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Exhibit 10.2
PROMISSORY NOTE
$1,829,531 July 31, 1997
For value received, Robert Covalt ("Executive") promises to pay to
the order of Sovereign Specialty Chemicals, L.P., a Delaware limited partnership
(the "Partnership"), at its offices in 225 W. Washington, Suite 2200, Chicago,
IL 60606, or such other place as designated in writing by the holder hereof, the
aggregate principal sum of one million eight hundred twenty-nine thousand five
hundred thirty-one dollars ($1,829,531). This Note was issued in connection with
and is subject to the terms of the Executive Securities Agreement, dated as of
the date hereof, between Sovereign Speciality Chemicals, L.P., a Delaware
limited partnership (the "Partnership"), Sovereign Chemicals Corporation, a
Delaware corporation (the "General Partner") and Executive (the "Executive
Agreement"). Unless otherwise provided herein, capitalized terms shall have the
same meanings as set forth in the Executive Agreement.
Interest shall accrue on the outstanding principal amount of this
Note at a rate equal to the lesser of (i) the prime rate as announce from time
to time by The First National Bank of Chicago or (ii) the highest rate permitted
by applicable law, and shall be payable at such time as the principal of this
Note becomes due and payable. Interest shall compound annually on each
anniversary of the date of issuance of this Note.
The then outstanding principal amount of this Note and all accrued
interest thereon is due and payable on the date the Employment Period
terminates. Executive may, at any time and from time to time without prepayment
penalty, prepay all or any portion of the outstanding principal amount of this
Note. Executive shall prepay a portion of this Note equal to (i) as and when
received, the amount of any distributions from time to time paid or distributed
with respect to Securities (except, so long as Executive is not in default of
this Note, distributions paid or distributed pursuant to paragraph 4.1(b) of the
Partnership Agreement), for which purpose Executive hereby authorizes and
directs the Partnership and the General Partner (on his own behalf and on behalf
of his Permitted Transferees) to directly apply such dividends and distributions
to the prepayment of this Note, (ii) as and when received, an amount equal to
the proceeds from any Transfer of Securities and (iii) as and when received, an
amount equal to 50% of all annual bonuses (before taxes) paid to Executive
pursuant to the Employment Agreement, for which purpose Executive hereby
authorizes and directs the Partnership and the General Partner to directly apply
such amounts to the prepayment of this Note. Payments received by the holder
hereof shall be applied towards the amount due under this Note (i) first, to the
payment of all accrued and unpaid interest on this Note at the time of such
payment and (ii) second, to the payment of principal of this Note.
As security for Executive's payment in full of this Note and all
interest thereon and other amounts payable in accordance with this Note,
Executive hereby assigns, transfers and delivers to the Partnership and grants
the Partnership a continuing security interest in Executive's right, title and
interest in and to the Securities and all cash, securities, distributions,
payments, rights and other
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property at any time and from time to time received, receivable or otherwise
distributed in respect of or in exchange for any of the Securities
(collectively, the "Collateral"), to have and to hold, together with all rights,
titles, interests, privileges and preferences appertaining or incidental
thereto, unto the Partnership, its successors and assigns, forever, subject to
the terms and conditions of this Note. Notwithstanding the foregoing, the
Partnership shall not have a security interest in, and the term "Collateral"
shall not include, any distributions paid or distributed pursuant to Section
4.1(b) of the Partnership Agreement.
Notwithstanding anything to the contrary contained herein, during
the term of this Note until such time as there exists a default in the payment
of principal or interest on this Note or any other default under this Note,
Executive shall be entitled to all voting rights with respect to the Securities
and shall be entitled to receive all distributions paid in respect of the
Securities, subject to the right of the Partnership to apply such distributions
to the prepayment of principal and accrued interest under this Note. Upon the
occurrence of and during the continuance of any such default, Executive shall no
longer be able to vote the Securities and Executive hereby authorizes and
directs the Partnership and the General Partner to apply all such distributions
payable on the Securities as additional security hereunder to the extent not
otherwise paid to the Partnership for application to the prepayment of principal
and accrued interest under this Note.
In the event Executive fails to pay any amounts when due, Executive,
subject to the following paragraph shall pay to the holder hereof, in addition
to such amounts due, all costs of collection, including reasonable attorneys
fees. To the extent permitted by law and subject to the following paragraph, in
case Executive shall fail to make any payments required hereunder, holder shall
have the right, in addition to all other rights and remedies available to it, to
receive for application to the unpaid balance payment of this Note, and
Executive hereby authorizes and directs the Partnership and the General Partner
to apply to the unpaid balance of this Note, any and all obligations of the
General Partner and the Partnership to Executive under the Executive Agreement
or under the Employment Agreement; provided that any severance payments owed to
Executive under the Employment Agreement which are subject to payment to the
Partnership for application to the unpaid balance of this Note shall be so paid
to the Partnership in equal amounts from each installment payment during the
Noncompete Period (as defined in the Employment Agreement); such rights shall
exist whether or not the holder hereof shall have made any demand under this
Note and whether or not this Note has matured.
Notwithstanding anything to the contrary herein, holder hereby
agrees that Executive shall not have personal liability with respect to any
amounts owed under this Note, except as set forth in this paragraph and except
for Executive's obligation to pay to the Partnership certain amounts for
application to the unpaid balance of this Note as set forth in this Note. The
holder's claim against Executive (other than Executive's obligation to pay, and
the Partnership's right to be paid, certain amounts for application to the
unpaid balance of this Note as set forth in this Note) shall not at any time
exceed the Aggregate Recourse Amount determined as of such time. "Aggregate
Recourse Amount" means as of any time an amount equal to (A) 50% of the
aggregate original principal amount of this Note, minus (B) the aggregate amount
of all principal and interest payments made under this Note from the date of
issuance of this Note through such time, including payments incident to
Executive's declaring bankruptcy.
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Executive, or his successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest, demand, dishonor and
nonpayment of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and that the holder hereof may
accept security for this Note or release security for this Note, all without in
any way affecting the liability of Executive hereunder.
This note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.
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IN WITNESS WHEREOF, Executive has executed this Note as of the date
first above written.
/s/ Robert Covalt
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Robert Covalt