the Katy Group. Except as set
forth on Schedule 3.19, to Katy's Knowledge, neither Katy nor any Subsidiary is
-------------
currently in receipt of any written notice of infringement or written notice of
conflict with the asserted Intellectual Property rights of other persons in
connection with or relating to any Intellectual Property owned or held by such
persons, except, in each case, for matters that would not, individually or in
the aggregate, have a Material Adverse Effect on the Katy Group. Except as set
forth in Schedule 3.19, to Katy's Knowledge, no third party has infringed or
-------------
violated the Intellectual Property as to which Katy or a Subsidiary has rights
as listed on Schedule 3.19, except, in each case, for matters that would not,
-------------
individually or in the aggregate, have a Material Adverse Effect on the Katy
Group. Except as set forth on Schedule 3.19, neither the execution and delivery
-------------
of this Agreement nor the consummation of the transactions contemplated hereby
will cause any cancellation of or material change in any material license or
sublicense. held by Katy or any Subsidiary in connection with any Intellectual
Property.
SECTION 3.20. Severance Payments.
------------------
Except for the conversion of the Convertible Preferred Stock into Common
Shares, neither Katy nor any Subsidiary will owe a severance payment, change of
control payment, parachute payment or similar obligation to any of their
respective employees, officers or directors as a result of the Offer, the
Preferred Stock Purchase or the other transactions contemplated by this
Agreement, nor will any of such persons be entitled to severance payments or
other benefits (including without limitation any additional payments or benefits
supplementary to their regular compensation and benefits in effect immediately
prior to the date hereof) as a result of the Offer, the Preferred Stock Purchase
or the other transactions contemplated by this Agreement in the event of the
subsequent termination of their employment.
SECTION 3.21. Title to Properties.
-------------------
Schedule 3.21 lists all real property owned by the Katy Group with a value
-------------
of $500,000 or more and each lease of real property to which Katy or any
Subsidiary is a party with $ 500,000 or more still payable. Katy and its
Subsidiaries have good and marketable title to all of the assets and properties
reflected in the Reference Balance Sheet as being owned by the Katy Group (other
than any assets or properties (i) specified in the Reference Balance Sheet that
have been sold or otherwise disposed of since September 30, 2000 in the ordinary
course of business consistent with past practice or (ii) that are
21
not, individually or in the aggregate, material to Katy) free and clear of
encumbrances, security interests or liens, other than liens the existence of
which is set forth in Schedule 3.21 or is specifically reflected in the
-------------
Reference Balance Sheet, and other than any other encumbrances, security
interests or liens that do not exceed $100,000 in the aggregate. Katy and its
Subsidiaries hold under valid lease agreements all real and personal properties
reflected in the Reference Balance Sheet as being held under capitalized leases,
and all real and personal property that is subject to operating leases, and
enjoys peaceful and undisturbed possession of such properties under such leases,
other than (i) any properties as to which such leases have expired in accordance
with their terms without any liability of any party thereto since September 30,
2000 and (ii) any properties that, individually or in the aggregate, are not
material to Katy. Katy and the Subsidiaries have not received any written notice
of any adverse claim to the title (both fee and any leasehold) to any properties
owned or leased by them, other than any claims that, individually or in the
aggregate, would not have a Material Adverse Effect on the Katy Group.
SECTION 3.22. Licenses.
--------
Except as set forth in Schedule 3.22, all permits, licenses and other
-------------
authorizations issued by the federal government and any applicable state
agencies (the "Licenses") required for the operation of the businesses of Katy
and the Subsidiaries are in full force and effect, and there are no pending
modifications, amendments or revocation proceedings, except for such failure to
be so in effect and such modifications, amendments or proceedings as would not,
individually or in the aggregate, have a Material Adverse Effect on the Katy
Group. All fees due and payable to governmental authorities pursuant to the
rules governing the Licenses have been paid, and no event has occurred with
respect to the Licenses held by Katy and the Subsidiaries which, with the giving
of notice or the lapse of time or both, would constitute grounds for revocation
thereof, except for any such revocation as would not, individually or in the
aggregate, have a Material Adverse Effect on the Katy Group. Katy and the
Subsidiaries are in compliance in all material respects with the terms of their
respective Licenses, as applicable (except where any such failure so to comply
would not, individually or in the aggregate, have a Material Adverse Effect on
the Katy Group), and there is no condition, event or occurrence existing, nor is
there any proceeding being conducted of which Katy or any Subsidiary has
received notice, nor, to Katy's Knowledge, is there any proceeding threatened by
any governmental authority, which would cause the termination, suspension,
cancellation or nonrenewal of any of the Licenses, or the imposition of any
penalty or fine by any regulatory authority, except for such as would not,
individually or in the aggregate, have a Material Adverse Effect on the Katy
Group. No capital expenditures in excess of $500,000 are anticipated or foreseen
by Katy or its Subsidiaries in order to maintain compliance with any Licenses.
Katy and its Subsidiaries reasonably expect that all Licenses are fully
renewable, except for any such nonrenewal as would not, individually or in the
aggregate, have a Material Adverse Effect on the Katy Group.
22
SECTION 3.23. Insurance.
---------
The insurance coverage maintained by Katy and any of its Subsidiaries
is reasonably adequate for the operation of the business of Katy and the
Subsidiaries, and, except as set forth in Schedule 3.23, the transactions
-------------
contemplated hereby will not adversely affect such coverage.
SECTION 3.24. Material Contracts.
------------------
Schedule 3.24 sets forth in reasonable detail a list of all written and a
-------------
description of all oral contracts, agreements, leases, instruments or legally
binding contractual commitments ("Contracts") that are of a type described below
(collectively, the "Material Contracts"), other than Contracts set forth on
Schedules 3.10, 3.13 or 3.21 and Contracts entered into after the date hereof
-------------- ---- ----
not in violation of Section 5.1 hereof:
-----------
(i) Any Contract with a customer of Katy or any Subsidiary, or with any
entity that purchases goods or services from Katy or any Subsidiary, for
consideration payable in excess of $250,000 (other than standard inventory
purchase orders executed in the ordinary course of business);
(ii) any Contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $250,000;
(iii) any Contract for the purchase or lease of goods or services
(including, without limitation, equipment, materials, software, hardware,
supplies, merchandise, parts or other property, assets or services) requiring
aggregate future payments in excess of $250,000, other than standard inventory
purchase orders executed in the ordinary course of business;
(iv) any Contract relating to the borrowing of money or guaranty of
indebtedness (other than any Contracts that do not, individually or in the
aggregate, relate to the borrowing of money or guaranty of indebtedness totaling
more than $250,000);
(v) any collective bargaining or other arrangement with any labor
union;
(vi) any Contract granting a first refusal, first offer or similar
preferential right to purchase or acquire any of the capital stock or assets of
Katy or any Subsidiary;
(vii) any Contract limiting, restricting or prohibiting Katy or any
Subsidiary from conducting business anywhere in the United States or elsewhere
in the world or any Contract limiting the freedom of Katy or any Subsidiary to
engage in any line of business or to compete with any other person;
(viii) any joint venture or partnership Contract;
(ix) Contracts requiring, or reasonably likely to require, future
payments of an amount greater than $250,000; and
23
(x) any employment Contract, severance agreement or other similar binding
agreement or policy with any employee of Katy or any Subsidiary other than any
such employment contracts providing for a base salary of less than $100,000 or
any such severance agreements or other such binding agreements or policies
providing for payments of less than $100,000 in the aggregate.
Katy has made available to Purchaser a true and complete copy of each
written Material Contract (and a written description of each oral Material
Contract), including all amendments or other modifications thereto. Except as
set forth on Schedule 3.24, each Material Contract is, assuming it is a valid
-------------
and binding contract of the other parties to it, a valid and legally binding
obligation of Katy or a Subsidiary, as the case may be, enforceable against such
entity in accordance with its terms, except insofar as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally or by general equitable
principles, whether applied in a proceeding at law or in equity. Except as set
forth on Schedule 3.24, Katy has performed in all material respects obligations
-------------
required to be performed by it under the Material Contracts and, as of the date
of this Agreement, is not in breach or default thereunder. Except as set forth
on Schedule 3.24, neither Katy nor any Subsidiary has received notice of
-------------
termination with respect to any Material Contract.
SECTION 3.25. Rights Agreement.
----------------
Katy and the Board of Directors of Katy have taken all necessary action
including, without limitation, all action required to be taken by Katy to amend
the Rights Agreement with respect to all outstanding Rights issued pursuant to
the Rights Agreement, if necessary, to (a) render the Rights Agreement
inapplicable with respect to the Voting Agreement, the Offer, the Preferred
Stock Purchase, any conversion of the Convertible Preferred Stock, this
Agreement and the other transactions contemplated hereby and ensure that they
thereby do not trigger Rights exercisable under the Rights Agreement, (b) ensure
that (i) Purchaser shall not be deemed an Acquiring Person (as defined in the
Rights Agreement) and (ii) the provisions of the Rights Agreement, including the
occurrence of a Distribution Date (as defined in the Rights Agreement) or the
Stock Acquisition Date (as defined in the Rights Agreement), are not and shall
not be triggered by reason of the execution and delivery of this Agreement, the
announcement or consummation of the Offer, the conversion of the Convertible
Preferred Stock, the authorization and consummation of the Preferred Stock
Purchase or the consummation of any of the other transactions contemplated by
this Agreement and the Voting Agreement, and (c) ensure that Katy will have no
obligations under the Rights or the Rights Agreement in connection with the
Offer, the Preferred Stock Purchase and the conversion of the Convertible
Preferred Stock, and the holders of Katy Common Stock will have no rights under
the Rights or the Rights Agreement in connection with the Offer, the Preferred
Stock Purchase and the conversion of the Convertible Preferred Stock. Katy has
made available to Purchaser a complete and correct copy of the Rights Agreement
as amended and supplemented to the date of this Agreement.
24
ARTICLE IV
Representations and Warranties of Purchaser
-------------------------------------------
Purchaser represents and warrants to Katy that:
SECTION 4.1. Organization, Qualification, Etc.
--------------------------------
Purchaser is a limited liability company duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the limited
liability company power and authority to own its properties and assets and to
carry on its business as it is now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the ownership of
its properties or the conduct of its business requires such qualification,
except for jurisdictions in which such failure to be so qualified or to be in
good standing would not, individually or in the aggregate, have a Material
Adverse Effect on Purchaser. The copy of Purchaser's Certificate of Formation,
which has been delivered to Katy is complete and correct and in full force and
effect as of the date hereof. A complete and correct copy of the Limited
Liability Company Agreement will be delivered to Katy promptly after the date
hereof. Purchaser was formed solely for the purpose of engaging in the
Recapitalization, and, except for obligations or liabilities and activities
contemplated by this Agreement, Purchaser has, and through the closing of the
Offer and the Preferred Stock Purchase shall not have, incurred any obligation
or liability or engaged in any business activity of any kind.
SECTION 4.2. Corporate Authority Relative to this Agreement; No
--------------------------------------------------
Violation.
---------
Purchaser has the limited liability company power and authority to enter
into this Agreement, to carry out its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by the Board of Directors of Purchaser, and no other
limited liability company proceedings on the part of Purchaser are necessary to
authorize this Agreement and the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Purchaser and,
assuming this Agreement constitutes a valid and binding Agreement of the other
party hereto, this Agreement constitutes a valid and binding agreement of
Purchaser, enforceable against Purchaser in accordance with its terms, except
insofar as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by general equitable principles, whether applied in a proceeding
at law or in equity. Purchaser is not subject to or obligated under any
provision of its Certificate of Formation or Limited Liability Company Agreement
or any contract provision or any license, franchise or permit, or subject to any
law, order or decree, that would be breached or violated by its execution or
performance of this Agreement or the consummation of the transactions
contemplated hereby, except for any breaches or violations which would not,
individually or in the aggregate, have a Material Adverse Effect on Purchaser.
Other than in connection with or in compliance with the provisions of Delaware
law, the
25
Exchange Act and the securities or blue sky laws of the various states
(collectively, the "Purchaser Required Approvals"), no authorization, consent or
approval of, or filing with, any governmental body or authority in the United
States of America is necessary for the consummation by Purchaser of the
Recapitalization.
SECTION 4.3. Litigation.
----------
There are no claims, suits, actions or proceedings pending, or, to the
knowledge of Purchaser, threatened against, relating to or affecting Purchaser
or any of its subsidiaries before any court, governmental department,
commission, agency, instrumentality or authority or any arbitrator that seek to
restrain or enjoin the consummation of the Offer or the Preferred Stock
Purchase. Neither Purchaser nor any of its subsidiaries is subject to any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator,
which prohibits or restricts the consummation of the Recapitalization.
SECTION 4.4. Ownership of Katy Stock.
-----------------------
Except as contemplated by this Agreement, as of the date of this Agreement
neither Purchaser nor any affiliate or associate (as such terms are defined
under the Exchange Act) of Purchaser, other than Xxxxxxx X. Xxxxxxx, a director
of Katy, beneficially owns, directly or indirectly, or is party to any
agreement, arrangement or understanding with respect to acquiring, holding,
voting or disposing of, any Common Shares or other capital stock of Katy.
SECTION 4.5. No Required Vote of Purchaser Shareholders.
------------------------------------------
No vote of the members of Purchaser is required by law or the Certificate
of Formation of Purchaser or otherwise in order for Purchaser to consummate the
Preferred Stock Purchase and the transactions contemplated hereby.
SECTION 4.6. Securities Filings.
------------------
None of the information with respect to the Purchaser to be included in any
of the Offer Documents or any other filings made with the SEC in connection with
the transactions contemplated by this Agreement (collectively, the "Purchaser
Securities Filings") contains or will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation is
made hereby with respect to information supplied in writing by Katy or any
affiliate of Katy specifically for inclusion in Purchaser Securities Filings.
SECTION 4.7. Loan Commitments.
----------------
The Purchaser has received a letter dated March 27, 2001 from Kohlberg
Investors IV, L.P. and a letter dated March 27, 2001 from Bankers Trust Company,
true and complete copies of which
26
have been provided to Katy, committing to provide to Purchaser or to Katy, upon
the terms and subject to the conditions set forth in those letters, up to an
aggregate of two hundred ten million dollars ($210,000,000) in financing for the
Recapitalization and for ongoing general corporate purposes of Katy. Such
commitment letters are in full force and effect subject to the terms and
conditions set forth therein and have not been amended or terminated as of the
date of this Agreement.
SECTION 4.8. Purchase for Investment.
-----------------------
The Purchaser is acquiring the Convertible Preferred Stock for investment
and not with a view toward any resale or distribution thereof except in
compliance with the Securities Act.
ARTICLE V
Covenants and Agreements
------------------------
It is further agreed as follows:
SECTION 5.1. Conduct of Business by Katy and the Subsidiaries.
------------------------------------------------
During the period from the date of this Agreement and continuing until the
earlier of the Closing Date or the date, if any, on which this Agreement is
earlier terminated pursuant to Section 7.1 (the "Termination Date"), and except
-----------
as set forth in Schedule 5.1 or as may be agreed to by the other party hereto in
------------
writing or as may be expressly permitted pursuant to this Agreement, Katy and
each Subsidiary:
(i) shall conduct its operations according to the ordinary and usual
course of business in substantially the same manner as heretofore conducted;
(ii) shall use commercially reasonable efforts to preserve intact its
business organization and goodwill, keep available the services of its officers
and employees as a group, subject to changes in the ordinary course, and
maintain satisfactory relationships with suppliers, distributors, customers and
others having business relationships with the Katy Group;
(iii) shall confer at such times as Purchaser may reasonably request with
one or more representatives of Purchaser to report operational matters and the
status of ongoing operations;
(iv) shall notify Purchaser of any emergency or other change in the normal
course of any of the respective businesses of Katy and the Subsidiaries or in
the operation of the respective properties of Katy and the Subsidiaries and of
any complaints, investigations or hearings (or communications indicating that
the same may be contemplated) of any governmental body or authority if such
emergency, change, complaint, investigation or hearing would have a Material
Adverse Effect on the Katy Group, except with the approval of Purchaser, such
approval not to be unreasonably withheld;
27
(v) shall not authorize or pay any dividends on or make any
distribution with respect to its Common Shares, except for regular dividends not
in excess of $0.075 per Common Share per quarter;
(vi) shall not enter into or amend any employment, severance or similar
agreements or arrangements with its respective directors or executive officers,
except with the approval of Purchaser, such approval not to be unreasonably
withheld;
(vii) shall not, except as otherwise permitted hereunder, authorize,
propose or announce an intention to authorize or propose, or enter into an
agreement with respect to, any merger, consolidation or business combination,
or, other than in the ordinary course of business, any acquisition of any
material assets or securities, any disposition of any material amount of assets
or securities (other than the Preferred Stock Purchase) or any release or
relinquishment of any contract rights;
(viii) shall not propose or adopt any amendments to its Certificate of
Incorporation, By-laws or the Rights Agreement (other than the authorization of
the Convertible Preferred Stock or as otherwise contemplated by this Agreement);
(ix) shall not issue any Common Shares (other than Common Shares issued
pursuant to the exercise of Options previously granted under the Katy Stock
Option Plans), or effect any stock split or otherwise change its capitalization
(other than the authorization of the Convertible Preferred Stock) as it existed
on the date hereof, other than as specifically permitted by this Agreement;
(x) shall not, except as specifically permitted by this Agreement,
grant, confer or award (A) any options, warrants, conversion rights or other
rights, not existing on the date hereof, to acquire any Common Shares (other
than in connection with the issuance of the Convertible Preferred Stock) or (B)
any other awards under the Katy Stock Option Plans;
(xi) shall not purchase or redeem any Common Shares;
(xii) shall not materially amend the terms of its respective employee
benefit plans, programs or arrangements or any severance or similar agreements
or arrangements in existence on the date hereof, except as may be required by
applicable law, or adopt any new employee benefit plans, programs or
arrangements or any severance or similar agreements or arrangements except as
contemplated by this Section 5.1 or Section 5.4;
----------- -----------
(xiii) shall not enter into any collective bargaining agreement which
contains terms and conditions which cause, or with the passage of time would
cause, a Material Adverse Effect on the Katy Group including, without
limitation, entering into any collective bargaining agreement which contains a
successorship provision or any provision which requires a purchaser to assume
the collective bargaining agreement;
28
(xiv) shall not enter into any material loan agreement except for letters
of credit in the ordinary course of business;
(xv) shall not make any Tax election or settle or compromise any
material Tax liability other than in the ordinary and usual course of business
consistent with past practice;
(xvi) shall not agree, in writing or otherwise, to take any of the
foregoing actions or take any action which would make any representation or
warranty in Article III hereof untrue or incorrect;
-----------
(xvii) shall not grant, confer or award any monetary or non-monetary
bonus;
(xviii) shall not settle, compromise or otherwise terminate any material
litigation, claim or other settlement negotiation except with the approval of
Purchaser, such approval not to be unreasonably withheld; and
(xix) shall not fail to maintain insurance under substantially the same
terms and conditions as it currently maintains.
If Katy wishes to seek Purchaser's consent to take action otherwise
prohibited by this Section 5.1, Katy shall give notice to Purchaser pursuant to
-----------
Section 8.5 and Purchaser shall notify Katy within three (3) Business Days
-----------
whether it will grant such consent. Failure so to notify Katy shall be deemed to
be consent by Purchaser, but such consent shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other action Katy proposes to take
that is governed by this Section 5.1.
-----------
SECTION 5.2. Investigation.
-------------
Subject to appropriate confidentiality agreements and reasonable notice
provided to Katy in advance, Katy shall, and shall cause the Subsidiaries to,
afford to Purchaser and to Purchaser's officers, employees, accountants, counsel
and other authorized representatives reasonable access, throughout the period
prior to the earlier of the Closing Date or the Termination Date, to their
respective plants, properties, contracts, commitments, books, and records
(including but not limited to Tax Returns) and any report, schedule or other
document filed or received pursuant to the requirements of federal or state
securities laws and shall use its reasonable best efforts to cause their
respective representatives to furnish promptly to one another such additional
financial and operating data and other information as Purchaser or its duly
authorized representatives may from time to time reasonably request, subject to
compliance with third party confidentiality obligations and as may be required
to maintain any material attorney-client privilege. The terms and conditions of
the Confidentiality Agreement, dated October 10, 2000, between Katy and Kohlberg
& Company, LLC (the "Confidentiality Agreement") shall apply to information
obtained pursuant to this Section 5.2 with references to Kohlberg & Company, LLC
-----------
being deemed to be references to Purchaser.
29
SECTION 5.3. Cooperation.
-----------
Katy and Purchaser shall together, or pursuant to an allocation of
responsibility to be agreed upon between them:
(a) prepare and file with the SEC as soon as is reasonably practicable
a proxy statement, and shall use their reasonable best efforts to have the proxy
statement cleared by the SEC under the Exchange Act;
(b) as soon as is reasonably practicable take all such action as may be
required under state blue sky or federal or state securities laws in connection
with the transactions contemplated by this Agreement; and
(c) cooperate with one another in order to lift any injunctions or
remove any other impediment to the consummation of the transactions contemplated
herein.
SECTION 5.4. Employee Benefit Plans
----------------------
Subject to applicable law and obligations under collective bargaining
agreements, for a period of not less than twelve months immediately following
the Closing Date, the compensation, benefits and coverage provided to those
individuals who continue to be employees of Katy or its Subsidiaries (the
"Continuing Katy Employees") pursuant to employee benefit plans or arrangements
maintained by Katy or its Subsidiaries shall be substantially comparable in the
aggregate to those provided to such employees immediately prior to the Closing
Date (it being understood that, after the Closing Date, (i) Options need not be
granted under any Katy Benefit Plan, (ii) Katy and its Subsidiaries may enforce
the employment agreements by which Katy or any Subsidiary is a party in
accordance with their respective terms, including, without limitation, any right
to amend, modify, suspend, revoke or terminate such employment agreements, and
(iii) this Section 5.4 shall not give any employee a right to continued
-----------
employment with Katy or its Subsidiaries). Notwithstanding the foregoing (i) any
Katy Benefit Plan that provides as of the date hereof for a continuation period
longer than twelve months shall be honored by Katy or any of its Subsidiaries;
and (ii) Purchaser and Katy shall use their reasonable best efforts to implement
the adjustments to the employment arrangements reflected in the management term
sheet agreed to between the parties prior to the date hereof, effective as of
the Closing.
SECTION 5.5. Filings; Other Action.
---------------------
Subject to the terms and conditions provided herein and subject to the
fiduciary duties of the directors of Katy (as determined by such directors in
good faith after consultation with counsel), Katy and Purchaser shall use
reasonable efforts to (i) cooperate with one another in (A) determining whether
any filings are required to be made with, or consents, permits, authorizations
or approvals are required to be obtained from, any third party, the United
States government or any agencies, departments or instrumentalities thereof or
other governmental or regulatory bodies or authorities of federal, state, local
30
and foreign jurisdictions in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (B)
timely making all such filings and timely seeking all such consents, permits,
authorizations or approvals, and (ii) take, or cause to be taken all other
actions and do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective the transactions contemplated hereby,
including, without limitation, taking all such further action as reasonably may
be necessary to resolve such objections, if any, as the Federal Trade
Commission, the Antitrust Division of the Department of Justice, state antitrust
enforcement authorities or competition authorities of any other nation or other
jurisdiction or any other person may assert under relevant antitrust or
competition laws with respect to the transactions contemplated hereby.
SECTION 5.6. [Reserved].
----------
SECTION 5.7. Anti-takeover Statute.
---------------------
If any "fair price", "moratorium", "control share acquisition" or other
form of anti-takeover statute or regulation shall become applicable to the
transactions contemplated hereby, each of Katy and Purchaser and the members of
their respective Boards of Directors shall grant such approvals and take such
actions as are reasonably necessary so that the transactions contemplated hereby
may be consummated as promptly as practicable on the terms contemplated hereby
and otherwise act to eliminate or minimize the effects of such statute or
regulation on the transactions contemplated hereby.
SECTION 5.8. No Solicitation by Katy.
-----------------------
(a) Katy shall not, nor shall it permit any of the Subsidiaries to, nor
shall it authorize or permit any of its directors, officers or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or encourage
(including, without limitation, by way of furnishing information or by taking
any action which would make the Rights Agreement inapplicable to any Katy
Takeover Proposal (as defined below) other than the Offer and the Preferred
Stock Purchase), or take any other action designed to facilitate, any inquiries
or the making of any proposal which constitutes any Katy Takeover Proposal or
(ii) participate in any discussions or negotiations regarding any Katy Takeover
Proposal, in each case without the prior written consent of the Purchaser;
provided that prior to the acceptance for payment of Offer Shares pursuant to
the Offer, in response to an unsolicited Katy Takeover Proposal that did not
result from the breach of this Section 5.8, following delivery to Purchaser of
-----------
notice of the Katy Takeover Proposal in compliance with its obligations under
Section 5.8(c) hereof, Xxxx xxx participate in discussions or negotiations with
--------------
or furnish information (pursuant to a confidentiality agreement with customary
terms) to any third party which makes a bona fide written Katy Takeover Proposal
if (A) a majority of Katy's Board of Directors determines in good faith (after
consultation with an independent, nationally recognized investment bank) that
taking such action would be reasonably likely to lead to the delivery to Katy of
a Superior Proposal and (B) a majority of Katy's Board of Directors determines
in good faith (after consultation with outside legal
31
counsel) that failure to take such actions would not be consistent with the
fiduciary duties of the directors under applicable law. For purposes of this
Agreement, "Katy Takeover Proposal" means any inquiry, proposal or offer from
any person relating to any direct or indirect acquisition or purchase of a
business that constitutes 25% or more of the net revenues, net income or assets
of Katy and its Subsidiaries, taken as a whole, or 25% or more of any class of
equity securities of Katy (other than purchases made without the prior
authorization or approval of Katy), any tender offer or exchange offer that if
consummated would result in any person beneficially owning 25% or more of any
class of equity securities of Katy, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Katy, other than the Recapitalization. "Superior Proposal" means a
bona fide written Katy Takeover Proposal made by a third party to purchase or
otherwise acquire more than 50% of the outstanding equity securities of Katy
pursuant to a tender offer, exchange offer, merger, recapitalization or other
business combination or similar transaction on terms which a majority of Katy's
Board of Directors determines in good faith (after consultation with an
independent, nationally recognized investment bank) to be superior to Katy's
shareholders (in their capacity as shareholders) from a financial point of view
(taking into account, among other things, the length of time necessary to
complete the proposed transaction, the risk of non-completion, all legal,
financial, regulatory and other aspects of the proposal, and the identity of the
offeror) as compared to the transactions contemplated hereby (including any
alternative proposed by Purchaser pursuant to Section 7.1(h) in response to such
--------------
Katy Takeover Proposal), which is reasonably capable of being consummated.
(b) Neither the Board of Directors of Katy nor any committee thereof shall
(i) withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Purchaser, the approval or recommendation by such Board of Directors
or such committee of or with respect to the Offer, the Preferred Stock Purchase
or this Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any Katy Takeover Proposal, or (iii) cause Katy to enter into any
letter of intent, agreement in principle, acquisition agreement or other similar
agreement (each, a "Katy Acquisition Agreement") related to any Katy Takeover
Proposal. Nothing in the foregoing sentence shall prevent Katy, its Board of
Directors, or a committee, from (A) complying with the requirements of rule 14e-
2 and rule 14d-9 under the Exchange Act, (B) making such disclosure to
stockholders or otherwise which the Board of Directors after consultation with
counsel, concludes is necessary under applicable law or the rules of the New
York Stock Exchange or (C) withdrawing or modifying an approval or
recommendation of or with respect to the Offer, the Preferred Stock Purchase or
this Agreement, or approving or recommending a Katy Takeover Proposal from a
third party or causing Katy to enter into a Katy Acquisition Agreement, if the
Board of Directors of Katy after consultation with outside legal counsel,
determines that not doing so would not be consistent with the fiduciary
obligations of the directors under applicable law.
(c) In addition to the obligations of Katy set forth in paragraphs (a)
and (b) of this Section 5.8, Katy shall promptly advise Purchaser orally and in
-----------
writing of any request for information or of any Katy Takeover Proposal, the
material terms and conditions of such request or Katy Takeover
32
Proposal and the identity of the person making such request or Katy Takeover
Proposal. Katy will keep Purchaser reasonably informed of the status and details
(including amendments or proposed amendments) of any such request or Katy
Takeover Proposal on a daily basis or more frequently as may be reasonably
requested by Purchaser.
SECTION 5.9. Rights Agreement.
----------------
Katy shall not, unless required to do so by a court of competent
jurisdiction, (i) redeem the Rights, (ii) amend (other than to delay the
Distribution Date and the Stock Acquisition Date (as such terms are defined
therein) or as required to comply with Section 1.3(a)(iv) hereof) or terminate
------------------
the Rights Agreement prior to the Closing Date without the consent of Purchaser,
or (iii) take any action which would allow any Person (as such term is defined
in the Rights Agreement) other than Purchaser and the Agreement Shareholders to
be the Beneficial Owner (as such term is defined in the Rights Agreement) of 15%
or more of the Katy Common Stock without causing a Distribution Date (as such
term is defined in the Rights Agreement) or a Triggering Event (as such term is
defined in the Rights Agreement) to occur.
SECTION 5.10. Public Announcements.
--------------------
Except as may be required by applicable law, no party hereto shall make any
public announcements or otherwise communicate with any news media or any other
party with respect to this Agreement or any of the transactions contemplated
hereby without prior consultation with the other party as to the timing and
contents of any such announcement or communications; provided, however, that
nothing contained herein shall prevent any party from (i) promptly making all
filings with governmental authorities or disclosures by the stock exchange on
which such party's capital stock is listed, as may, in its judgment, be required
or advisable in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby or (ii) disclosing the
terms of this Agreement to such party's legal counsel, financial advisors or
accountants in furtherance of the Recapitalization.
SECTION 5.11. Indemnification of Directors and Officers.
-----------------------------------------
(a) Purchaser agrees that the indemnification obligations set forth in
Katy's Certificate of Incorporation or By-laws, in each case as of the date of
this Agreement, shall survive the consummation of the Recapitalization and shall
not be amended, repealed or otherwise modified for a period of six years after
the Closing Date in any manner that would adversely affect the rights thereunder
of the individuals who on or prior to the Closing Date were directors, officers,
employees or agents of Katy or its Subsidiaries.
(b) For six years from the Closing Date, Purchaser agrees that Katy
will provide to the directors and officers of Katy as of the date of this
Agreement liability insurance protection of the same kind and scope as that
provided by Katy's directors' and officers' liability insurance policies (copies
of
33
which have been made available to Purchaser), with respect to claims arising
from facts or events that occurred prior to the Closing Date; provided, however,
that in no event shall Katy be required to expend more than 200% of the amount
currently expended by Katy (the "Insurance Amount") to maintain or procure its
current directors and officers liability insurance coverage; provided, further,
that if Katy is unable to maintain or obtain the insurance called for by this
Section 5.11, Katy shall use its best efforts to obtain as much comparable
------------
insurance as available for the Insurance Amount.
(c) In the event Purchaser or Katy or any of their respective successors
or assigns (i) consolidates with or merges into any other person or shall not be
the continuing or surviving corporation or entity in such consolidation or
merger or (ii) transfers all or substantially all its properties and assets to
any person, then, and in each case, proper provision shall be made so that the
successors and assigns of Purchaser or Katy, as the case may be, honor the
indemnification obligations set forth in this Section 5.11.
------------
(d) Purchaser agrees that the obligations of Katy under this Section
-------
5.11 shall not be terminated or modified in such a manner as to adversely affect
----
any director, officer, employee, agent or other person to whom this Section 5.11
------------
applies without the consent of such affected director, officer, employee, agent
or other person (it being expressly agreed that each such director, officer,
employee, agent or other person to whom this Section 5.11 applies shall be
------------
third-party beneficiaries of this Section 5.11).
------------
SECTION 5.12. Additional Reports.
------------------
Katy shall furnish to Purchaser copies of any reports of the type referred
to in Section 3.4 which it files with the SEC on or after the date hereof. Katy
-----------
represents and warrants that as of the respective dates thereof, such reports
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statement
therein, in light of the circumstances under which they were made, not
misleading. Any unaudited consolidated interim financial statements included in
such reports (including any related notes and schedules) will fairly present the
financial position of Katy as of the dates thereof and the results of operations
and changes in financial position or other information included therein for the
periods or as of the date then ended (subject, where appropriate, to normal
year-end adjustments), in each case in accordance with past practice and GAAP
consistently applied during the periods involved (except as otherwise disclosed
in the notes thereto).
SECTION 5.13. Update Disclosure; Breaches.
---------------------------
From and after the date of this Agreement until the Closing Date, each
party hereto shall promptly notify the other party hereto in writing of (i) the
occurrence, or non-occurrence, of any event that would be likely to cause any
condition to the obligations of any party to effect the Offer, the Preferred
Stock Purchase and the other transactions contemplated by this Agreement not to
be satisfied, or (ii) the failure of Katy or Purchaser, as the case may be, to
comply with or satisfy any
34
covenant, condition or agreement to be complied with or satisfied by it pursuant
to this Agreement which would be likely to result in any condition to the
obligations of any party to effect the Offer, the Preferred Stock Purchase and
the other transactions contemplated by this Agreement not to be satisfied;
provided, however, that the delivery of any notice pursuant to this Section 5.13
------------
shall not cure any breach of any representations or warranty requiring
disclosure of such matter prior to the date of this Agreement or otherwise limit
or affect the remedies available hereunder to the party receiving such notice.
SECTION 5.14. Corporate Governance.
--------------------
(a) Purchaser shall have the right to nominate for election at the
Shareholder Meeting, and, so long as Purchaser owns Convertible Preferred Stock,
at any subsequent annual or special meeting of the shareholders of Katy at which
an election for members of Katy's Board of Directors is held, a number of
Purchaser Designees such that, after the election, Purchaser Designees represent
a simple majority of Katy's Board of Directors, subject to approval by a vote of
a majority of the holders of Common Shares present in person or by proxy and
voting at such meeting.
(b) All directors elected at the Shareholder Meeting shall be
classified, with respect to the time for which they severally hold office, into
two classes, one class comprising the four (4) directors who are not Purchaser
Designees to be initially elected for a one-year term expiring at the annual
meeting of Katy's shareholders to be held in 2002, and a second class comprising
the five (5) Purchaser Designees to be elected initially for a two-year term
expiring at the annual meeting of Katy's shareholders to be held in 2003, with
the directors in each class to hold office until their respective successors are
duly elected and qualified. At each succeeding annual meeting of Katy's
shareholders, directors elected to succeed those directors whose terms then
expire shall be elected for a term of office to expire at the second succeeding
annual meeting of shareholders after such election. Katy shall amend its By-Laws
to reduce the number of directors constituting the whole board of Katy to nine
(9) and, so long as Purchaser owns Convertible Preferred Stock, shall not
subsequently increase the size of its Board of Directors, unless at the time of
such increase Purchaser has been afforded the opportunity to nominate the number
of additional directors necessary, together with incumbent directors nominated
by Purchaser, to constitute a simple majority of Katy's Board of Directors.
(c) Purchaser shall not, directly or indirectly (including through
any Person who is an "affiliate" of Purchaser within the meaning of Rule 405
under the Securities Act ("Purchaser Affiliate")), in any transaction or series
of related transactions, sell, transfer or otherwise dispose of more than 20% of
the Katy Common Stock (on a fully diluted basis, including for such purpose the
Common Shares issuable upon the conversion of Convertible Preferred Stock),
unless all holders of Katy Common Stock other than Purchaser and any Purchaser
Affiliate (the "Other Holders") have the right to participate in such sale,
transfer or other disposition on the same terms and conditions and for the same
consideration per Common Share or Common Share equivalent on a pro rata basis.
In connection with
35
any merger, consolidation or other business combination involving Katy in which
Katy is not the surviving corporation, the Other Holders shall receive the same
consideration per Common Share or Common Share equivalent as that received by
Purchaser.
(d) All fees paid by Katy to Purchaser or to any Purchaser Affiliate
and any transactions between Katy and Purchaser or any Purchaser Affiliate shall
be subject to approval of the members of Katy's Board of Directors who are not
Purchaser Designees or Purchaser Affiliates (the "Other Directors").
(e) Prior to the Closing, the By-Laws of Katy shall be amended to
reflect the restrictions set forth in paragraphs (b) through (d) of this Section
-------
5.14 and to require that any amendment to the By-Laws of Katy modifying the
----
terms set forth in paragraphs (a) through (d) of this Section 5.14 shall be
------------
subject to approval by a majority of the Other Directors and by a majority of
the Other Holders.
SECTION 5.15. Registration Rights.
-------------------
Purchaser shall have registration rights with respect to the Common
Shares purchased pursuant to the Offer and the Common Shares issued upon
conversion of the Convertible Preferred Stock (collectively, the "Registrable
Securities") on the terms and conditions set forth in Annex II.
--------
ARTICLE VI
Conditions to Closing
---------------------
SECTION 6.1. Conditions to Each Party's Obligation to Close.
----------------------------------------------
The respective obligations of each party to consummate the
Recapitalization shall be subject to the fulfillment on or prior to the Closing
Date of the following conditions:
(a) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
court or other tribunal or governmental body or authority which prohibits the
consummation of the Recapitalization substantially on the terms contemplated
hereby. In the event any order, decree or injunction shall have been issued,
each party shall use its reasonable efforts to remove any such order, decree or
injunction.
(b) All Katy Required Approvals and Purchaser Required Approvals
shall have been obtained, except where the failure to obtain such other Katy
Required Approvals and Purchaser Required Approvals would not have a Material
Adverse Effect on the Katy Group or Purchaser, as the case may be.
36
SECTION 6.2. Conditions to Obligations of Katy to Close.
------------------------------------------
The obligation of Katy to consummate the Recapitalization is further
subject to the conditions that (a) the representations and warranties of
Purchaser contained herein shall be true and correct as of the Closing Date with
the same effect as though made as of the Closing Date except (i) for changes
specifically permitted by the terms of this Agreement, (ii) for the accuracy of
representations and warranties that by their terms speak as of the date of this
Agreement or some other date, which will be determined as of such date and (iii)
where any such failure of the representations and warranties in the aggregate to
be true and correct in all respects would not have a Material Adverse Effect on
Purchaser or on the Katy Group, (b) Purchaser shall have performed in all
material respects all obligations and complied with all covenants required by
this Agreement to be performed or complied with by it prior to the Closing Date,
(c) Purchaser shall have delivered to Katy the Preferred Purchase Price for the
Convertible Preferred Stock as set forth in Section 2.1, (d) Purchaser shall
-----------
have delivered to Katy a certificate, dated the Closing Date and signed by an
executive officer, certifying to the effects set forth in clauses (a) and (b)
above and (e) Purchaser's counsel shall have delivered to Katy a legal opinion
in the form set forth on Schedule 6.2.
------------
SECTION 6.3. Conditions to Obligations of Purchaser to Close.
-----------------------------------------------
The obligation of Purchaser to consummate the Recapitalization is further
subject to the conditions that (a) the Purchaser Closing Conditions have been
satisfied or, to the extent not satisfied, waived by Purchaser, provided that
Purchaser will not waive the Purchaser Closing Condition set forth under
subparagraph (o) of Annex I without Katy's consent (such consent not to be
-------
unreasonably withheld), (b) Katy shall have delivered to Purchaser a certificate
signed by its respective Chairman of the Board, Chief Executive Officer and
President or any Senior Vice President (an "Officer's Certificate"), dated the
Closing Date, certifying to the effect that the representations and warranties
of Katy contained herein shall be true and correct as of the Closing Date with
the same effect as though made as of the Closing Date, except (i) for changes
specifically permitted by the terms of this Agreement, (ii) for the accuracy of
representations and warranties which speak as of a specific date, which will be
determined as of such date, and (iii) where the failure of any such
representation or warranty to be true and correct as of the Closing Date or as
of such other specific date, as the case may be, individually or in the
aggregate, would not have a Material Adverse Effect on the Katy Group, (c) Katy
shall have delivered to Purchaser an Officer's Certificate, dated the Closing
Date, certifying to the effect that Katy shall have performed, or shall have
caused a Subsidiary to perform, all obligations and complied with all covenants
required by this Agreement to be performed or complied with by any of them prior
to the Closing Date, except where the failure so to perform, individually or
taken as a whole, would not adversely affect the ability of Katy to consummate
the Recapitalization, (d) Katy shall have delivered a certificate of the
Registrar of the Katy Common Stock as to the number of shares outstanding as of
the close of business on the day preceding the Closing Date and a certificate
from the Secretary of Katy certifying that the Offer Shares proposed to be
accepted for payment represent less than 30% of the combined voting
37
power of the outstanding securities of Katy immediately prior to the Closing,
and (e) Katy's outside legal counsel shall have delivered to Purchaser a legal
opinion in the form set forth on Schedule 6.3.
------------
ARTICLE VII
Termination, Waiver, Amendment and Closing
------------------------------------------
SECTION 7.1. Termination or Abandonment.
--------------------------
Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated and abandoned at any time prior to the Closing
Date, whether before or after any approval of the matters presented in
connection with the Recapitalization by the shareholders of Katy:
(a) by the mutual written consent of Katy and Purchaser;
(b) by either Katy or Purchaser if the Closing Date shall not have
occurred on or before June 30, 2001; provided, that the party seeking to
terminate this Agreement pursuant to this Section 7.1(b) shall not have breached
--------------
in any material respect its obligations under this Agreement in any manner that
shall have substantially contributed to the failure to consummate the
Recapitalization on or before such date;
(c) by either Katy or Purchaser if (i) a statute, rule, regulation or
executive order shall have been enacted, entered or promulgated prohibiting the
consummation of the Recapitalization substantially on the terms contemplated
hereby or (ii) an order, decree, ruling or injunction shall have been entered
permanently restraining, enjoining or otherwise prohibiting the consummation of
the Recapitalization substantially on the terms contemplated hereby and such
order, decree, ruling or injunction shall have become final and non-appealable;
provided that the party seeking to terminate this Agreement pursuant to this
clause (ii) of Section 7.1(c) shall have used its reasonable best efforts to
--------------
remove such order, decree, ruling or injunction;
(d) by Purchaser if the Purchaser Closing Conditions are not
satisfied on or prior to the Closing Date;
(e) [reserved];
(f) by Katy, if Purchaser shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform (i)
would give rise to the failure of a condition set forth in Section 6.2(a) or
--------------
(b), and (ii) is incapable of being cured by Purchaser or is not cured within 30
---
days of notice of such breach or failure;
38
(g) by Purchaser, if Katy shall have breached or failed to perform,
or shall have failed to cause any Subsidiary to perform, in any material respect
any of its representations, warranties, covenants or other agreements contained
in this Agreement, which breach or failure to perform (i) would give rise to the
failure of a condition set forth in Section 6.3(a), and (ii) is incapable of
--------------
being cured by Katy or is not cured within 30 days of notice of such breach or
failure;
(h) by Katy, if at any time prior to the Closing Date, a Superior
Proposal is received by Katy and Katy's Board of Directors determines in good
faith (after consultation with outside legal counsel) that failure to terminate
this Agreement and enter into an agreement to effect the Superior Proposal would
be inconsistent with its fiduciary duties under applicable law; provided that
Xxxx xxx not terminate this Agreement pursuant to this Section 7.1(h) unless and
--------------
until (i) three (3) Business Days have elapsed following delivery to Purchaser
of a written notice of such good faith determination by Katy's Board of
Directors and during such three (3) Business Day period Katy has fully
cooperated with Purchaser, including without limitation, informing Purchaser of
the terms and conditions of such Superior Proposal, and the identity of the
person making such Superior Proposal, with the intent of enabling both parties
to agree to a modification of the terms and conditions of this Agreement so that
the transactions contemplated hereby may be effected; (ii) at the end of such
three (3) Business Day period the Katy Takeover Proposal continues to constitute
a Superior Proposal and Katy's Board of Directors confirms its good faith
determination (after consultation with outside legal counsel) that failure to
terminate this Agreement and enter into an agreement to effect the Superior
Proposal would be inconsistent with its fiduciary duties under applicable law;
and (iii) (A) at or prior to such termination, Purchaser has received payment of
any amounts required by Section 7.2 to be paid at or prior to termination, but
-----------
only if and when such amounts are payable under Section 7.2, by wire transfer in
-----------
same day funds, and (B) as soon as practicable following such termination Katy
enters into a definitive acquisition, merger or similar agreement to effect the
Superior Proposal.
(i) Except as provided in Sections 7.2 and 8.2 hereof, in the event
------------ ---
of the termination of this Agreement pursuant to Section 7.1, this Agreement
-----------
shall forthwith become void, there shall be no liability on the part of
Purchaser or Katy or any of their respective officers or directors to the other
and all rights and obligations of any party hereto shall cease, except that
nothing herein shall relieve any party from liability for any misrepresentation
or breach of any covenant or agreement under this Agreement or from the
confidentiality obligations in Section 5.2 hereof.
-----------
SECTION 7.2. Termination Fee.
---------------
(a) If this Agreement is terminated by Purchaser or Katy, as the case
may be, pursuant to Sections 7.1(b), 7.1(c), 7.1(d) or 7.1(g), or by Katy
--------------- ------ ------ ------
pursuant to Section 7.1(h), then Katy shall promptly reimburse Purchaser for
--------------
Purchaser's documented expenses (including, without limitation, fees and
expenses of or associated with Purchaser's lenders and their counsel in this
transaction) up to $1,000,000, payable by wire transfer of same day funds within
five Business Days of the receipt by Katy of a statement itemizing and
reasonably documenting such expenses.
39
(b) In the event that a Katy Takeover Proposal shall have been made
known to Katy or has been made directly to its shareholders generally or any
person shall have publicly announced an intention (whether or not conditional)
to make a Katy Takeover Proposal and thereafter this Agreement is terminated by
either Purchaser or Katy pursuant to Sections 7.1(d) (insofar as it relates to
---------------
failure to satisfy the Minimum Condition, the conditions set forth in clauses
(ii) or (iii) of the first paragraph of Annex I, or any one or more of the
-------
conditions set forth in clause (b), (c), (d), (g), (h), (i), (j), (k), (m), (n),
(o), (p), (q) or (r) as the case may be, of Annex I), 7.1(g) or 7.1(h), then
------- ------ ------
Katy shall promptly pay Purchaser a fee equal to $2,000,000 (the "Termination
Fee") payable by wire transfer of same day funds; provided, however, that no
Termination Fee shall be payable to Purchaser pursuant to this Section 7.2
-----------
unless and until within 12 months of such termination, Katy or any of its
Subsidiaries enters into any Katy Acquisition Agreement or a Katy Takeover
Proposal is made, and, within 18 months of such termination, Katy or any of its
Subsidiaries consummates any Katy Takeover Proposal (for the purposes of the
foregoing proviso the terms "Katy Acquisition Agreement" and "Katy Takeover
Proposal" shall have the meanings assigned to such terms in Section 5.8, except
-----------
that the references to 25% in the definition of "Katy Takeover Proposal" in
Section 5.8(a) shall be deemed to be references to 40%, in which event the
--------------
Termination Fee shall be payable within two Business Days of the consummation of
the Katy Takeover Proposal). Katy acknowledges that the agreements contained in
this Section 7.2 are an integral part of the transactions contemplated by this
-----------
Agreement, and that, without these agreements, Purchaser would not enter into
this Agreement; accordingly, if Katy fails promptly to pay the amount due
pursuant to this Section 7.2, and, in order to obtain such payment, Purchaser
-----------
commences a suit which results in a judgment against Katy for the fee set forth
in this Section 7.2, Katy shall pay to Purchaser its costs and expenses
-----------
(including reasonable attorneys' fees and expenses) in connection with such
suit, together with interest on the amount of the fee at the prime rate of
Citibank N.A. in effect on the date such payment was required to be made.
SECTION 7.3. Approval of Board of Directors Required.
---------------------------------------
Subject to Sections 5.11 and 5.14, the approval of the Board of
------------- ----
Directors of Katy shall be required for any amendment or modification of the
Agreement, any waiver of any condition to the obligations of Katy under this
Agreement, any waiver of any of Katy's rights under this Agreement, any consent
by Katy to a reduction in the Minimum Condition to the Offer or to the
imposition of additional conditions to the Offer, any amendment to the Offer
that is in any manner adverse to Katy or holders of Common Shares and any
extension by Katy of the time for performance of any acts by Purchaser under
this Agreement.
40
ARTICLE VIII
Miscellaneous
-------------
SECTION 8.1. Non-Survival of Representations and Warranties;
----------------------------------------------
Specific Enforcement; Limitation.
--------------------------------
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Closing Date.
The parties agree that an award of money damages would be inadequate for any
breach of this Agreement by any party and that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which they are entitled at law or in equity. In the event that any party to this
Agreement should be entitled to damages for breach of any representation,
warranty or covenant, the parties hereby agree that the party alleging any such
breach shall be entitled to damages only to the extent that such breach (without
regard to any materiality exceptions or provisions in such representation or
warranty) is determined, individually or in the aggregate, to have or to have
had a Material Adverse Effect on the Katy Group or Purchaser, as the case may
be.
SECTION 8.2. Expenses.
--------
Except as set forth in Section 7.1 and 7.2, whether or not the
----------- ---
Recapitalization is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expenses, except that (a) the expenses incurred in
connection with the printing and mailing of the Offer shall be shared equally by
Katy and Purchaser and (b) all transfer taxes shall be paid by Katy.
SECTION 8.3. Counterparts; Effectiveness.
---------------------------
This Agreement may be executed in two or more consecutive
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument, and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered (by telecopy or otherwise) to the other party.
SECTION 8.4. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to the principles of conflicts
of laws thereof.
41
SECTION 8.5. Notices.
-------
All notices and other communications hereunder shall be in writing
(including telecopy or similar writing) and shall be effective (a) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified in
this Section 8.5 and the appropriate telecopy confirmation is received or (b) if
-----------
given by any other means, when delivered at the address specified in this
Section 8.5:
-----------
To Katy:
Katy Industries, Inc.
0000 X. Xxxxxxxx Xxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Chief Executive Officer
with a copy (which shall not constitute notice) to:
Debevoise & Xxxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxxx X. Xxxxx, Esq.
To Purchaser:
KKTY Holding Company, L.L.C.
c/o Kohlberg & Company, L.L.C.
000 Xxxxx Xxxxxx
Xx. Xxxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xx. Xxxxxxxxxxx Xxxxxxxx
42
with a copy (which shall not constitute notice) to:
Hunton & Xxxxxxxx
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxx Xxxxxx, Esq.
SECTION 8.6. Assignment; Binding Effect.
--------------------------
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by either of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party. Subject to the preceding sentence, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
SECTION 8.7. Severability.
------------
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the terms and provisions of this Agreement in any other
jurisdiction . If any provision of this Agreement is so broad as to be
unenforceable, such provision shall be interpreted to be only so broad as is
enforceable.
SECTION 8.8. Miscellaneous.
-------------
This Agreement (including, for the avoidance of doubt, the exhibits
and annexes to it):
(a) and the disclosure schedules to this Agreement, and the
Confidentiality Agreement constitute the entire agreement, and supersede all
other prior agreements and understandings, both written and oral, between the
parties or their affiliates with respect to the subject matter hereof and
thereof; and
(b) is not intended to and shall not confer upon any person other
than the parties hereto any rights or remedies hereunder, except for the rights
to indemnification and insurance provided for in Section 5.11 for the benefit of
------------
Katy's directors, officers, employees, agents and other persons, and the rights
provided in Section 5.4 for the benefit of Continuing Katy Employees.
-----------
SECTION 8.9. Headings.
--------
Headings of the Articles and Sections of this Agreement are for
convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
43
SECTION 8.10. Finders or Brokers.
------------------
Except for the engagement of Bear, Xxxxxxx & Co. Inc. by Katy pursuant
to the Agreement dated January 8, 2001, previously provided to Purchaser,
neither Katy nor any of its Subsidiaries, nor Purchaser, has employed any
investment banker, broker, finder or intermediary in connection with the
transactions contemplated hereby who might be entitled to any fee or any
commission in connection with or upon consummation of the Recapitalization
payable by Katy or any of its Subsidiaries or Purchaser, as the case may be.
SECTION 8.11. Amendment.
---------
This Agreement may be amended by the parties hereto by action taken by
or on behalf of their respective Boards of Directors at any time prior to the
Closing Date; provided, however, that no amendment may be made which would
reduce the amount or change the type of consideration offered for each Offer
Share pursuant to this Agreement upon consummation of the Recapitalization. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
SECTION 8.12. Waiver.
------
Subject to Section 7.3, at any time prior to the Closing Date, the
-----------
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto and (c) waive compliance by the other
party with any of the agreements or conditions contained herein; provided,
however, that after the approval of shareholders of Katy of the Recapitalization
is obtained, there may not be, without further approval of such shareholders,
any extension or waiver of this Agreement or any portion thereof which reduces
the amount or changes the form of the consideration to be delivered to the
holders of Offer Shares hereunder other than as contemplated by this Agreement.
Any such extension or waiver shall be valid only if set forth in an instrument
in writing signed by the party to be bound thereby, but such extension or waiver
or failure to insist on strict compliance with an obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
[The Next Following Page is the Signature Page]
44
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
KATY INDUSTRIES, INC.
By: /s/ Xxxxxx X. Xxxxxxx
------------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President and Chief Executive Officer
KKTY HOLDING COMPANY, L.L.C.
By: /s/ Xxxxxxxxxxx Xxxxxxxx
------------------------------------------
Name: Xxxxxxxxxxx Xxxxxxxx
Title: Authorized Manager
45
ANNEX I
PURCHASER CLOSING CONDITIONS
Notwithstanding any other provision of this Agreement, Purchaser shall not
be required to (A) accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating
to Purchaser's obligation to pay for or return tendered Common Shares promptly
after expiration or termination of the Offer), to pay for any Offer Shares
tendered and (B) consummate the Preferred Stock Purchase unless the following
conditions have been satisfied: (i) there have been validly tendered and not
withdrawn prior to the time the Offer shall otherwise expire at least 2,000,000
Common Shares (the "Minimum Condition"), (ii) the Offer Shares tendered together
with the Common Shares into which the Convertible Preferred Stock is convertible
represent a majority of the Katy Common Stock issuable and outstanding,
calculated on a fully diluted basis (excluding outstanding Options), on the
Closing Date, (iii) the Offer Shares tendered, after proration, if any, of
Common Shares tendered in accordance with Section 1.4(b), represent less than 30
--------------
% of the combined voting power of the outstanding securities of Katy on the
Closing Date, and (iv) none of the following events shall have occurred and be
continuing at the time of acceptance for payment of, or payment for, such Common
Shares:
(a) any governmental authority shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order which is in effect and which (1) materially restricts,
prevents or prohibits the consummation of the Recapitalization or results in the
obligation to pay damages as a result of or in connection with the
Recapitalization in amounts that would have an adverse effect on Katy or Katy's
business, (2) prohibits or limits the ownership or operation by Katy, Purchaser
or any of their subsidiaries of all or any material portion of the business or
assets of Katy and the Subsidiaries taken as a whole or compels Katy, Purchaser,
or any of their subsidiaries to dispose of or hold separate all or any material
portion of their business or assets, (3) imposes limitations on the ability of
Purchaser or any subsidiary of Purchaser to acquire or hold, or to exercise
effectively full rights of ownership of, any Common Shares, including, without
limitation, the right to vote any Common Shares acquired pursuant to the Offer,
other than limitations that do not materially restrict or otherwise materially
affect the consummation of the Offer or the Preferred Stock Purchase, or (4)
requires divestitures by Purchaser or any other affiliate thereof of any Common
Shares;
(b) any of the representations and warranties of Katy or any Subsidiary
set forth in the Agreement (without regard to any materiality exceptions or
provisions therein) shall not be true and correct in all material respects as if
such representations and warranties were made at the time of such determination
except (i) for changes specifically permitted by the terms of this Agreement,
(ii) for the accuracy of representations or warranties which speak as of a
specific date, which must not be untrue or incorrect as of such specific date,
(iii) where the failure of any such representation or warranty to be true and
correct, individually or in the aggregate, would not have a Material Adverse
Effect on the Katy Group;
(c) Katy shall not have performed, or shall not have caused a Subsidiary
to perform, in all material respects, all obligations and complied in all
material respects with all covenants necessary to be performed or complied with
by any of them under the Agreement;
(d) any change shall have occurred (or any development shall have occurred
involving prospective changes) in the financial condition, businesses,
operations, properties (including tangible properties), results of operations,
assets (including, without limitation, any Material Contract) or prospects of
the Katy Group, taken as a whole, that has a Material Adverse Effect on the Katy
Group;
(e) any material adverse change after the commencement of the Offer in the
syndication markets for credit facilities similar in nature to the credit
facilities to be furnished to Purchaser by Bankers Trust Company or a continuing
material disruption of or a material adverse change in the financial, banking or
capital markets that would have an adverse effect on such syndication market, in
each case such that Bankers Trust Company determines not to fund such credit
facilities;
(f) the Agreement shall have been terminated in accordance with its terms;
(g) the Board of Directors of Katy shall have (i) withdrawn or materially
modified or changed (including by amendment of the Schedule 14D-9) in a manner
adverse to Purchaser its recommendation with respect to the Offer, the Agreement
or the Preferred Stock Purchase, (ii) Katy shall have entered into an agreement
(other than a confidentiality agreement) to consummate a Katy Takeover Proposal
other than the Offer and the Preferred Stock Purchase, or (iii) the Board of
Directors of Katy shall have approved or recommended a Katy Takeover Proposal or
resolved to do any of the foregoing;
(h) fewer than all of the licenses, permits, authorizations, consents,
orders, qualifications or approvals of, or declarations or filings with, or
expirations of waiting periods imposed by, any United States or foreign
governmental body or authority that are necessary for the consummation of the
Preferred Stock Purchase and the transactions contemplated thereby shall have
been filed, occurred or been obtained, as the case may be, except for any such
failure of any of the foregoing so to have been filed, occurred or been
obtained, individually or in the aggregate, as would not result in a Material
Adverse Effect on the Katy Group;
(i) Katy shall not have received an opinion of Bear, Xxxxxxx & Co. Inc.,
in a form and substance satisfactory to Katy and dated the date of this
Agreement, to the effect that, as of such date, the Offer and the Preferred
Stock Purchase, taken as a whole, are fair to Katy's shareholders from a
financial point of view, or such opinion shall have been withdrawn, or Bear,
Xxxxxxx & Co. Inc. shall not have consented to the dissemination of such opinion
in connection with the Offer;
(j) holders of Common Shares present in person or by proxy at the
Shareholder Meeting shall not have duly (i) elected the directors of Katy's
Board of Directors, including the Purchaser Designees and (ii) authorized and
approved the issuance and sale of the Convertible Preferred Stock upon
substantially the terms and conditions set forth in Exhibit C, and holders of a
---------
majority of the
outstanding Common Shares shall not have approved and adopted an amendment of
Katy's Certificate of Incorporation authorizing (A) the classification of the
Board of Directors into two classes, and (B) 600,000 shares of Convertible
Preferred Stock, on substantially the terms and conditions set forth in Exhibit
-------
C;
-
(k) it shall have been publicly disclosed or Purchaser shall have
otherwise learned that any person or "group" (as described in section 13(d)(3)
of the Exchange Act), other than Purchaser or Purchaser Affiliates or any group
of which any of them is a member, shall have, following the date of this
Agreement (1) acquired beneficial ownership (determined pursuant to Rule 13d-3
promulgated under the Exchange Act) of more than 20% of Katy Common Stock or
shall have been granted an option, right or warrant, conditional or otherwise,
to obtain more than 20% of any class or series of capital stock of Katy
(including, without limitation, Katy Common Stock); or (2) without the prior
consent of Purchaser, entered into any binding agreement or understanding (other
than a confidentiality agreement) with the Katy Group with respect to (A) a
merger, consolidation or other business combination with, or acquisition of a
material portion of the assets of, Katy, or (B) a tender or exchange offer for
Common Shares;
(l) there shall have occurred and be continuing (i) any general suspension
of trading in securities on any national securities exchange or in the over-the-
counter market, (ii) the declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States (whether or not mandatory),
(iii) any indirect limitation (whether or not mandatory) by a United States
governmental authority or agency on the extension of credit by banks or other
financial institutions, (iv) a declaration of war by the Congress of the United
States or the commencement of military hostilities involving the United States,
in each case, having had or that will have a Material Adverse Effect on the Katy
Group, or (v) in the case of any of the foregoing occurrences existing on the
date of commencement of the Offer, a material acceleration or worsening thereof;
(m) the Board of Directors of Katy shall not have Unanimously approved (i)
the nomination for election by the shareholders of Katy of the Purchaser
Designees (subject to the Closing taking place) and (ii) an amendment to the By-
Laws of Katy reducing the number of directors constituting the whole board of
Katy to nine (9);
(n) Katy shall not have received by the expiration date of the Offer (as
the same may be extended in accordance with Section 1.1(a)) an unqualified audit
---------------
opinion from Xxxxxx Xxxxxxxx with respect to the consolidated financial
statements of the Katy Group for the fiscal year ended December 31, 2000;
(o) Katy shall not have consummated the sale of Xxxxxxxx and shall not
have received gross proceeds in cash, net of any retained liabilities of
Xxxxxxxx retained by Katy, in an amount not less than $20,000,000;
(p) the amended Certificate of Incorporation reflecting the authorization
of 600,000 shares of Convertible Preferred Stock on substantially the terms and
conditions set forth in Exhibit C shall not have been filed with the Secretary
---------
of State of the State of Delaware;
(q) Katy shall not have entered into the definitive documentation with
respect to the credit facilities to be established under the terms and
conditions of the Refinancing with Bankers Trust Company (including any
modification of the terms of the Refinancing that are inconsistent with the
initial terms of the Refinancing if such modifications have been approved by
Purchaser); or
(r) the Agreement Shareholders shall not have entered into a stock voting
agreement with respect to the election of the Purchaser Designees nominated in
accordance with Section 5.14. hereof (other than the election of directors in
------------
connection with the Shareholder Meeting) on terms and conditions reasonably
satisfactory to Purchaser.
The foregoing conditions (including those set forth in clauses (i) through
(iv) of the initial paragraph) are for the sole benefit of Purchaser and its
affiliates and, subject to the terms of the Agreement, may be asserted by
Purchaser regardless of the circumstances (including, without limitation, any
action or inaction by Purchaser or any of its affiliates) giving rise to any
such condition or may be waived by Purchaser, in whole or in part, from time to
time in its reasonable discretion, except as otherwise provided in the
Agreement. The failure by Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right and may be asserted at any time and from time to
time. Unless otherwise defined herein, capitalized terms used herein shall have
the meaning ascribed to them in the Agreement to which this Annex I is attached.
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ANNEX II
REGISTRATION RIGHTS
(a) In connection with any conversion of the Convertible Preferred Stock
into Common Shares, the holders (the "Converting Holders") of any Registrable
Securities shall have the right to request that Katy file a registration
statement (on Form S-3 ("Form S-3"), if available to Katy at the time) pursuant
to the Securities Act (the "Registration Statement"), provided that the
Converting Holders shall not be entitled to demand a registration on more than
three (3) occasions. Katy shall (i) within 10 days after receiving notice from
any Converting Holder requesting a demand for registration give notice thereof
to all other Converting Holders known to Katy and (ii) promptly and in any event
within 45 days of receipt of such request file a Registration Statement to
effect a registration under the Securities Act covering all Registrable
Securities for which Katy receives a request from the Converting Holders within
30 days of the delivery of the notice by Katy as required in clause (i) above;
(b) In connection with any registration effected pursuant to paragraph (a)
of this Annex II, if the majority of the Converting Holders elect to offer and
--------
sell Registrable Securities in an underwritten offering, they shall be entitled
to select the underwriter, subject to Katy's consent (such consent not to be
unreasonably withheld), and Katy shall enter into an underwriting agreement
(together with the Converting Holders electing to sell their Registrable
Securities in an underwritten offering) with such underwriter. In the event the
underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, Xxxx xxx include its securities for its own
account in such registration and underwriting if the underwriter so agrees and
if the number of Registrable Securities included in such underwriting will not
be limited;
(c) In the event Katy registers Common Shares pursuant to a Registration
Statement (other than registrations on Form S-4 or Form S-8), the Converting
Holders shall have the right to include all or part of the Registrable
Securities owned by them at the time in such registration. Katy shall promptly
(i) give each Converting Holder written notice of such registration and (ii)
include in such registration, and in any underwriting involved therein, all the
Registrable Securities specified in a written request delivered to Katy by any
such Converting Holder within 20 days after delivery of such written notice by
Katy;
(d) If Katy elects to offer and sell the Common Shares registered pursuant
to paragraph (c) in an underwritten offering, Katy shall so advise the
Converting Holders as part of the notice given to the Converting Holders. In
such event the right of the Converting Holders to such registration of their
Registrable Securities shall be conditioned upon such underwriting being
effected and the inclusion of any Converting Holder's Registrable Securities in
such underwriting shall be subject to paragraph (e) hereof. All Converting
Holders proposing to distribute their Registrable Securities through such
underwriting shall (together with Katy) enter into an underwriting agreement
with the underwriter for such offering. The Converting Holders shall have no
right to participate in the selection of the
underwriters for an offering pursuant to this paragraph (d), provided that the
underwriter is of recognized national standing;
(e) In the event the underwriter limits the number of Common Shares to be
offered and sold in connection with a registration pursuant to paragraph (c),
the number of Registrable Securities to be included in the registration and the
underwriting shall be reduced on a pro rata basis among the Converting Holders
requesting registration. If any Converting Holder disapproves of the terms of
such underwriting, such Holder may elect to withdraw therefrom by written notice
to Katy and the underwriter delivered at least five days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration;
(f) In the event any Registrable Securities are included in a Registration
Statement pursuant to this Agreement, Katy will indemnify and hold harmless each
Converting Holder whose Registrable Securities are so included, each person, if
any, who "controls" such Converting Holder (within the meaning of the Securities
Act or the Exchange Act) and their respective directors, officers, employees and
agents against all losses, claims, damages, or liabilities, joint or several, or
actions in respect thereof to which such Converting Holder or other person
entitled to indemnification hereunder may become subject under the Securities
Act, the Exchange Act, state securities or blue sky law, common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions in
respect thereof arise out of, or are based upon, any untrue statement or alleged
untrue statement of any material fact contained in such Registration Statement,
any related preliminary prospectus, or any related prospectus or any amendment
or supplement thereto, offering circular or other document (including any
related notification or the like) incident to any such registration,
qualification or compliance, or arise out of, or are based upon, any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
Katy of the Securities Act, the Exchange Act, state securities or blue sky law,
common law or otherwise and relating to action or inaction required of Katy in
connection with any such registration, qualification or compliance, and Katy
will reimburse each such Converting Holder or other person entitled to
indemnification hereunder for any legal or other expenses reasonably incurred by
it in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that Katy will not be so liable to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, an untrue statement or alleged untrue statement of a material
fact or an omission or alleged omission to state a material fact in such
Registration Statement, such preliminary prospectus, or such prospectus, or any
such amendment or supplement thereto, offering circular or other document
(including any related notification or the like) incident to any registration,
qualification or compliance, in reliance upon, and in conformity with, written
information furnished to Katy by any Converting Holder specifically for use
therein. Katy will also indemnify underwriters and dealer managers participating
in the distribution, each person who "controls" such persons (within the meaning
of the Securities Act or the Exchange Act), and their respective officers,
directors, employees and agents to the same extent as provided above with
respect to the indemnification of the Converting Holders, if so requested,
except (i) with respect to information furnished in writing specifically for use
in any prospectus or Registration Statement by any
selling Converting Holders or any such underwriters, or (ii) to the extent that
any such loss, claim, damage, liability or action is solely attributable to such
underwriter's failure to deliver a final prospectus (or amendment or supplement
thereto) that corrects an actual or alleged material misstatement or omission
contained in the preliminary prospectus (or final prospectus);
(g) With respect to written information furnished to Katy by a Converting
Holder specifically for use in a Registration Statement, any related preliminary
prospectus, or any related prospectus or any supplement or amendment thereto,
offering circular or other document (including any related notification or the
like) incident to any registration, qualification or compliance, if Registrable
Securities held by it are included in the securities as to which such
registration, qualification or compliance is being effected, such Converting
Holder will severally indemnify and hold harmless Katy and its directors,
officers, employees, agents and each person, if any, who "controls" Katy (within
the meaning of the Securities Act or the Exchange Act) and any other Converting
Holder against any losses, claims, damages or liabilities, joint or several, or
actions in respect thereof, to which Katy or such other person entitled to
indemnification hereunder may become subject under the Securities Act, the
Exchange Act, state securities or blue sky laws, common law or otherwise,
insofar as such losses, claims, damages, liabilities or actions in respect
thereof arise out of, or are based upon, any untrue statement or alleged untrue
statement of any material fact contained in such Registration Statement, such
preliminary prospectus, or such prospectus, or any such amendment or supplement
thereto, offering circular or other document (including any related notification
or the like) incident to any registration, qualification or compliance, or arise
out of, or are based upon, the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and such Converting Holder will reimburse Katy and such
other persons for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action, in each case to the extent, but only to the extent, that
the same arises out of, or is based upon, an untrue statement or alleged untrue
statement of material fact or an omission or alleged omission to state a
material fact in such Registration Statement, such preliminary prospectus, or
such prospectus or any such amendment or supplement thereto, offering circular
or other document (including any related notification or the like) incident to
any registration, qualification or compliance, in reliance upon, and in
conformity with, such written information; provided, however, that the
obligations of each of the Converting Holders hereunder shall be limited to an
amount equal to the net proceeds to such Converting Holder of Registrable
Securities sold as contemplated herein. Katy shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same
extent as provided above with respect to the information so furnished in writing
by such persons specifically for inclusion in any prospectus or Registration
Statement. The Converting Holder shall also indemnify underwriters and dealer
managers participating in the distribution and each person who "controls" such
persons (within the meaning of the Securities Act or the Exchange Act), their
officers, directors, employees and agents to the same extent as provided herein
with respect to the indemnification of Katy, if so requested;
(h) Promptly after receipt by an indemnified party of notice of any
claim or the
commencement of any action, the indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party, notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party will not relieve it
from any liability that it may have to the indemnified party except to the
extent it was actually damaged or suffered any loss or incurred any additional
expense as a result thereof. If any such claim or action is brought against an
indemnified party, and it notifies the indemnifying party thereof, the
indemnifying party shall be entitled to assume the defense thereof with counsel
selected by the indemnifying party and reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, (i) the
indemnifying party will not be liable to the indemnified party for any legal or
other expense subsequently incurred by the indemnified party in connection with
the defense thereof, (ii) the indemnifying party will not be liable for the
costs and expenses of any settlement of such claim or action unless such
settlement was effected with the written consent of the indemnifying party or
the indemnified party waived any rights to indemnification hereunder in writing,
in which case the indemnified party may effect a settlement without such
consent, and (iii) the indemnified party will be obligated to cooperate with the
indemnifying party in the investigation of such claim or action; provided,
however, that the indemnified party who may be subject to liability arising out
of any claim in respect of which indemnity may be sought by such indemnified
party may employ its own counsel if such indemnified party has been advised by
counsel in writing that, in the reasonable judgment of such counsel, it is
advisable for such indemnified party to be represented by separate counsel due
to the presence of actual or potential conflicts of interest, and in that event
the fees and expenses of such separate counsel will also be paid by the
indemnifying party; provided that the indemnifying party shall not be liable for
the reasonable fees and expenses of more than one separate counsel at any time
for all such indemnified parties. An indemnifying party shall not, without the
prior written consent of the indemnified parties, settle, compromise or consent
to the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes a release of such indemnified party reasonably acceptable to
such indemnified party from all liability arising out of such claim, action,
suit or proceeding and unless the indemnifying party shall confirm in a written
agreement reasonably acceptable to such indemnified party, that notwithstanding
any federal, state or common law, such settlement, compromise or consent shall
not adversely affect the right of any indemnified party to indemnification or
contribution as provided in this Agreement as such rights may be limited by
applicable law without regard to such settlement, compromise or consent;
(i) If for any reason the indemnification provided for in paragraphs (f)
or (g) is unavailable to an indemnified party or is insufficient to hold such
indemnified party harmless as contemplated therein, then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnifying party and the indemnified party, but also the relative fault of the
indemnifying party and the indemnified party, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue (or alleged untrue) statement of a
material fact or the omission (or alleged omission) to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided, however,
that the obligations of each of the Converting Holders hereunder shall be
limited to an amount equal to the net proceeds to such Converting Holder of
Registrable Securities sold as contemplated herein. No person guilty of
fraudulent misrepresentation (within the meaning of section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation;
(j) The obligations under this Annex II shall survive the completion of
--------
any offering of Registrable Securities in a Registration Statement pursuant to
this Agreement, and otherwise;
(k) Notwithstanding the foregoing provisions of this Annex II, to the
--------
extent that the provisions regarding indemnification and contribution contained
in the underwriting agreement entered into in connection with any underwritten
public offering contemplated by this Agreement are in conflict with the
foregoing provisions, the provisions in such underwriting agreement shall be
controlling, provided that each Converting Holder, each person, if any, who
controls such Converting Holder (within the meaning of the Securities Act or the
Exchange Act) and their respective directors, officers, employees and agents
receive protection in all material respects as extensive and are subject to
obligations that are not materially more extensive, than those set forth in this
Annex II;
--------
(l) In the case of any demand registration pursuant to paragraph (a), Katy
shall pay all registration expenses. In the case of any registration pursuant to
paragraph (c), the requesting Converting Holders shall bear the pro rata share
of underwriter's fees, discounts and commissions incurred in such registration
and any incremental registration expenses, in each case, including (i)
incremental registration and qualification fees and expenses, and (ii) any
incremental costs and disbursements (including legal fees and expenses) that
result from the inclusion of the Registrable Securities included in such
registration, with such incremental expenses being borne by the requesting
Converting Holders on a pro rata basis.
Unless otherwise defined herein, capitalized terms used herein shall have the
meaning ascribed to them in the Agreement to which this Annex II is attached.
--------
EXHIBIT A
As used herein, the following terms shall have the following meanings unless the
context otherwise requires:
"Accounts Payable" shall have the meaning set forth in Section 3.5 hereof.
-----------
"Accounts Receivable" shall have the meaning set forth in Section 3.5 hereof.
-----------
"Affiliate" shall have the meaning set forth in Section 3.10 hereof.
------------
"Agreement" shall have the meaning set forth in Paragraph 1 hereof.
"Agreement Shareholders" shall have the meaning set forth in the Recitals
hereof.
"Business Day" shall have the meaning set forth in Section 1.1 hereof
-----------
"Certificates" shall have the meaning set forth in Section 1.4 hereof.
-----------
"Closing Date" shall have the meaning set forth in Section 2.2 hereof.
-----------
"Closing" shall have the meaning set forth in Section 2.2 hereof.
-----------
"Code" shall have the meaning set forth in Section 1.4 hereof.
-----------
"Common Shares" shall have the meaning set forth in the Recitals hereof.
"Confidentiality Agreement" shall have the meaning set forth in Section 5.2
-----------
hereof.
"Contico" shall have the meaning set forth in Section 3.2 hereof.
-----------
"Contico Common Units" shall have the meaning set forth in Section 3.2 hereof.
-----------
"Contico Preferred Units" shall have the meaning set forth in Section 3.2
-----------
hereof.
"Continuing Katy Employees" shall have the meaning set forth in Section 5.4
-----------
hereof.
"Contracts" shall have the meaning set forth in Section 3.24 hereof.
------------
"Convertible Preferred Stock" shall have the meaning set forth in the Recitals
hereof.
"Converting Holders" shall have the meaning set forth in Annex II hereof.
--------
"Current Katy Group" shall have the meaning set forth in Section 3.18 hereof.
------------
"Depository" shall have the meaning set forth in Section 1.4 hereof.
-----------
"DGCL" shall have the meaning set forth in Section 1.3 hereof.
-----------
"Environmental, Health and Safety Laws" shall have the meaning set forth in
Section 3.12 hereof.
------------
"ERISA" shall have the meaning set forth in Section 3.13 hereof.
-----------
"ERISA Affiliate" shall have the meaning set forth in Section 3.13 hereof.
------------
"Exchange Act" shall have the meaning set forth in Section 1.1 hereof.
-----------
"Form S-3" shall have the meaning set forth in Annex II hereof
--------
"GAAP" shall have the meaning set forth in Section 3.4 hereof.
-----------
"Xxxxxxxx" shall have the meaning set forth in the Recitals hereof.
"Insurance Amount" shall have the meaning set forth in Section 5.11 hereof.
------------
"Intellectual Property" shall have the meaning set forth in Section 3.19 hereof.
------------
"Inventory" shall have the meaning set forth in Section 3.5 hereof.
-----------
"Katy" shall have the meaning set forth in Paragraph 1 hereof.
"Katy Acquisition Agreement" shall have the meaning set forth in Section 5.8
-----------
hereof.
"Katy Affiliated Group" shall have the meaning set forth in Section 3.18 hereof.
------------
"Katy Benefit Plans" shall have the meaning set forth in Section 3.13 hereof.
------------
"Katy Common Stock" shall have the meaning set forth in the Recitals hereof.
"Katy Group" shall have the meaning set forth in Section 3.1 hereof.
-----------
"Katy Required Approvals" shall have the meaning set forth in Section 3.3
-----------
hereof.
"Katy SEC Reports" shall have the meaning set forth in Section 3.4 hereof.
-----------
"Katy Stock Option Plans" shall have the meaning set forth in Section 3.2
-----------
hereof.
"Katy Takeover Proposal" shall have the meaning set forth in Section 5.8 hereof.
-----------
"Katy's Knowledge" shall have the meaning set forth in Section 3.5 hereof.
-----------
"Licenses" shall have the meaning set forth in Section 3.22 hereof.
------------
"Material Adverse Effect" shall have the meaning set forth in Section 3.1
-----------
hereof.
"Material Contracts" shall have the meaning set forth in Section 3.24 hereof.
------------
"Minimum Condition" shall have the meaning set forth in Annex I hereof.
-------
"Offer" shall have the meaning set forth in Section 1.1 hereof.
-----------
"Offer Commencement Date" shall have the meaning set forth in Section 1.1
-----------
hereof.
"Offer Consideration" shall have the meaning set forth in Section 1.1 hereof.
-----------
"Offer Documents" shall have the meaning set forth in Section 1.2 hereof.
-----------
"Offer Shares" shall have the meaning set forth in the Recitals hereof.
"Officer's Certificate" shall have the meaning set forth in Section 6.3 hereof.
-----------
"Option" shall have the meaning set forth in Section 3.2 hereof.
-----------
"Other Directors" shall have the meaning set forth in Section 5.14 hereof.
------------
"Other Holders" shall have the meaning set forth in Section 5.14 hereof.
------------
"Past Katy Group" shall have the meaning set forth in Section 3.18 hereof.
------------
"Preferred Purchase Price" shall have the meaning set forth in Section 2.1
-----------
hereof.
"Preferred Stock Purchase" shall have the meaning set forth in the Recitals
hereof.
"Proxy Statement" shall have the meaning set forth in Section 1.3 hereof.
-----------
"Purchaser" shall have the meaning set forth in Paragraph 1 hereof.
"Purchaser Affiliate" shall have the meaning set forth in Section 5.14 hereof.
------------
"Purchaser Designees" shall have the meaning set forth in Section 1.3 hereof.
-----------
"Purchaser Closing Conditions" shall have the meaning set forth in Section 1.1
-----------
hereof.
"Purchaser Required Approvals" shall have the meaning set forth in Section 4.2
-----------
hereof.
"Purchaser Securities Filings" shall have the meaning set forth in Section 4.6
-----------
hereof.
"Reference Balance Sheet" shall have the meaning set forth in Section 3.5
-----------
hereof.
"Recapitalization" shall have the meaning set forth in the Recitals hereof.
"Refinancing" shall have the meaning set forth in the Recitals hereof.
"Registrable Securities" shall have the meaning set forth in Section 5.15
------------
hereof.
"Registration Statement" shall have the meaning set forth in Annex II hereof.
--------
"Rights" shall have the meaning set forth in the Recitals hereof.
"Rights Agreement" shall have the meaning set forth in the Recitals hereof.
"Schedule 14D-9" shall have the meaning set forth in Section 1.3 hereof.
-----------
"Schedule TO" shall have the meaning set forth in Section 1.2 hereof.
-----------
"SEC" shall have the meaning set forth in Section 1.2 hereof.
-----------
"Securities Act" shall have the meaning set forth in Section 3.3 hereof.
-----------
"Securities Filings" shall have the meaning set forth in Section 3.17 hereof.
------------
"Shareholder Meeting" shall have the meaning set forth in the Recitals.
"Subsidiary" shall have the meaning set forth in Section 3.1 hereof.
-----------
"Superior Proposal" shall have the meaning set forth in Section 5.8 hereof.
-----------
"Tax Return" shall have the meaning set forth in Section 3.18 hereof.
-----------
"Taxes" shall have the meaning set forth in Section 3.18 hereof.
------------
"Termination Date" shall have the meaning set forth in Section 5.1 hereof.
-----------
"Termination Fee" shall have the meaning set forth in Section 7.2 hereof.
-----------
"Unanimously" shall have the meaning set forth in Section 1.3 hereof
-----------
"Voting Agreement" shall have the meaning set forth in the Recitals hereof.
EXHIBIT B
[LETTERHEAD OF BANKERS TRUST COMPANY]
March 27, 2001
KKTY Holding Company L.L.C.
000 Xxxxx Xxxxxx
Xx. Xxxxx, XX 00000
Attention: Xxxxx Xxxxxxxx
Re: Credit Facilities for Recapitalization of Katy Industries,
Inc. - Commitment Letter
Ladies and Gentlemen:
You have advised us that (i) KKTY Holding Company L.L.C.
("Newco") has been newly formed by Kohlberg & Company, L.L.C. ("K&C") for the
purpose of engaging in a recapitalization transaction (the "Recapitalization")
in which up to 2,500,000 of the outstanding shares of capital stock and options
(the "Shares") of Katy Industries, Inc. ("Target") will be purchased by K&C and
other investors satisfactory to us (the "Investors"), at a purchase price of
$8.00 a share (for a maximum aggregate purchase price of $20.0 million),
pursuant to an agreement (the "Recapitalization Agreement") to be entered into
with Target; (ii) in addition to the Shares, pursuant to the Recapitalization
Agreement the Investors will also purchase not less than $30.0 million in
Target's newly-issued convertible preferred stock (the "Convertible Preferred
Stock"), which Convertible Preferred Stock will be convertible into 3,750,000
shares of Target's common stock at a conversion price of $8.00 per share; (iii)
immediately prior to the consummation of the Recapitalization, the Investors
will capitalize Newco with not less than $50.0 million in cash (the "Equity
Financing"), the proceeds of which Equity Financing will be used by Newco to
purchase the Shares and the Convertible Preferred Stock; (iv) in connection with
the Recapitalization, the proceeds of the Convertible Preferred Stock and the
Credit Facilities contemplated hereby will be used by Target to refinance
certain existing indebtedness of Target described below in the approximate
aggregate principal amount of $140.0 million; and (v) the sources and uses of
the funds necessary to consummate the Recapitalization and the other
transactions contemplated hereby are set forth on Annex A to this Commitment
Letter. After giving effect to the Recapitalization and the other transactions
contemplated hereby, the Investors will own 100% of the shares of Newco and
Newco will own no less than 51% of the outstanding common stock of Borrower on a
fully diluted basis.
In addition, you have advised us that, on the Closing Date,
Target and its subsidiaries will repay all indebtedness and terminate all
commitments to make extensions of credit (the "Refinancing") under their
respective existing indebtedness (the "Existing Indebtedness") and the only
outstanding indebtedness of Borrower and its Subsidiaries will be the Credit
Facilities contemplated hereby and capital leases, the amount and terms of which
shall be satisfactory to us. You have further advised us that the Revolving
Credit Facility (as defined
below) will also be used to provide for the working capital requirements and
other corporate purposes of Borrower and its subsidiaries.
The Recapitalization, the Equity Financing, the Convertible
Preferred Stock, the Refinancing, the entering into and borrowings under the
Credit Facilities contemplated hereby and the other transactions contemplated
hereby entered into and consummated in connection with the Recapitalization are
herein referred to as the "Transactions".
------------
Subject to the terms and conditions set forth herein, Bankers
Trust Company ("BTCo") hereby commits to provide all of the up to $150.0 million
of senior bank credit facilities described below. Such senior bank credit
facilities will consist of a term loan of up to $40.0 million (the "Term Loan
Facility") and a Revolving Credit Facility of up to $110.0 million, including a
sublimit for letters of credit in an amount to be agreed upon (the "Revolving
Credit Facility"; together with the Term Loan Facility, the "Credit
Facilities"). Deutsche Banc Alex. Xxxxx Inc., an affiliate of BTCo, will act as
sole arranger, advisor and book runner (the "Arranger") to arrange for other
banks, financial institutions and other "accredited investors" (as defined in
SEC regulations; each such bank, financial institution and accredited investor,
including BTCo, being a "Lender" and, collectively, the "Lenders") to provide a
portion of the Credit Facilities. BTCo will act as administrative agent for the
Lenders (in such capacity, the "Administrative Agent"). Certain of the terms of
the Credit Facilities are set forth in the Summary of Terms attached hereto as
Annex B (the "Term Sheet"). You hereby agree that no other agents, co-agents or
arrangers will be appointed, no other titles will be awarded and no compensation
(other than as expressly set forth in the Term Sheet and accompanying fee
letter) will be paid in connection with the Credit Facilities unless you and we
shall so agree. You also agree that BTCo and the Arranger shall be entitled to
change the terms and conditions, pricing and structure of the Credit Facilities
if the Arranger determines that such changes are advisable to ensure the
successful syndication of the Credit Facilities; provided that the total amount
--------
of Credit Facilities remains unchanged.
BTCo's commitment to provide the financings described in this
letter is subject to the satisfaction of the conditions set forth herein and to
be set forth in the definitive documentation relating to the Credit Facilities,
including without limitation those conditions set forth in the Term Sheet. In
the event that any of the conditions to the initial funding of the Credit
Facilities is not met, we may, in our sole discretion, suggest alternative
financing amounts or structures that ensure adequate protection for the Lenders
or decline to participate in the proposed financing.
You hereby represent that, based on your review and analysis, to
your knowledge (a) all information, other than Projections (as defined below),
which has been or is hereafter made available to the Arranger, BTCo or the other
Lenders by the Investors or Target, or any of their respective affiliates or
representatives in connection with the transactions contemplated hereby (the
"Information") has been reviewed and analyzed by you in connection with the
performance of your own due diligence and, as supplemented as contemplated by
the next sentence, is (or will be, in the case of Information made available
after the date hereof) complete and correct in all material respects and does
not (or will not, as the case may be) contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements contained
therein not materially misleading in light of the circumstances under which such
statements were or are made, and (b) all financial projections concerning Target
or any of its subsidiaries that have been or are hereafter made available to the
Arranger, BTCo or the other Lenders by the Investors, Target or
2
any of their respective affiliates or representatives in connection with the
transactions contemplated hereby (the "Projections") have been (or will be, in
the case of Projections made available after the date hereof) prepared in good
faith based upon reasonable assumptions. You agree to supplement the Information
and the Projections from time to time until the closing date so that the
representation and warranty in the preceding sentence is correct on the closing
date. In arranging and syndicating the Credit Facilities, the Arranger and BTCo
will be using and relying on the Information and the Projections without
independent verification thereof. The representations and covenants contained in
this paragraph shall remain effective until a definitive financing agreement is
executed and thereafter the disclosure representations contained herein shall be
superseded by those contained in such definitive financing agreement.
K&C hereby agrees to pay the reasonable costs and expenses
(including the reasonable fees and expenses of counsel to BTCo, reasonable
professional fees of consultants and other experts and reasonable out-of-pocket
expenses of the Arranger and BTCo, including without limitation syndication
expenses) arising in connection with the preparation, execution and delivery of
this letter and the definitive financing agreements and the syndication of the
Credit Facilities. K&C hereby further agrees to indemnify and hold harmless each
of the Arranger, the Lenders (including BTCo) and each director, officer,
employee, agent, attorney and affiliate thereof (each an "indemnified person")
from and against any losses, claims, damages, liabilities or other expenses to
which the Arranger or a Lender or such indemnified persons may become subject,
insofar as such losses, claims, damages, liabilities (or actions or other
proceedings commenced or threatened in respect thereof) or other expenses arise
out of or in any way relate to or result from the actions of the Investors,
Target or any of their respective affiliates in connection with the
Recapitalization, any of the statements contained in this letter or relating to
the extension of the financing contemplated by this letter, or any use or
intended use of the proceeds of any of the loans and other extensions of credit
contemplated by this letter, and to reimburse each of the Arranger, the Lenders
and each indemnified person for any reasonable legal or other expenses incurred
in connection with investigating, defending or participating in any such
investigation, litigation or other proceeding (whether or not any such
investigation, litigation or other proceeding involves claims made between the
Investors or any third party and the Arranger, such Lender or any such
indemnified person, and whether or not the Arranger, such Lender or any such
indemnified person is a party to any investigation, litigation or proceeding out
of which any such expenses arise); provided, however, that the indemnity
-------- -------
contained herein shall not apply to the extent that such losses, claims,
damages, liabilities or other expenses result from the gross negligence or
willful misconduct of the Arranger, such Lender or indemnified person. The
obligations to indemnify the Arranger, each Lender and such indemnified persons
and to pay such legal and other expenses shall remain effective until the
execution and delivery of a definitive financing agreement and thereafter the
indemnification and expense reimbursement obligations contained herein shall be
superseded by those contained in such definitive financing agreement. None of
the Arranger, BTCo or any other Lender shall be responsible or liable to any
other party or any other person for consequential damages which may be alleged
as a result of this letter. The foregoing provisions of this paragraph shall be
in addition to any rights that the Arranger, any Lender or any indemnified
person may have at common law or otherwise.
In connection with the services to be provided hereunder by BTCo,
BTCo may employ the services of its affiliates, including without limitation
Deutsche Banc Alex. Xxxxx Inc. BTCo may share with such affiliates, and such
affiliates may share with BTCo, any information
3
concerning the Investors, Target and their respective affiliates; provided that
--------
BTCo and such affiliates agree to hold any non-public information confidential
in accordance with their respective customary policies relating to non-public
information. Any such affiliate so employed (and its directors, officers,
employees, agents, attorneys and affiliates) shall be entitled to all of the
benefits afforded to BTCo hereunder.
You further acknowledge that BTCo and its affiliates may be
providing or proposing to provide debt financing, equity capital or other
services (including financial advisory services) to other companies in respect
of which you or your affiliates may have conflicting interests regarding the
transactions described herein and otherwise. BTCo and its affiliates will not
use confidential information obtained from you or any of your affiliates by
virtue of the transactions contemplated by this letter or their other
relationships with you and your affiliates in connection with the performance by
BTCo or its affiliates of service for such other companies, and BTCo and its
affiliates will not furnish any such information to such other companies. You
also acknowledge that BTCo has no obligation to use any confidential information
obtained from such other companies in connection with the transactions
contemplated by this letter, or to furnish any such confidential information to
you or any of your affiliates.
This letter is confidential and shall not be disclosed by you to
any person other than your accountants, attorneys and, to the extent approved by
BTCo, other advisors, and to Target, its stockholders and its attorneys and, to
the extent approved by BTCo, other advisors, and then only on a confidential
basis and in connection with the Recapitalization and the related transactions
contemplated herein. Additionally, you may make such disclosures of this letter
as are required by law or judicial process or as may be required or appropriate
in response to any summons or subpoena or in connection with any litigation;
provided that you will use your best efforts to notify us of any such disclosure
--------
prior to making such disclosure.
Our offer will terminate on March 28, 2001 unless on or before
that date you sign and return an enclosed counterpart of this letter together
with an executed copy of the accompanying letter concerning certain fee
arrangements. This letter supersedes our financing letters to you dated as of
January 3 and January 9, 2001. The Credit Facilities referred to herein shall in
no event be available unless the Recapitalization and the related transactions
described herein have been consummated on or prior to June 30, 2001.
This letter agreement shall be governed by and construed in
accordance with the internal laws of the State of New York. This letter
agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed an original, but all such counterparts together shall constitute
but one and the same instrument.
[Remainder of page intentionally left blank]
4
We appreciate having been given the opportunity by you to be
involved in this transaction.
Very truly yours,
BANKERS TRUST COMPANY
By: _______________________________
Name:
Title:
AGREED AND ACCEPTED
this 26th day of March, 2001
KKTY HOLDING COMPANY L.L.C.
By: _________________________
Title:_________________________
KOHLBERG & COMPANY, L.L.C.
(with respect to the expense reimbursement, indemnification
and confidentiality obligations on pages 3, 4 and 5)
By: _________________________
Title:_________________________
5
ANNEX A
-------
Sources and Uses of Funds
-------------------------
(in $ in millions)
------------------
Sources Amount Uses
------- ------ ----
Revolving Credit Facility/1/ $ 77.0 Cash purchase price of Target $ 20.0
common shares
Term Loan Facility $ 40.0 Refinancing existing indebtedness/2/ $140.0
Common Equity $ 20.0 Estimated transaction fees and $ 7.0
expenses
Convertible Preferred Stock $ 30.0
------ ------
Total Sources $167.0 Total Uses $167.0
====== ======
__________________________________
/1/ $110.0 million of commitments.
/2/ Assumes application of not less than $20.0 million in net cash proceeds
from the sale of Xxxxxxxx Precision Metals prior to the consummation of the
Transactions.
A-1
ANNEX B
-------
KATY INDUSTRIES, INC.
SUMMARY OF TERMS
CREDIT FACILITIES
The following summarizes selected terms of the senior bank credit
facilities to be utilized in connection with the proposed recapitalization (the
"Recapitalization") of Katy Industries, Inc. ("Target") by Kohlberg & Company,
L.L.C. ("K&C") and certain other investors. This Summary of Terms is intended
merely as an outline of certain of the material terms of such senior bank credit
facilities. It does not include descriptions of all of the terms, conditions
and other provisions that are to be contained in the definitive documentation
relating to such senior bank credit facilities and it is not intended to limit
the scope of discussion and negotiation of any matters not inconsistent with the
specific matters set forth herein. All terms defined in the financing letter to
which this Summary of Terms is attached and not otherwise defined herein shall
have the same meanings when used herein.
I. THE CREDIT FACILITIES
Borrower: Target.
--------
Sole Advisor, Arranger and Deutsche Banc Alex. Xxxxx Inc. (in such
--------------------------
Book Runner: capacity, the "Arranger").
-----------
Lenders: Bankers Trust Company ("BTCo") and a syndicate
-------
of banks, financial institutions and other
accredited investors (the "Lenders").
Administrative Agent for BTCo (in such capacity, the "Administrative
------------------------
the Lenders: Agent").
-----------
Type and Amount: The Credit Facilities shall consist of the
---------------
Term Loan Facility and the Revolving Credit
Facility.
Term Loan Facility. The Term Loan will have a
final maturity date of 5 years after the date
of the initial funding under the Credit
Facilities (the "Closing Date") and be in an
original principal amount of up to $40.0
million (subject to borrowing base limits
described below). Quarterly amortization will
be required in aggregate annual amounts of
$8.0 million. The Lenders' commitments to lend
the Term Loan will terminate immediately upon
the initial funding thereof.
The maturity of the Term Loan Facility may be
altered at the discretion of BTCo and the
Arranger if so required by market conditions;
provided that the aggregate principal amount
--------
of the Term Loan Facility will equal $40.0
million.
S-1
Revolving Credit Facility. The Revolving Credit
Facility will have a final maturity date of 5 years
after the Closing Date and be in an original amount
of up to $110.0 million (subject to borrowing base
limits described below) under which revolving loans
may be made and including a sublimit under which
standby letters of credit may be issued up to an
amount to be agreed upon.
Use of Proceeds: Proceeds will be applied in accordance with the
--------------- sources and uses of funds described on Annex A
attached to the Commitment Letter. The Revolving
Credit Facility will also be available to provide
for the working capital requirements and general
corporate purposes of Borrower and its subsidiaries
and, subject to a sublimit to be agreed upon, to
issue standby letters of credit to support workers'
compensation contingencies and for other corporate
purposes to be agreed upon.
Guarantors: Newco and all subsidiaries of Borrower; provided
---------- --------
that in the event there are material adverse tax
consequences to Borrower as a result of a guarantee
being given by a foreign subsidiary of Borrower, no
guarantee by such foreign subsidiary will be
required.
Security: All extensions of credit to Borrower and all
-------- guaranties of subsidiaries of Borrower will be
secured by all existing and after-acquired personal
property (including without limitation inventory,
accounts receivable, instruments, machinery and
equipment, assignment of all contract rights,
general intangibles, patents, trademarks,
tradestyles and tradenames, and all proceeds
thereof) of Borrower and the subsidiary guarantors,
including a pledge of all intercompany notes and a
pledge of 100.0% of the stock of all domestic
subsidiaries of Borrower and the subsidiary
guarantors and 66% of the stock of all foreign
subsidiaries of Borrower and the subsidiary
guarantors.
The Credit Facilities shall also be secured by
first priority liens on all existing and after-
acquired real property fee interests and all
leasehold interests of Borrower and the subsidiary
guarantors, subject to exceptions to be agreed
upon.
The Credit Facilities shall also be secured by a
pledge of all of the stock of Borrower owned by
Newco.
To effect such liens securing the Credit
Facilities, Borrower and the subsidiary guarantors
and, with respect to the pledge of the stock of
Borrower, Newco, shall execute and deliver to the
Administrative Agent all security agreements,
pledge agreements, financing statements, deeds of
trust, mortgages, collateral access agreements and
other documents and instruments as are necessary to
grant a first priority perfected security interest
in and lien upon all such property of Newco,
Borrower and the subsidiary guarantors, subject to
customary
A-2
permitted liens to be agreed upon.
Negative pledge on the stock of Borrower and all
assets of Borrower and its subsidiaries, subject to
exceptions to be agreed upon.
Interest Rates: All amounts outstanding under the Credit Facilities
--------------
shall bear interest, at Borrower's option, at the
Base Rate plus the Applicable Margin or at the
----
reserve adjusted Euro-Dollar Rate plus the
----
Applicable Margin; provided that Euro-Dollar Loans
--------
will not be available until the earlier of (i) 90
days after the Closing Date and (ii) the successful
completion (in the Administrative Agent's
determination) of the syndication of the Credit
Facilities. "Applicable Margin" shall mean a
percentage per annum initially equal to, in the
case of Term Loans and Loans under the Revolving
Credit Facility, (a) in the case of such Loans
maintained as Base Rate Loans, 1.50% per annum and
(b) in the case of such Loans maintained as Euro-
Dollar Loans, 2.50% per annum.
Notwithstanding the foregoing, the Applicable
Margin with respect to Term Loans and the Revolving
Credit Facility shall be subject to reduction in
increments of 0.25% (not to exceed 0.50% in the
aggregate), so long as no default or event of
default then exists, based on certain financial
performance tests to be determined.
As used herein, the terms "Base Rate" and "reserve
adjusted Euro-Dollar Rate" shall have meanings
customary and appropriate for financings of this
type, and the basis for calculating accrued
interest and the interest periods for loans bearing
interest at the reserve adjusted Euro-Dollar Rate
("Euro-Dollar Loans") shall be customary and
appropriate for financings of this type. After the
occurrence and during the continuation of an event
of default, interest shall accrue at a rate equal
to the rate on loans bearing interest at the rate
determined by reference to the Base Rate ("Base
Rate Loans") plus an additional two percentage
points (2.00%) per annum and shall be payable on
demand.
Interest Payments: Monthly for Base Rate Loans; on the last day of
-----------------
selected interest periods (which shall be 1, 2, 3
or, subject to Lenders' approval, 6 months) for
Euro-Dollar Loans (and at the end of every three
months, in the case of interest periods of longer
than three months); and upon prepayment, in each
case payable in arrears and computed on the basis
of a 360-day year.
Borrowing Base: Availability of loans and letters of credit under
--------------
the Revolving Credit Facility will be subject to a
borrowing base (consisting of (a) 65% of Eligible
Inventory (to be defined), subject to a maximum $75
million inventory sublimit and (b) 85% of Eligible
Accounts Receivable (to be defined)). Borrowing
base certificates and reports to be delivered
monthly. Availability of loans under the Term Loan
Facility will be subject to a borrowing base (equal
to 90% of Orderly Liquidation
A-3
Value of Eligible M&E (to be defined) plus 60% of
the appraised fair market value (the "Real Property
Lendable Value") of Eligible Real Property (to be
defined)). Eligibility and any required reserves
will be determined by Administrative Agent in its
sole discretion.
Letter of Credit Fee: The letter of credit fee shall be a percentage
--------------------
equal to the applicable margin for Euro-Dollar
Loans, which shall be shared by all Lenders, in
each case based upon the applicable percentage
multiplied by the amount available from time to
time for drawing under such letter of credit.
Commitment Fees: Commitment fees equal to 0.50% per annum (the
---------------
"commitment fee percentage") times the daily
average unused portion of the Revolving Credit
Facility shall accrue from the Closing Date and
shall be computed on the basis of a 360-day year
and payable quarterly in arrears and upon the
maturity or termination of the Revolving Credit
Facility.
Voluntary Prepayments and The Credit Facilities may be prepaid in whole or in
-------------------------
Commitment Reductions: part without premium or penalty (EuroDollar Loans
---------------------
prepayable only on the last days of related
interest periods or if the Borrower pays all
breakage costs) and the Lenders' commitments
relative thereto reduced or terminated upon such
notice and in such amounts as may be agreed upon.
Voluntary prepayments of the Term Loan Facility
shall be applied to the scheduled installments
thereof in a manner to be determined.
Mandatory Prepayments and Borrower shall prepay the loans and/or the
-------------------------
Commitment Reductions: commitments under the Revolving Credit Facility
---------------------
shall be reduced (subject to certain basket amounts
to be agreed upon) in amounts equal to:
Asset Sale Proceeds: 100.0 % of the net after-tax
cash proceeds of the sale or other disposition of
any property or assets of Borrower or any of its
subsidiaries (including insurance and condemnation
proceeds), other than (a) net cash proceeds of
sales or other dispositions of inventory in the
ordinary course of business and (b) certain other
exceptions to be negotiated, in each case payable
no later than the first business day following the
date of receipt;
Proceeds of Equity Offerings: 100% of the net cash
proceeds received from the issuance of equity
securities of Newco, Borrower or any of its
subsidiaries, in each case payable no later than
the first business day following the date of
receipt;
Proceeds of Debt Issuances: 100% of the net cash
proceeds received from certain issuances of debt
securities by Newco, Borrower or any of its
subsidiaries, in each case payable no later than
the first business day
A-4
following the date of receipt;
Excess Cash Flow: 75% of excess cash flow (to be
defined) for each fiscal year, payable within 90
days after the end of the applicable fiscal year.
All such amounts shall be applied first to the
prepayment of the Term Loan Facility and after
payment in full of the Term Loan Facility to the
prepayment of the Revolving Credit Facility and the
reduction of the commitments thereunder. All such
mandatory prepayments of the Term Loan Facility
shall be applied to the scheduled installments
thereof in inverse order of maturity.
Representations and Customary and appropriate, including without
-------------------
Warranties: limitation due organization and authorization,
----------
enforceability, financial condition, no material
adverse changes, title to properties, liens,
litigation, payment of taxes, no material adverse
agreements, compliance with laws, employee benefit
liabilities, environmental liabilities, perfection
and priority of liens securing the Credit
Facilities, full disclosure, and the accuracy of
all representations and warranties in the
Definitive Recapitalization Documents (as defined
below under the heading "Recapitalization Structure
and Documentation").
Covenants: Customary and appropriate affirmative and negative
---------
covenants, including but not limited to limitations
on other indebtedness, liens, investments,
guarantees, restricted junior payments (dividends,
redemptions and payments on subordinated debt),
mergers and acquisitions, sales of assets, leases,
transactions with affiliates, conduct of business
and other provisions customary and appropriate for
financings of this type, including exceptions and
baskets to be mutually agreed upon. Financial
covenants will include a maximum leverage test, a
minimum EBITDA test and a maximum capital
expenditure test.
Events of Default: Customary and appropriate (subject to customary and
-----------------
appropriate grace periods), including without
limitation failure to make payments when due,
defaults under other agreements or instruments of
indebtedness, noncompliance with covenants,
breaches of representations and warranties,
bankruptcy, judgments in excess of specified
amounts, invalidity of guaranties, impairment of
security interests in collateral, and "changes of
control" (to be defined in a mutually agreed upon
manner).
II. CONDITIONS TO LOANS
Certain Conditions Conditions precedent to the initial funding of the
------------------
Precedent to Initial Credit Facilities will include, without limitation,
--------------------
Funding: the following:
-------
1. Satisfactory Documentation. The definitive
--------------------------
documentation
A-5
evidencing the Credit Facilities (the "Definitive
Financing Documents") shall be prepared by counsel
to BTCo and such Definitive Financing Documents and
all documents required to be delivered thereunder
including without limitation customary legal
opinions, title insurance, environmental reports,
borrowing base certificates (which in the case of
the Revolving Credit Facility shall demonstrate as
of the Closing Date an additional borrowing base
availability of at least $15.0 million) shall have
been delivered and be in form and substance
satisfactory to the Administrative Agent and the
Lenders.
2. Corporate Structure, Management, etc. The
------------------------------------
corporate, capital and ownership structure of
Borrower and its subsidiaries shall be satisfactory
to the Administrative Agent and the Lenders in all
respects. The Administrative Agent shall be
satisfied with senior management and their
employment contracts and proposed ownership
interests in Newco and Borrower after consummation
of the Recapitalization and shall be satisfied with
the shareholder agreements among Borrower and its
shareholders.
3. Recapitalization Structure and Documentation. The
--------------------------------------------
structure utilized to consummate the
Recapitalization (including a tender offer (if
any)) and the definitive documentation relating
thereto (the "Definitive Recapitalization
Documents") shall be in form and substance
satisfactory to the Administrative Agent and the
Lenders, and the Definitive Recapitalization
Documents shall be in full force and effect and all
aspects of the Recapitalization (including without
limitation the acquisition of not less than
2,000,000, nor more than 2,500,000, shares of
Target's common stock by the Investors) shall have
been consummated pursuant to the Definitive
Recapitalization Documents, no provision of which
shall have been amended, supplemented, waived or
otherwise modified in any material respect without
the prior written consent of Administrative Agent.
4. Equity Capitalization. On or prior to the Closing
---------------------
Date, Newco shall have received from Investors not
less than $50.0 million in cash proceeds from the
issuance of common equity (in minimum amounts for
K&C and other Investors to be agreed upon), all of
which cash proceeds shall be applied to the
purchase of up to 2,500,000 outstanding common
shares of Target at a purchase price of $8.00 per
share (for an aggregate maximum purchase price of
$20.0 million), and $30.0 million in newly-issued
convertible preferred stock of Target (the
"Convertible Preferred Stock"), which Convertible
Preferred Stock shall be convertible at a price of
$8.00 per share into 3,750,000 shares of Target
common stock. In the event that you purchase less
than 2,500,000
A-6
outstanding shares, the amount of the Investors'
common equity contribution to Newco may be
correspondingly reduced. In addition to the equity
purchases to be made under the Definitive
Recapitalization Documents, in the event that
Administrative Agent's environmental
investigations, in Administrative Agent's
reasonable judgment, indicate that potential
environmental liabilities impair the Real Property
Lendable Value of such collateral, the Investors
shall purchase additional common equity or
Convertible Preferred Stock of Target in an amount
equal to the amount of such impairment. All equity
securities of Newco and Borrower shall have terms
and conditions satisfactory to the Administrative
Agent and the Lenders. Upon consummation of the
Recapitalization, the Investors shall, directly or
indirectly, control Borrower and its subsidiaries.
5. Existing Debt. Concurrently with the initial
-------------
funding under the Credit Facilities, all of the
outstanding existing indebtedness of Target and its
subsidiaries shall have been repaid in full, all
commitments relating thereto shall have been
terminated, and all liens and security interests
related thereto shall have been terminated or
released, in each case on terms satisfactory to the
Administrative Agent and the Lenders. Prior to the
consummation of the Recapitalization, Target's
existing indebtedness shall have been permanently
reduced by not less than $20.0 million as the
result of the application of the net cash proceeds
received by Target from the sale of Xxxxxxxx
Precision Metals. The only outstanding indebtedness
of Target and its subsidiaries after giving effect
to the Transactions shall be the Credit Facilities
and capital leases, the amount and terms of which
shall be satisfactory to the Administrative Agent
and the Lenders.
6. Certain Approvals and Agreements. All governmental
--------------------------------
and third party approvals necessary or advisable in
connection with the Recapitalization, the
financings contemplated thereby and the continuing
operations of the business of Target and its
subsidiaries shall have been obtained and be in
full force and effect, and all applicable waiting
periods shall have expired without any action being
taken or threatened by any competent authority
which would restrain, prevent or otherwise impose
adverse conditions on the Recapitalization or the
financing thereof.
7. Security. The Administrative Agent, for the benefit
--------
of the Lenders, shall have been granted on the
Closing Date a perfected security interest in all
assets to the extent described above under the "The
Credit Facilities - Security".
8. Financial Statements. The Lenders shall have
--------------------
received (i) audited financial statements of Target
and its subsidiaries for the fiscal
A-7
year ended December 31, 2000, which audited
financial statements shall be in form and substance
satisfactory to the Arranger and the Administrative
Agent, (ii) unaudited financial statements of
Target and its subsidiaries for the fiscal quarters
ended not later than 45 days prior to the Closing
Date and monthly financial statements for any
fiscal period of less than three months, (iii) a
pro forma balance sheet of Target and its
---------
subsidiaries as of the Closing Date after giving
effect to the Transactions and the transactions
contemplated hereby, and (iv) projected financial
statements (including balance sheets and statements
of operations, stockholders' equity and cash flows)
of Borrower and its subsidiaries for the five-year
period after the Closing Date, all of the foregoing
to be (x) substantially consistent with any
financial statements for the same periods delivered
to the Administrative Agent prior to the date of
the commitment letter of BTCo to which this Summary
of Terms is attached and, in the case of any such
financial statements for subsequent periods,
substantially consistent with any projected
financial results for such periods delivered to the
Administrative Agent prior to the date of such
letter and (y) otherwise in form and substance
satisfactory to the Administrative Agent and the
Lenders.
9. No Material Adverse Change. Since December 31,
--------------------------
1999, there shall have occurred no material adverse
change in the business, operations, properties,
assets, liabilities, condition (financial or
otherwise) or prospects of Target and its
subsidiaries, taken as a whole, or in the facts and
information as presented to BTCo as of the date of
this letter.
10. No Disruption of Financial and Capital Markets.
----------------------------------------------
There shall have been no material adverse change
after the date hereof in the syndication markets
for credit facilities similar in nature to the
Credit Facilities, and there shall not have
occurred and be continuing a material disruption of
or material adverse change in the financial,
banking or capital markets that would have an
adverse effect on such syndication market, in each
case as determined by BTCo in its sole discretion.
11. Cash Management. The cash management system of
---------------
Borrower and its subsidiaries shall be in form and
substance satisfactory to the Administrative Agent.
Conditions to All The conditions to all borrowings will include
----------------- requirements relating to prior written notice of
Borrowings: borrowing, borrowing base certificates, the accuracy of
---------- representations and warranties, and the absence of any
default or potential event of default, and will
otherwise be customary and appropriate for financings
of this type.
A-8
III. MISCELLANEOUS
Syndication: A syndicate of financial institutions will be
----------- arranged by the Arranger. BTCo and its affiliates
will act as sole and exclusive Administrative
Agent, collateral agent, documentation agent, and
syndication agent for the Credit Facilities and
Deutsche Banc Alex. Xxxxx Inc. will act as sole and
exclusive advisor, book runner and arranger for the
Credit Facilities. K&C, Newco and Target shall
cooperate with BTCo and the Arranger in the
syndication of the Credit Facilities (such
cooperation to include, without limitation,
participating in meetings with the Lenders and
assisting in the preparation of a Confidential
Information Memorandum and other materials to be
used in connection with such syndication) and shall
provide and cause their respective advisors to
provide all information reasonably deemed necessary
by BTCo to successfully complete such syndication.
K&C, Newco and Target also agree to coordinate any
other financings by Borrower or any of its
affiliates with the Arranger's primary syndication
efforts relating to the Credit Facilities.
The Lenders may assign all or, in an amount of not
less than $2.5 million (or such lesser amount as
may constitute the assigning Lender's entire
commitment), any part of their shares of the Credit
Facilities to their affiliates, to other Lenders,
or to one or more banks or other entities that are
eligible assignees (to be defined in the Definitive
Financing Documents) which are acceptable to the
Administrative Agent, such consent not to be
unreasonably withheld, and upon such assignment any
such affiliate, bank or entity shall become a
Lender for all purposes of the Definitive Financing
Documents; provided that assignments made to
--------
affiliates and other Lenders shall not be subject
to the $2.5 million minimum assignment requirement.
The Lenders will have the right to sell
participations, subject to customary limitations on
voting rights, in their shares of the Credit
Facilities.
Requisite Lenders: Requisite Lenders shall mean Lenders holding in the
----------------- aggregate more than 50.0% of the commitments under
the Credit Facilities.
Taxes, Reserve All payments are to be made free and clear of any
-------------- present or future taxes (other than franchise taxes
Requirements & and taxes on overall net income), imposts,
-------------- assessments, withholdings, or other deductions
Indemnities: whatsoever. Foreign Lenders shall furnish to the
----------- Administrative Agent (for delivery to Borrower)
appropriate certificates or other evidence of
exemption from U.S. federal income tax withholding.
Borrower and its subsidiaries shall indemnify the
Lenders against all increased costs of capital
resulting from reserve requirements or otherwise
imposed, in each case subject to customary
increased costs, capital adequacy and similar
provisions.
A-9
Governing Law and Borrower and its subsidiaries will submit to the
----------------- nonexclusive jurisdiction and venue of the federal
Jurisdiction: and state courts of the State of New York and will
------------ waive any right to trial by jury. New York law
shall govern the Definitive Financing Documents.
BTCo's Counsel: O'Melveny & Xxxxx LLP.
--------------
A-10
EXHIBIT C
Term Sheet - Classification of Board of Directors and Convertible
Preferred Stock
--------------------------------------------------------------------------------
Classified Board of The Board of Directors of Katy shall be Directors
Directors classified, with respect to the time for which the
directors severally hold office, into two classes,
one class comprising the four directors who are not
Purchaser Designees to be initially elected for a
one-year term expiring at the annual meeting of
Katy's shareholders to be held in 2002, and a second
class comprising the five Purchaser Designees to be
elected initially for a two-year term expiring at the
annual meeting of Katy's shareholders to be held in
2003, with the directors in each class to hold office
until their respective successors are duly elected
and qualified. At each succeeding annual meeting of
Katy's shareholders, directors elected to succeed
those directors whose terms then expire shall be
elected for a term of office to expire at the second
succeeding annual meeting of shareholders after such
election.
--------------------------------------------------------------------------------
Name of security Convertible Preferred Stock, $100 par value
--------------------------------------------------------------------------------
Par value $100
--------------------------------------------------------------------------------
Number of shares to be 600,000
authorized
--------------------------------------------------------------------------------
Number of shares to be 400,000
validly issued, fully paid
and nonassessable at the
Closing Date
--------------------------------------------------------------------------------
Preferred Purchase Price $100 per share, or an aggregate amount of $40,000,000
--------------------------------------------------------------------------------
Conversion rights At the option of the holder of Convertible
Preferred Stock, a holder can convert any
whole number of shares of Convertible
Preferred Stock, at any time after the
earlier of:
(a) the fifth anniversary of the Closing
Date;
(b) the approval by Katy's Board of
Directors of a merger, consolidation or
other business combination between Katy
and another entity (except where Katy is
the surviving entity and no change of
control of Katy occurs as a result of
the transaction) or a sale or other
disposition of all or substantially all
of Katy's assets;
(c) the authorization by Katy's Board of
Directors of, or other corporate action
taken to effect, the liquidation,
dissolution or winding up of Katy; and
(d) the solicitation of proxies from the
holders of any class or classes of
capital stock of Katy for any annual or
special meeting of shareholders, however
called, at which an election for
directors of Katy is held, or any
solicitation of written consent of the
holders of any class or classes of
capital stock of Katy with respect to
the election of directors, against the
election as director of any nominee
designated by the holders of the
Convertible Preferred Stock or for
removal of any incumbent director
originally nominated by the holders of
the Convertible Preferred Stock.
--------------------------------------------------------------------------------
2
--------------------------------------------------------------------------------
Conversion ratio For each share of Convertible Preferred Stock
converted the holder will receive twelve and
one-half Common Shares (the "Conversion
Ratio"). The Conversion Ratio will be
adjusted for any stock split, stock
combination, stock dividend or other
recapitalization and will be subject to
protection provisions in the event of
dilutive transactions involving the sale of
shares of Katy Common Stock at a price per
share, the grant of rights, options or
warrants having an exercise per share, or the
sale of securities convertible into Keystone
Common Stock having a conversion price per
share, in each case, less than $8.00 per
Common Share.
--------------------------------------------------------------------------------
Procedure for conversion Standard conversion procedures, including the
following:
The holder is to give Katy a notice
specifying the number of shares of
Convertible Preferred Stock to be converted,
the conversion date and the names of persons
to become the holders of the Common Shares
issued on conversion.
There will be no fractional issues of Katy
Common Stock upon conversion. In lieu of
fractional shares Katy will pay the
conversion value of such fractional share in
cash.
Katy will pay any documentary, stamp or
similar tax on issuing the certificates for
Common Shares (except that if the certificate
is to be issued to a person other than the
holder, then that person must pay any such
tax payable on the transfer).
--------------------------------------------------------------------------------
3
--------------------------------------------------------------------------------
Covenants of Katy The shares of Convertible Preferred Stock
will be validly issued, fully paid and
nonassessable on the Closing Date.
The Common Shares that Katy issues upon the
conversion of the Convertible Preferred Stock
will be validly issued, fully paid and
nonassessable.
Katy will reserve and keep available out of
its unauthorized but unissued shares of Katy
Common Stock, for the purpose of issuing
Common Shares on conversion of the
Convertible Preferred Stock, the number of
Common Shares issuable on conversion of the
outstanding shares of Convertible Preferred
Stock.
--------------------------------------------------------------------------------
Dividends None
--------------------------------------------------------------------------------
Liquidation preference If Katy is liquidated, dissolved or wound up,
no distribution will be made to the holders
of shares of Katy Common Stock or any other
class of equity security authorized
hereafter, until the holders of the
Convertible Preferred Stock have received
their liquidation preference equal to the par
value for each share of Convertible Preferred
Stock held (the "Liquidation Preference").
If, when Katy is liquidated, dissolved or
wound up, the assets available for
distribution among the holders of the
Convertible Preferred Stock are insufficient
to pay the Liquidation Preference, the assets
legally available for distribution to such
holders shall be distributed ratably among
them in accordance with their holdings of
Convertible Preferred Stock.
--------------------------------------------------------------------------------
A merger, consolidation or other business
combination between Katy and any other
entity, or a sale or other disposition of all
or substantially all of Katy's assets, will
not be treated as a liquidation, dissolution
or winding up of Katy.
--------------------------------------------------------------------------------
Maturity Perpetual, subject to redemption by Katy.
--------------------------------------------------------------------------------
4
--------------------------------------------------------------------------------
Redemption The Convertible Preferred Stock will not be
subject to a sinking fund or other
obligations of Katy to redeem or retire the
Convertible Preferred Stock. The holder shall
have no right to compel Katy to redeem the
Convertible Preferred Stock. The Convertible
Preferred Stock shall be redeemable in whole,
but not in part, at Katy's option at any time
on or after the 20th anniversary of the
Closing Date. The redemption price per share
of Convertible Preferred Stock shall equal
the par value thereof, and shall be payable
in cash to the order of the holder on the
30th day after notice of redemption shall
have been given to the holders, subject to
each holder's right to convert any or all of
its shares of Convertible Preferred Stock
into Common Shares.
--------------------------------------------------------------------------------
Preemptive rights The holders have no preemptive rights with
respect to any shares of Katy's capital stock
or any other securities of Katy convertible
into or carrying rights or option to buy
shares of capital stock, without prejudice to
the provisions for adjustment of the
Conversion Ratio in the event of dilutive
transactions.
--------------------------------------------------------------------------------
Registration rights In the event of a registration of Common
Shares by Katy pursuant to a registration
statement under the Securities Act of 1933,
the holder shall have customary piggy-back
rights in respect of the Common Shares
issuable upon conversion of the Convertible
Preferred Stock. In connection with the
conversion of the Convertible Preferred Stock
the holders shall have the right to demand a
registration of the underlying Common Shares,
provided that the holders shall not be
entitled to demand a registration on more
than three (3) occasions.
--------------------------------------------------------------------------------
Voting rights None (except as required by law).
--------------------------------------------------------------------------------
5
--------------------------------------------------------------------------------
Special rights Katy shall not, without first obtaining the
approval (by vote or written consent) of the
holders of at least a majority of the then
outstanding shares of Convertible Preferred
Stock:
(a) authorize or issue any class or series of
equity security having equal or superior
rights as to payment upon liquidation,
dissolution or a winding up of Katy;
(b) amend its Certificate of Incorporation or
By-Laws in any way, or enter into a
merger, consolidation, reorganization,
recapitalization or sale of all or
substantially all of its assets, in any
case which adversely affects the rights
and preferences of the holders of
Convertible Preferred Stock as a class
(except that Xxxx xxx complete a reverse-
split of the Katy Common Stock without
the consent of the holders of the
Convertible Preferred Stock);
(c) engage in any transaction which would
impair or reduce the rights of the
holders of the Convertible Preferred
Stock as a class.
--------------------------------------------------------------------------------
6
