EXECUTION COPY
BURKE INDUSTRIES, INC.
$30,000,000
FLOATING INTEREST RATE NOTES DUE 2007
PURCHASE AGREEMENT
April 17, 1998
NationsBanc Montgomery Securities LLC
100 North Tryon Street
Charlotte, North Carolina 28255
Ladies and Gentlemen:
Burke Industries, Inc., a California corporation (the "Company"),
proposes to issue and sell to you (the "Initial Purchaser"), $30,000,000
principal amount of Floating Interest Rate Senior Notes Due 2007 (the "Notes")
of the Company. The Notes are to be issued under an indenture (the "Indenture")
to be dated as of April 21, 1998 between the Company and certain of the
subsidiaries of the Company acting as guarantors (including Mercer Products
Company, Inc.) with respect to the obligations of the Company thereunder
(collectively, the "Guarantors") and United States Trust Company of New York, as
trustee (the "Trustee").
The sale of the Notes to the Initial Purchaser will be made without
registration of the Notes under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon exemptions from the registration
requirements of the Securities Act. The Initial Purchaser has advised the
Company that the Initial Purchaser will offer and sell the Notes purchased by it
hereunder in accordance with Section 4 hereof as soon as it deems advisable.
The Notes will have the benefit of certain registration rights, pursuant to a
Registration Rights Agreement, substantially in the form attached hereto as
Exhibit A, to be dated as of April 21, 1998, between the Company and the Initial
Purchaser (the "Registration Rights Agreement").
In connection with the sale of the Notes, the Company has prepared a
preliminary offering memorandum, dated March 30, 1998 (the "Preliminary
Memorandum") and a final offering memorandum, dated April 17, 1998 (the "Final
Memorandum"). Each of the Preliminary Memorandum and the Final Memorandum sets
forth certain information concerning the Company and the Notes. The Company
hereby confirms that it has authorized the use of the Preliminary Memorandum and
the Final Memorandum, and any amendment or supplement thereto, in connection
with the offer and sale of the Notes by the Initial Purchaser. Unless stated to
the contrary, all references herein to the Final Memorandum are to the Final
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Memorandum at the Execution Time (as defined below) and are not meant to
include any amendment or supplement, or any information incorporated by
reference therein, subsequent to the Execution Time.
1. INTRODUCTION. The Securities are being issued and sold in
connection with the Company's acquisition (the "Mercer Acquisition") of Mercer
Products Company, Inc. ("Mercer") pursuant to a Stock Purchase Agreement, dated
March 5, 1998 (the "Stock Purchase Agreement"), among the Company, Mercer and
Sovereign Specialty Chemicals, Inc. ("Sovereign"). Pursuant to the Stock
Purchase Agreement, the Company will acquire from Sovereign all of the
outstanding capital stock of Mercer for $35,750,000, subject to working capital
and other adjustments.
The Mercer Acquisition is being financed through: (i) the issuance and sale
of the Notes, (ii) the issuance and sale of 3,000 shares of the Company's 6%
Convertible Preferred Stock (the "Convertible Preferred Stock") to J.F. Lehman
Equity Investors I, L.P. ("JFLEI") and other equity holders of the Company and
(iii) available cash of the Company.
In connection with the sale of the Notes, the Company has solicited and
obtained the requisite consents (the "Consent Solicitation") from the holders of
its 10% Senior Notes due 2007 (the "Existing Notes") to certain proposed
amendments (the "Proposed Amendments") to the indenture under which such notes
were issued (the "Existing Indenture). The Proposed Amendments would, among
other things, permit the issuance of the Notes and permit the incurrence of
indebtedness represented thereby.
Concurrently with the Offering, the Company has entered into discussions to
amend its $15.0 million revolving credit facility (such amendment or such credit
facility, as amended, the "Bank Facility Amendment").
2. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Initial Purchaser that:
(a) The Preliminary Memorandum, at the date thereof, did not
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Final
Memorandum, at the date hereof, does not, and at the Closing Date (as
defined below) will not (or, if amended or supplemented, the Final
Memorandum as amended or supplemented at the date of any such amendment or
supplement and at the Closing Date, will not), contain any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that the Company makes no
representation or warranty as to the
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information contained in or omitted from the Preliminary Memorandum or the
Final Memorandum, or any amendment or supplement thereto, in reliance upon
and in conformity with information furnished in writing to the Company, or
its agents or advisors by, or on behalf of the Initial Purchaser
specifically for inclusion therein.
(b) Neither the Company nor any "Affiliate" (as defined in Rule
501(b) of Regulation D under the Securities Act ("Regulation D")) of the
Company or any person acting on its or their behalf (other than the Initial
Purchaser and persons acting on its behalf, as to which no representation
is made) has, directly or indirectly, made offers or sales of any security,
or solicited offers to buy any security, under circumstances that would
require the registration of the Notes under the Securities Act.
(c) Neither the Company nor any Affiliate, or any person acting on
its or their behalf (other than the Initial Purchaser and persons acting on
its behalf, as to which no representation is made) has engaged in any form
of general solicitation or general advertising (within the meaning of
Regulation D) in connection with any offer or sale of the Notes in the
United States.
(d) The Notes satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(e) The Company is not and, as of the Execution Time, will not be
an "investment company" within the meaning of the Investment Company Act of
1940, as amended (the "Investment Company Act"), without taking account of
any exemption arising out of the number of holders of the securities of the
Company.
(f) The Company has not paid or agreed to pay to any person any
compensation for soliciting another to purchase any securities of the
Company (except as contemplated by this Agreement).
(g) The consolidated financial statements (including the notes
thereto) and schedules of the Company and its consolidated subsidiaries,
set forth in the Final Memorandum fairly present in all material respects
the financial position, results of operations and cash flows of the Company
and its consolidated subsidiaries and Mercer, respectively, as of the dates
and for the periods specified therein; since the date of the latest of such
financial statements, there has been no change nor any development or event
involving a prospective change which has had a material adverse effect on
(i) the business, operations, properties, assets, liabilities, net worth,
condition (financial or otherwise) or prospects of the Company and its
consolidated subsidiaries and Mercer, taken as a whole, or (ii) the ability
of the Company to perform any of its obligations (whether existing prior to
or as of the Effective Time) under this
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Agreement, the Registration Rights Agreement, the Indenture or the Notes (a
"Material Adverse Effect"); such financial statements and schedules have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise
expressly noted in the Final Memorandum); the other financial and
statistical information and data set forth in the Final Memorandum (and any
amendment or supplement thereto) is, in all material respects, accurately
presented and prepared on a basis consistent with such financial
statements, except as otherwise stated therein; and the statistical,
market-related data included in the Final Memorandum are based on or
derived from sources which the Company believes to be reliable and accurate
and are based upon assumptions and qualifications which the Company
considers at the time made reasonable and appropriate in all material
respects.
(h) The pro forma combined financial statements (including the
notes thereto) and the other pro forma financial information included in
the Final Memorandum (i) comply as to form in all material respects with
the applicable requirements of Regulation S-X promulgated under the
Exchange Act, (ii) have been prepared in accordance with the Commission's
rules and guidelines with respect to pro forma financial statements and
(iii) have been properly computed on the bases described therein; the
assumptions used in the preparation of the pro forma financial data and
other pro forma financial information included in the Final Memorandum are
reasonable in all material respects and the adjustments used therein are
appropriate in all material respects to give effect to the transactions or
circumstances referred to therein.
(i) Except as contemplated in the Final Memorandum, subsequent to
the respective dates as of which information is given in the Preliminary
Memorandum and the Final Memorandum, (i) the Company and its subsidiaries
and Mercer have not incurred any material liability or obligation, direct
or contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock; and (iii) there
has not been any material change in the capital stock, short-term debt or
long-term debt of the Company or its subsidiaries and Mercer, except as
described in or contemplated by the Preliminary Memorandum or the Final
Memorandum, as the case may be.
(j) Each of the Company and the Guarantors has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of California, and, in the case of Mercer, the laws of New
Jersey, and is and, as of the Execution Time, will be duly qualified to do
business as a foreign corporation and is and, as of the Execution time,
will be in good standing under the laws of each jurisdiction which
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requires such qualification wherein it owns or leases properties or
conducts business, except in such jurisdictions in which the failure to so
qualify, singly or in the aggregate, would not have a Material Adverse
Effect. None of the California Guarantors have any substantial assets or
properties or conduct any operations.
(k) Each of the Company and the Guarantors has full power
(corporate and other) to own or lease its properties and conduct its
business as described in the Final Memorandum; the Company has full power
(corporate and other) to enter into the Registration Rights Agreement, the
Indenture and the Bank Facility Amendment and to carry out all the terms
and provisions thereof to be carried out by it.
(l) The Company has the authorized, issued and outstanding
capitalization as set forth in the Final Memorandum in the column entitled
"Historical" under the caption "Capitalization; and, as of the Execution
Time, will have the authorized, issued and outstanding capitalization as
set forth in the Final Memorandum in the column entitled "Pro Forma" under
the caption "Capitalization." All of the issued shares of capital stock of
the Company have been duly authorized, validly issued, fully paid and
nonassessable and were not issued in violation of any preemptive or similar
rights.
(m) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
related to or entitling any person to purchase or otherwise to acquire any
shares of capital stock of, or other ownership interest in, the Company or
any subsidiary thereof except as otherwise disclosed in the Final
Memorandum.
(n) The issued shares of capital stock of each of the Guarantors
have been duly authorized and validly issued, are fully paid and
nonassessable and, except for directors' qualifying shares and except as
otherwise set forth in the Final Memorandum are owned of record and
beneficially by the Company, either directly or through wholly owned
subsidiaries, free and clear of any pledge, lien, encumbrance, security
interest, restriction on voting or transfer, preemptive rights or claim of
any third party. No Guarantor is prohibited, directly or indirectly, from
paying any dividends to the Company, from making any other distribution on
such Guarantor's capital stock, from repaying to the Company any loans or
advances to such Guarantor from the Company or from transferring any of
such Guarantor's property or assets to the Company or any other Guarantor,
except as described in or contemplated by the Final Memorandum. There has
been no change in the authorized and issued shares of each class of capital
stock of each of the California Guarantors since August 20, 1997.
(o) Neither the Company nor any of its subsidiaries is (i) in
violation of its corporate charter or bylaws, (ii) in breach or violation
of any law, ordinance,
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governmental or administrative rule or regulation or court decree or
(iii) in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which it is a
party or by which its respective properties may be bound, which in the case
of clauses (ii) or (iii) would have a Material Adverse Effect.
(p) The issuance, offering and sale of the Notes to the Initial
Purchaser pursuant to this Agreement, the delivery of the Notes under this
Agreement, the compliance by the Company and the Guarantors with the other
provisions of this Agreement and the provisions of the Registration Rights
Agreement, the Indenture and the Notes, the compliance by the Company with
the provisions of this Agreement and the Bank Facility Amendment, the
consummation of the other transactions herein and therein contemplated and
the consummation of the other transactions contemplated hereby and in the
Final Memorandum (including the consummation of the Mercer Acquisition and
the performance by the Company of its obligations under the Stock Purchase
Agreement) do not, except as disclosed in or contemplated by the Final
Offering Memorandum, (i) require the consent, approval, authorization,
order, registration or qualification of or with any governmental authority
or court, except such as (A) may be required under state securities or blue
sky laws, (B) that if not obtained would not create a Material Adverse
Effect or (C) as may be contemplated by the Registration Rights Agreement
or (ii) conflict with, result in a breach or violation of, or constitute a
default under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, any material contract, loan agreement, note,
indenture, mortgage, deed of trust, lease or other agreement or instrument
to which the Company or any of its subsidiaries is a party, or by which
the Company or any of its subsidiaries or any of their respective
properties is bound, or the charter or by-laws of the Company, any of the
subsidiaries of the Company, or any statute, rule or regulation or any
judgment, order or decree of any governmental authority or court or
arbitrator applicable to the Company or any of its subsidiaries, except as
rights to indemnity and contribution may be limited by federal or state
securities laws or public policy.
(q) The Company and its subsidiaries possess all certificates,
authorizations and permits (including environmental permits) issued by the
appropriate federal, state or foreign regulatory authorities or bodies
necessary to conduct their respective businesses, except for those the lack
of which would not cause a Material Adverse Effect, and neither the Company
nor any of its subsidiaries has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, is reasonably likely to result in
a Material Adverse Effect.
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(r) No legal or governmental proceedings or investigations are
pending to which the Company or any of its subsidiaries is a party or to
which the property of the Company or any of its subsidiaries is subject
that are not described in the Final Memorandum and are required to be
disclosed therein, and no such proceedings or investigations, to the best
knowledge of the Company, have been threatened against the Company or any
of its subsidiaries, or with respect to any of their respective properties,
except in each case for such proceedings or investigations that, singly or
in the aggregate, are not reasonably likely to result in a Material Adverse
Effect.
(s) The Company and each of its subsidiaries have valid title in
fee simple to all items of real property and title to all personal property
owned by each of them, in each case free and clear of any pledge, lien,
encumbrance, security interest or other defect or claim of any third party,
except (i) such as do not interfere with the use made or proposed to be
made of such property by the Company or such subsidiary to an extent that
such interference would have a Material Adverse Effect, and (ii) permitted
liens set forth in or contemplated by the Final Memorandum. Any real
property and buildings held under lease by the Company or any such
subsidiary are held and, as of the Execution Time, will be held under
valid, subsisting and enforceable leases, with such exceptions as do not
interfere with the use made or proposed to be made of such property and
buildings by the Company or such subsidiary to an extent that such
interference would have a Material Adverse Effect.
(t) This Agreement has been duly authorized, executed and
delivered by the Company.
(u) The Registration Rights Agreement, the Indenture, the Stock
Purchase Agreement and the Bank Facility Amendment have been duly
authorized by all necessary corporate actions of the Company and, when duly
executed and delivered by the Company (and its subsidiaries, as applicable)
and the other parties thereto will constitute legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, except as the same may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally, including without limitation the effect of
statutory or other laws regarding fraudulent conveyances or transfers or
preferential transfers, or (ii) general principles of equity, whether
considered at law or at equity, and except as rights to indemnity and
contribution in the Registration Rights Agreement may be limited by federal
or state securities laws or public policy.
(v) The issuance, sale and delivery by the
Company of the Convertible Preferred Stock
and the performance by the Company of its
obligations
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contained in the certificate of determination
therefor have been duly authorized by all
necessary corporate action and when issued,
delivered and paid for will constitute legal,
valid and binding obligations of the Company
and enforceable against the Company in
accordance with its terms, except as the same
may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or
other laws affecting creditors' rights
generally, including without limitation the
effect of statutory or other laws regarding
fraudulent conveyances or transfers or
preferential transfers, or (ii) general
principles of equity, whether considered at
law or at equity.
(w) The Notes and the Guarantees have been duly authorized by all
necessary corporate action for issuance and sale pursuant to this Agreement
and, when executed, authenticated, issued and delivered in the manner
provided for in the Indenture and sold and paid for as provided in this
Agreement, the Notes and the Guarantees will constitute legal, valid and
binding obligations of the Company and the Guarantors, respectively,
entitled to the benefits of the Indenture and enforceable against the
Company and the Guarantors, respectively, in accordance with their terms,
except as the same may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally, including without limitation the effect of statutory or other
laws regarding fraudulent conveyances or transfers or preferential
transfers or (ii) general principles of equity, whether considered at law
or at equity.
(x) Ernst & Young LLP, who have audited certain financial
statements of the Company and its consolidated subsidiaries and Mercer for
certain periods and delivered their reports with respect to the audited
consolidated financial statements and schedules of the Company and audited
financial statements and schedules of Mercer for certain periods in the
Final Memorandum, are independent public accountants within the meaning of
the Securities Act and the applicable rules and regulations thereunder; and
KPMG Peat Marwick LLP, who have audited certain financial statements of
Mercer and delivered their report with respect to such audited financial
statements and schedules of Mercer in the Final Memorandum, are independent
public accountants within the meaning of the Securities Act and the
applicable rules and regulations thereunder.
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(y) The Company and each of its subsidiaries and Mercer maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(z) Neither the Company nor any of its subsidiaries nor Mercer or
any of its subsidiaries now or, after giving effect to the issuance of the
Notes and the consummation of the transactions contemplated by the Final
Memorandum will be (i) insolvent, (ii) left with unreasonably small capital
with which to engage in its anticipated businesses or (iii) incurring debts
beyond its ability to pay such debts as they become due.
(aa) The Company and its subsidiaries own or otherwise possess the
right to use all patents, trademarks, service marks, trade names and
copyrights, all applications and registrations for each of the foregoing,
and all other proprietary rights and confidential information used in the
conduct of their respective businesses as currently conducted, except to
the extent the absence thereof would not have a Material Adverse Effect;
and neither the Company nor any of its subsidiaries has received any
notice, or is otherwise aware, of any infringement of or conflict with the
rights of any third party with respect to any of the foregoing which,
singly or in the aggregate, is reasonably likely to result in a Material
Adverse Effect.
(bb) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility (or by appropriate self-insurance)
against such losses and risks and in such amounts as are prudent and
customary in the businesses and in the locations in or at which they are
engaged; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost
that would not have a Material Adverse Effect.
(cc) There is (i) no unfair labor practice complaint pending
against the Company or any of its subsidiaries or, to the best knowledge of
the Company, threatened against any of them, before the National Labor
Relations Board or any state or local labor relations board, and no
significant grievance or more significant arbitration proceeding arising
out of or under any collective bargaining agreement is so
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pending against the Company or any of its subsidiaries or, to the best
knowledge of the Company, threatened against any of them, and (ii) no
significant strike, labor dispute, slowdown or stoppage pending against the
Company or any of its subsidiaries or, to the best knowledge of the
Company, threatened against it or any of its subsidiaries which, in the
case of (i) or (ii) is likely to result in a Material Adverse Effect.
(dd) Except as set forth in the Final Memorandum, the Company has
filed all foreign, federal, state and local tax returns that are required
to be filed, except insofar as the failure to file such returns, singly or
in the aggregate, would not have a Material Adverse Effect, or has
requested extensions thereof and in each case has paid all material taxes
required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable,
other than those being contested in good faith and for which adequate
reserves have been provided or those currently payable without penalty or
interest.
(ee) Neither the Company nor any Affiliate of the Company has
taken, directly or indirectly, any action designed to cause or result in,
or which has constituted or which might reasonably be expected to cause or
result in, stabilization or manipulation (as such terms are defined under
the Exchange Act) of the price of any security of the Company to facilitate
the sale or resale of the Notes.
(ff) Except as disclosed in the Final Memorandum, and except as
would not individually or in the aggregate have a Material Adverse Effect
(i) the Company and each of its subsidiaries is in compliance with all
applicable Environmental Laws (as defined below), (ii) the Company and each
of its subsidiaries has all permits, authorizations and approvals required
under any applicable Environmental Laws and is in compliance with their
requirements, (iii) there are no pending, or to the best knowledge of the
Company or any of its subsidiaries threatened, Environmental Claims (as
defined below) against the Company or any of its subsidiaries and (iv) the
Company and each of its subsidiaries does not have knowledge of any
circumstances with respect to any of their respective properties or
operations that could reasonably be anticipated to form the basis of an
Environmental Claim against the Company or any of its subsidiaries or any
of their respective properties or operations and the business operations
relating thereto that would have a Material Adverse Effect. For purposes
of this Agreement, the following terms shall have the following meanings:
"Environmental Law" means, with respect to any person, any federal, state,
local or municipal statute, law, rule, regulation, ordinance, code, policy
or rule of common law and any published judicial or administrative
interpretation thereof including any judicial or administrative order,
consent decree or judgment binding on such person or any of its
subsidiaries, relating to the environment, health, safety or any chemical,
material or substance, exposure to which is prohibited, limited or
regulated by any such governmental authority. "Environmental Claims" means
any and all administrative,
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regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigations or proceedings
relating in any way to any Environmental Law.
(gg) The Company has reasonably concluded that any and all costs
and liabilities incurred or reasonably expected to be incurred pursuant to
any Environmental Law (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and potential liabilities to
third parties) would not, singly or in the aggregate, have a Material
Adverse Effect.
(hh) Each certificate signed by any officer of the Company and
delivered to the Initial Purchaser or its counsel shall be deemed to be a
representation and warranty by the Company to the Initial Purchaser as to
the matters covered thereby.
(ii) The guarantees by the subsidiaries have been duly authorized
by each of the Guarantors, and, when executed and authenticated in
accordance with the provisions of the Indenture, will conform in all
material respects to the description thereof in the Final Memorandum, will
be valid and binding obligations of each of the Guarantors, will be
entitled to the benefits of the Indenture and will be enforceable in
accordance with their terms, except as the same may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally, including without limitation the
effect of statutory or other laws regarding fraudulent conveyances or
transfers or preferential transfers or (ii) general principles of equity,
whether considered at law or at equity..
(jj) The sale of the Notes to the Initial Purchaser does not
constitute a "prohibited transaction" (as defined in the Employee
Retirement Income Security Act of 1974, as amended).
(kk) The Stock Purchase Agreement is in full force and effect, and
the Company shall have performed all of its obligations thereunder required
to be performed on or prior to the Execution Time.
3. PURCHASE AND SALE. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company at a purchase price of 97% of the principal amount
thereof, plus accrued interest, if any, from April 21, 1998 to the Closing Date,
$30,000,000 principal amount of Notes.
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4. DELIVERY AND PAYMENT. Delivery of and payment for the Notes
shall be made at 10:00 a.m. New York City time, on April 21, 1998 or such later
date as the Initial Purchaser shall designate, which date and time may be
postponed by agreement between the Initial Purchaser and the Company (such date
and time of delivery and payment for the Notes being herein called the "Closing
Date"). Delivery of the Notes shall be made to the Initial Purchaser against
payment by the Initial Purchaser of the purchase price thereof to or upon the
order of the Company in immediately available funds or such other manner of
payment as may be agreed by the Company and the Initial Purchaser. Delivery of
the Notes shall be made at such location as the Initial Purchaser shall
reasonably designate at least one business day in advance of the Closing Date
and payment for the Notes shall be made at the offices of Gibson, Dunn &
Crutcher, 200 Park Avenue, New York, New York, with any transfer taxes payable
in connection with the transfer of the Notes fully paid, against payment of the
purchase price therefor. Certificates for the Notes shall be registered in such
names and in such denominations as the Initial Purchaser may request not less
than two full business days in advance of the Closing Date.
5. OFFERING OF NOTES BY THE INITIAL PURCHASER. The Initial
Purchaser represents and warrants to and agrees with the Company that:
(a) It, or any person acting on its behalf, has not solicited
offers, offered or sold, and will not solicit offers, offer or sell, any
Notes except to those it reasonably believes to be (i) "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act)
and that, in connection with each such sale, it has taken or will take
reasonable steps to ensure that the purchaser of such Notes is aware that
such sale is being made in reliance on Rule 144A, or (ii) other
institutional "accredited investors" (as defined in Rule 501(a) (1), (2),
(3) or (7) of Regulation D) that, prior to their purchase of the Notes,
deliver to the Initial Purchaser a letter containing the representations
and agreements set forth in the form of Annex A to the Final Memorandum.
The Initial Purchaser agrees that prior to or simultaneously with the
confirmation of sale by it to any purchaser of any of the Notes purchased
by such Initial Purchaser from the Company pursuant hereto, it shall
furnish to that purchaser a copy of the Final Memorandum.
(b) Neither it nor any person acting on its behalf has made or
will make offers or sales of the Notes in the United States by means of any
form of general solicitation or general advertising (within the meaning of
Regulation D) in the United States.
(c) The Initial Purchaser's acquisition of the Notes does not
constitute a "prohibited transaction" (as defined in the Employee
Retirement Income Security Act of 1974, as amended).
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6. AGREEMENTS. The Company agrees with the Initial Purchaser
that:
(a) The Company will furnish to the Initial Purchaser and to
Counsel for the Initial Purchaser, without charge, during the period
referred to in paragraph (c) below, as many copies of the Final Memorandum
and any amendments and supplements thereto as it may reasonably request.
The Company will pay the expenses of printing of all documents relating to
the Offering.
(b) The Company will not amend or supplement the Final Memorandum
unless the Initial Purchaser shall previously have been advised thereof and
shall not have objected thereto in writing within four business days after
being furnished a copy thereof.
(c) Prior to the consummation of the exchange offer made pursuant
to the Registration Rights Agreement or the effectiveness of an applicable
shelf registration statement if, in the reasonable judgment of the Initial
Purchaser, the Initial Purchaser or any of its Affiliates are required to
deliver an offering memorandum in connection with sales of, or
market-making activities with respect to, the Notes, (A) the Company will
periodically amend or supplement the Final Memorandum so that the
information contained in the Final Memorandum complies with the
requirements of Rule 144A of the Securities Act, (B) the Company will amend
or supplement the Final Memorandum when necessary to reflect any material
changes in the information provided therein so that the Final Memorandum
will not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in
light of the circumstances existing as of the date the Final Memorandum is
so delivered, not misleading and (C) the Company will provide the Initial
Purchaser with copies of each such amended or supplemented Final
Memorandum, as the Initial Purchaser may reasonably request. The Company
hereby expressly acknowledges that the indemnification and contribution
provisions of Section 9 hereof are specifically applicable and relate to
each offering memorandum, registration statement, prospectus, amendment or
supplement referred to in this Section 6(c).
(d) The Company will arrange for the qualification of the Notes
for sale by the Initial Purchaser under the laws of such jurisdictions as
the Initial Purchaser may reasonably designate and will maintain such
qualifications in effect as long as required for the sale of the Notes;
PROVIDED, HOWEVER, that the Company shall not be obligated to qualify as a
foreign corporation in any jurisdiction in which they are not now so
qualified or to take any action that would subject them to general consent
to service of process in any jurisdiction in which they are not now so
subject or to subject themselves to taxation in any such jurisdiction. The
Company will promptly advise the
14
Initial Purchaser of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Notes for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose.
(e) Whenever the Company publishes or makes available to the
public (by filing with any regulatory authority or securities exchange or
by publishing a press release or otherwise) any information that could
reasonably be expected to be material in the context of the offer and sale
of Notes under this Agreement, the same shall immediately notify the
Initial Purchaser as to the nature of such information or event. Until the
third anniversary of the Closing Date, the Company will notify the Initial
Purchaser of (i) any decrease in the rating of the Notes or any other debt
securities of the Company by any nationally recognized statistical rating
organization (as defined in Rule 436(g) under the Securities Act) or
(ii) any notice given of any intended or potential decrease in any such
rating or of a possible change in any such rating which does not indicate
the direction of the possible change, as soon as the Company becomes aware
of any such decrease or notice. For a period of two years after the
Closing Time, the Company will also deliver to the Initial Purchaser, as
soon as available and to the extent individually prepared, and without
request, copies of its latest annual report and quarterly statement and any
reports of its auditors thereon.
(f) Neither the Company, any of its Affiliates, nor any person
acting on its or their behalf other than the Initial Purchaser, as to which
no agreement is made, will, directly or indirectly, make offers or sales of
any security, or solicit offers to buy any security, under circumstances
that would require the registration of the Notes under the Securities Act
(other than pursuant to the Registration Rights Agreement).
(g) Except following the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement (as defined in
the Final Offering Memorandum), as the case may be, neither the Company,
any of its Affiliates, nor any person acting on its or their behalf other
than the Initial Purchaser, as to which no agreement is made, will engage,
in connection with the offering of the Notes, (i) in any form of general
solicitation or general advertising (within the meaning of Regulation D) or
(ii) in any public offering within the meaning of Section 4(2) of the
Securities Act.
(h) So long as any of the Notes are "restricted securities" within
the meaning of Rule 144(a)(3) under the Securities Act, the Company will,
during any period in which it is not subject to and in compliance with
Section 13 or 15(d) of the Exchange Act, provide to each holder of such
restricted securities and to each prospective purchaser (as designated by
such holder) of such restricted securities, upon the request of such holder
or prospective purchaser, any information required to be provided by Rule
144A(d)(4) under the Securities Act. Such information, at the date of
15
its provision by the Company to such holders or prospective purchasers,
will not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. This covenant is
intended to be for the benefit of the holders and the prospective
purchasers designated by such holders from time to time of such restricted
securities.
(i) The Company will cooperate with the Initial Purchaser and use
its best efforts to (i) permit the Notes to be eligible for clearance and
settlement through The Depository Trust Company and (ii) permit the Notes
to be designated PORTAL-eligible securities in accordance with the rules
and regulations of the National Association of Securities Dealers, Inc.
(the "NASD").
(j) The Company will not, until 180 days following the Closing
Date, without the prior written consent of the Initial Purchaser, offer,
sell or contract to sell, or otherwise dispose of, directly or indirectly,
or announce the offering of, any debt securities issued or guaranteed by
the Company (other than the Notes).
(k) The Company will apply the net proceeds from the sale of the
Notes as set forth in the Final Memorandum under the caption "Use of
Proceeds."
7. CONDITIONS TO THE OBLIGATIONS OF THE INITIAL PURCHASER. The
obligations of the Initial Purchaser to purchase the Notes shall be subject to
the accuracy in all material respects of the representations and warranties on
the part of the Company contained herein at the date and time that this
Agreement is executed and delivered by the parties hereto (the "Execution
Time"), and at the Closing Date as specified in Section 7(g), to the accuracy in
all material respects of the statements of the Company made in any certificates
delivered pursuant to the provisions hereof, to the performance by the Company
of their obligations hereunder at or prior to the Closing Date and to the
following additional conditions:
(a) The Company shall have entered into a Registration Rights
Agreement with the Initial Purchaser substantially in the form attached
hereto as Exhibit A.
(b) The Company and the Trustee shall have entered into the
Indenture.
(c) The Company shall have furnished to the Initial Purchaser the
opinion of Gibson, Dunn & Crutcher, L.L.P., Counsel for the Company, dated
the Closing Date, subject to customary qualifications and exceptions
reasonably acceptable to Counsel for the Initial Purchaser, substantially
to the effect that:
16
(i) the Company is a corporation validly existing and in good
standing under the laws of California and is duly qualified to do business
as a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification wherein it owns or leases
properties or conducts business, except in such jurisdictions in which the
failure to so qualify, singly or in the aggregate, would not have a
Material Adverse Effect;
(ii) each of the Guarantors organized under the laws of the State
of California (the "California Guarantors") is a corporation validly
existing and in good standing under the laws of the jurisdiction in which
it is chartered or organized and is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification wherein it owns or leases
properties or conducts business, except in such jurisdictions in which the
failure to so qualify, singly or in the aggregate, would not have a
Material Adverse Effect;
(iii) the Company has the authorized, issued and outstanding
capitalization as set forth in the Final Memorandum under the caption
"Capitalization." All of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable and were not, to the best of such counsel's knowledge, issued
in violation of any preemptive or similar rights;
(iv) the issued shares of capital stock of each of the California
Guarantors have been duly authorized and validly issued, are fully paid and
nonassessable and, the issued shares of capital stock of each of the
Guarantors, except for directors' qualifying shares and except as otherwise
set forth in or contemplated by the Final Memorandum are owned of record
and beneficially by the Company, either directly or through wholly owned
subsidiaries, free and clear, to the best of such counsel's knowledge, of
any pledge, lien, encumbrance, security interest, restriction on voting or
transfer, preemptive rights or other defect or claim of any third party;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) each of the Registration Rights Agreement and the Indenture
have been duly authorized, executed and delivered by the Company and the
California Guarantors and constitute legal, valid and binding obligations
of the Company and its subsidiaries, enforceable against the Company in
accordance with their terms, except as the same may be limited by (A)
applicable
17
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally, including without limitation the effect of
statutory or other laws regarding fraudulent conveyances or transfers,
preferential transfers or distributions by corporations to shareholders,
(B) general principles of equity, whether considered at law or at equity,
including, without limitation, concepts of materiality, reasonableness,
good faith and fair dealing, or (C) other customary exceptions specified by
such counsel in their opinion and reasonably satisfactory to Counsel for
the Initial Purchaser;
(vii) the Notes have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Initial Purchaser pursuant to this
Agreement, will constitute legal, valid and binding obligations of the
Company and the Guarantors entitled to the benefits of the Indenture and
enforceable against the Company and the Guarantors in accordance with their
terms, except as the same may be limited by (A) applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally, including without limitation the effect of statutory or
other laws regarding fraudulent conveyances or transfers, preferential
transfers or distributions by corporations to shareholders, (B) general
principles of equity, whether considered at law or at equity, including,
without limitation, concepts of materiality, reasonableness, good faith and
fair dealing, or (C) other customary exceptions specified by such counsel
in their opinion and reasonably acceptable to Counsel for the Initial
Purchaser;
(viii) the Guarantees executed by the California Guarantors have been
duly authorized and, when executed in accordance with the provisions of the
Indenture, all of the Guarantees will constitute legal, valid and binding
obligations of the Guarantors entitled to the benefits of the Indenture and
enforceable against the Guarantors in accordance with their terms, except
as may be limited by (A) applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally, including
without limitation the effect of statutory or other laws regarding
fraudulent conveyances or transfers, preferential transfers or
distributions by corporations to shareholders, (B) general principles of
equity, whether considered at law or at equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing, or (C) other customary exceptions specified by such counsel in
their opinion and reasonably acceptable to Counsel for the Initial
Purchaser;
(ix) the statements set forth under the headings "Acquisition of
Mercer", "Description of Senior Notes", "Consent Solicitation",
"Description of
18
Credit Facility", "Description of Capital Stock" and "Plan of Distribution"
in the Final Memorandum, insofar as such statements constitute summaries of
the legal matters, documents and proceedings referred to therein, fairly
summarize the matters referred to therein;
(x) the issuance, offering and sale and delivery of the Notes to
the Initial Purchaser pursuant to this Agreement, the execution of the
Amended Credit Facility, the compliance by the Company and the Guarantors
with the other provisions of this Agreement and the provisions of the
Registration Rights Agreement, the Indenture and the Notes and the
consummation of the other transactions herein and therein contemplated and
the consummation of the other transactions contemplated hereby and in the
Final Memorandum (including the consummation of the Mercer Acquisition and
the performance by the Company of its obligations under the Stock Purchase
Agreement) do not (i) require the consent, approval, authorization, order,
registration or qualification of or with any governmental authority or
court (except such as may be required under state securities or blue sky
laws or except as may be contemplated by the Registration Rights Agreement
or except for such that have already been obtained, or (ii) (a) conflict
with, result in a breach or violation of, or constitute a default under the
charter or by-laws of the Company or any of the subsidiaries of the Company
or Mercer, or (b) result in a breach or violation of, or constitute a
default under or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries or Mercer pursuant to (1) any material contract, loan
agreement, note, indenture, mortgage, deed of trust, lease or other
agreement or instrument to which the Company or any of its subsidiaries or
Mercer is a party, or by which the Company or any of its subsidiaries or
Mercer or any of their respective properties is bound, in each case, that
has been identified to such Counsel as being the only such documents that
are material to the Company or such subsidiary or Mercer, as applicable,
by officers of such entity pursuant to an officers' certificate attached to
such opinion, except for liens, charges or encumbrances imposed under the
Amended Credit Facility, or, (2) to the best of such Counsel's knowledge,
(x) any statute, rule or regulation that in such counsel's experience is
generally applicable to transactions of the type contemplated by the Final
Memorandum or (y) any judgment, order or decree of any governmental
authority or court or arbitrator applicable to the Company or any of its
subsidiaries or Mercer, except, in each case, as (i) rights to indemnity
and contribution may be limited by federal or state securities laws or
public policy and (ii) would not have a Material Adverse Effect.
19
(xi) to the best knowledge of such counsel, there are no pending or
threatened legal or governmental proceedings to which the Company or Mercer
is a party that would be required under the Securities Act to be described
in a registration statement or a prospectus delivered at the time of the
confirmation of the sale of an offering of securities registered under the
Securities Act that are not described in the Final Memorandum, or, to such
counsel's best knowledge after due inquiry, that seek to restrain, enjoin,
prevent the consummation of or otherwise challenge the issuance or sale of
the Notes to the Initial Purchaser;
(xii) assuming the accuracy of the representations and warranties
of the Initial Purchaser and compliance by it with its agreements contained
herein, no registration of the Notes under the Securities Act is required,
and no qualification of the Indenture under the Trust Indenture Act of 1939
is necessary, for the offer and sale by the Initial Purchaser of the Notes
in the manner contemplated by this Agreement; and
(xiii) the Company is not an "investment company" within the meaning
of the Investment Company Act without taking account of any exemption
arising out of the number of holders of securities of the Company.
In addition, such counsel shall also state that such counsel has
participated in conferences with officers and representatives of the Company,
representatives of the independent public accountants for the Company and the
Initial Purchaser at which the contents of the Final Memorandum and related
matters were discussed and, although such counsel has not independently verified
and are not passing upon and assume no responsibility for the accuracy,
completeness or fairness of the statements contained in the Final Memorandum
(except to the extent specified in paragraph (ix) hereof), no facts have come to
the attention of such counsel that lead such counsel to believe that the Final
Memorandum, as of its date or as of the Closing Date, contained or contains an
untrue statement of a material fact or omitted or omits to state any material
fact necessary to make the statements therein, in light of the circumstances
under which there were made, not misleading (it being understood that such
counsel need express no belief or opinion with respect to the financial
statements, schedules and related notes thereto and the other financial,
statistical and accounting data included therein).
All references in this Section 7(d) to the Final Memorandum shall be deemed
to include any amendment or supplement thereto at the Closing Date.
20
(d) The Company shall have furnished to the Initial Purchaser the
opinion of Dechert Price & Roads, New Jersey Counsel for the Company, dated
the Closing Date, substantially to the effect that:
(i) Mercer is a corporation validly existing and in good
standing under the laws of California and is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of each jurisdiction which requires such qualification wherein it
owns or leases properties or conducts business, except in such
jurisdictions in which the failure to so qualify, singly or in the
aggregate, would not have a Material Adverse Effect;
(ii) each of the Indenture and the Registration Rights
Agreement has been duly authorized, executed and delivered by Mercer
and constitute legal, valid and binding obligations of Mercer,
enforceable against Mercer in accordance with its terms, except as the
same may be limited by (A) applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally, including without limitation the effect of statutory or
other laws regarding fraudulent conveyances or transfers, preferential
transfers or distributions by corporations to shareholders, (B)
general principles of equity, whether considered at law or at equity,
including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, or (C) other customary
exceptions specified by such counsel in their opinion and reasonably
satisfactory to Counsel for the Initial Purchaser; and
(iii) the Guarantee executed by Mercer has been duly
authorized and, when executed and authenticated in accordance with the
provisions of the Indenture, will constitute legal, valid and binding
obligations of Mercer enforceable against the Mercer in accordance
with its terms, except as may be limited by (A) applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally, including without limitation the effect
of statutory or other laws regarding fraudulent conveyances or
transfers, preferential transfers or distributions by corporations to
shareholders, (B) general principles of equity, whether considered at
law or at equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, or (C) other
customary exceptions specified by such counsel in their opinion and
reasonably acceptable to Counsel for the Initial Purchaser.
(e) The Company shall have furnished to the Initial Purchaser the
opinion of Hogan & Hartson, counsel for Sovereign dated the Closing Date,
substantially the the
21
effect that the issued shares of capital stock of Mercer have been duly
authorized and validly issued, are fully paid and nonassessable.
(f) The Initial Purchaser shall have received from Shearman &
Sterling, Counsel for the Initial Purchaser such opinion or opinions, dated
the Closing Date, with respect to the issuance and sale of the Notes and
other related matters as the Initial Purchaser may reasonably require, and
the Company shall have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass upon such
matters;
(g) (i) the representations and warranties on the part of the
Company in this Agreement shall be true and correct in all material
respects on and as of the Closing Date with the same effect as if made on
the Closing Date, and the Company shall have complied with all the
agreements and satisfied all the conditions on their part to be performed
or satisfied hereunder at or prior to the Closing Date;
(ii) since the date of the most recent financial statements of the
Company and Mercer included in the Final Memorandum, there shall have been
no change nor any development or event involving a prospective change
constituting a Material Adverse Effect; and
(iii) the Company shall have furnished to the Initial Purchaser a
certificate of the Company signed by the chief executive officer and the
principal financial or accounting officer or the vice president of finance
of the Company dated the Closing Date, to the effect that the signers of
such certificate have carefully examined the Final Memorandum, any
amendment or supplement to the Final Memorandum and this Agreement and to
the effect set forth in clauses (i) and (ii) above.
(h) At the Execution Time and at the Closing Date, each of Ernst &
Young LLP and KPMG Peat Marwick LLP shall have furnished to the Initial
Purchaser a letter or letters, dated respectively as of the Execution Time
and as of the Closing Date, in form and substance satisfactory to the
Initial Purchaser, confirming that they are independent accountants within
the meaning of the Securities Act and the Exchange Act and the applicable
rules and regulations thereunder and Rule 101 of the Code of Professional
Conduct of the American Institute of Certified Public Accountants (the
"AICPA") and otherwise satisfactory in form and substance to the Initial
Purchaser and its Counsel.
(i) The Notes shall have been designated PORTAL-eligible
securities in accordance with the rules and regulations of the NASD.
22
(j) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Final Memorandum losses or interferences with their
businesses, taken as a whole, from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Final Memorandum or (ii) since such date, there
shall not have been any change in the capital stock or long-term debt of
the Company or any of its subsidiaries or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company or its subsidiaries, taken as a whole, otherwise
than as set forth or contemplated in the Final Memorandum, the effect of
which, in any such case described in clause (i) or (ii), is, in the
reasonable judgment of the Initial Purchaser, so material and adverse as to
make it impracticable or inadvisable to proceed with the offering or the
delivery of the Notes being delivered on the Closing Date on the terms and
in the manner contemplated herein and in the Final Memorandum.
(k) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or The NASDAQ Stock
Market's National Market, or in the over-the-counter market shall have been
suspended or materially limited, or minimum prices shall have been
established on such exchange; (ii) a banking moratorium shall have been
declared by federal or New York State authorities; (iii) the United States
shall have become engaged in hostilities, there shall have been an
escalation in hostilities involving the United States or there shall have
been a declaration of a national emergency or war by the United States; or
(iv) there shall have occurred such a material adverse change in general
economic, political or financial conditions (or the effect of international
conditions on the financial markets in the United States shall be such) as
to make it, in each case, in the reasonable judgment of the Initial
Purchaser, impracticable or inadvisable to proceed with the offering or
delivery of the Notes being delivered on the Closing Date on the terms and
in the manner contemplated herein and in the Final Memorandum.
(l) None of the issuance and sale of the Notes pursuant to this
Agreement or any of the other transactions contemplated by the Final
Memorandum shall be enjoined (temporarily or permanently) and no
restraining order or other injunctive order shall have been issued or any
action, suit or proceeding shall have been commenced with respect to this
Agreement, the Stock Purchase Agreement, the Amended Credit Facility or any
of the other transactions contemplated by the Final Memorandum, before any
court or governmental authority.
23
(m) Subsequent to the Execution Time, there shall not have been
any decrease in the rating of any of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Securities Act) or any notice given of
any intended or potential decrease in any such rating or of a possible
change in any such rating that does not indicate the direction of the
possible change.
(n) Prior to the Closing Date, the Company shall have obtained the
requisite consent under the Existing Indenture of the holders of the
Existing Notes to execute and has executed a supplemental indenture
effecting the Proposed Amendments to the Existing Indenture, and, as of the
Closing Date, such supplemental indenture shall be in full force and
effect.
(o) At the Execution Time, the Stock Purchase Agreement shall be
in full force and effect with no defaults thereunder; on the Closing Date,
all conditions precedent to consummation of the Mercer Acquisition shall
have been satisfied or waived by the parties thereto; and at the Execution
Time, the Mercer Acquisition shall be consummated simultaneously with the
issuance of the sale of the Notes.
(p) Prior to the Closing Date, the Company shall have furnished to
the Initial Purchaser such further information, certificates and documents
as the Initial Purchaser may reasonably request.
If any of the conditions specified in this Section 7 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Initial Purchaser and Counsel for the Initial Purchaser,
this Agreement and all obligations of the Initial Purchaser hereunder may be
canceled at the Closing Date by the Initial Purchaser. Notice of such
cancellation shall be given to the Company in writing or by telephone or
telegraph confirmed in writing.
The documents required to be delivered by this Section 7 will be
delivered at the office of Counsel for Company, at 200 Park Avenue, New York,
New York, on the Closing Date.
8. PAYMENT OF EXPENSES. The Company hereby agrees that it shall,
whether or not the transactions contemplated by this Agreement are consummated,
pay all expenses incident to the performance of their obligations under this
Agreement, including the fees and disbursements of their accountants and
counsel, the cost of printing and delivery of the Preliminary Memorandum, the
Final Memorandum, all amendments thereof and supplements thereto, this Agreement
and all other documents relating to the offering, the cost
24
of preparing, printing, packaging and delivering the Notes, the fees and
disbursements, including fees of counsel incurred in compliance with Section
6(d), the fees and disbursements of the Trustee, the fees of any agency that
rates the Notes and the fees and expenses incurred in connection with the
admission of the Notes for trading in the PORTAL system. If the sale of the
Notes provided for herein is not consummated because any condition to the
obligations of the Initial Purchaser set forth in Section 6 hereof is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof
other than by reason of default by the Initial Purchaser in payment for the
Notes on the Closing Date, the Company will reimburse the Initial Purchaser upon
demand for all reasonable out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by it in connection with
the proposed purchase and sale of the Notes. Except as specifically set forth
herein, the Initial Purchaser shall pay the costs and expenses of its counsel
and any transfer taxes on the Notes due in connection with resales of the Notes
to subsequent purchasers.
9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless the Initial Purchaser, the directors, officers,
employees and agents of the Initial Purchaser and each person who controls the
Initial Purchaser within the meaning of either the Securities Act or the
Exchange Act against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Securities
Act, the Exchange Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Preliminary Memorandum, the Final Memorandum or any information provided by the
Company or any of their Affiliates 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, in the light of the
circumstances under which they were made, not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission (i) made
in the Preliminary Memorandum or the Final Memorandum, or in any amendment
thereof or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Initial Purchaser
specifically for inclusion therein or (ii) made in the Preliminary Memorandum if
a copy of the Final Memorandum was not delivered by or on behalf of the Initial
Purchaser to the person asserting any claim against the Initial Purchaser, the
Final Memorandum was required by law to have been so delivered by the Initial
Purchaser and the untrue statement contained in or omission from such
Preliminary Memorandum was
25
corrected in the Final Memorandum. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) The Initial Purchaser agrees to indemnify and hold harmless
the Company, its directors, its officers, and each person who controls the
Company within the meaning of either the Securities Act or the Exchange Act, to
the same extent as the foregoing indemnity from the Company to the Initial
Purchaser, but only with reference to written information relating to the
Initial Purchaser furnished to the Company by or on behalf of the Initial
Purchaser specifically for inclusion in the Preliminary Memorandum or the Final
Memorandum (or in any amendment or supplement thereto). THIS INDEMNITY
AGREEMENT WILL BE IN ADDITION TO ANY LIABILITY WHICH THE INITIAL PURCHASER MAY
OTHERWISE HAVE. THE COMPANY ACKNOWLEDGES THAT THE STATEMENTS SET FORTH IN THE
LAST PARAGRAPH OF THE COVER PAGE, THE LAST PARAGRAPH ON PAGE ii AND THE THIRD,
FIFTH AND SEVENTH THE HEADING "PLAN OF DISTRIBUTION" IN THE PRELIMINARY
MEMORANDUM AND THE FINAL MEMORANDUM CONSTITUTE THE ONLY INFORMATION FURNISHED IN
WRITING BY OR ON BEHALF OF THE INITIAL PURCHASER FOR INCLUSION IN THE
PRELIMINARY MEMORANDUM OR THE FINAL MEMORANDUM (OR ANY AMENDMENT OR SUPPLEMENT
THERETO).
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 9, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be
entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
PROVIDED, HOWEVER, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with an actual
conflict of interest, (ii) the actual or potential defendants in, or targets of,
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that based on written
advice from counsel there may be legal defenses available to it and/or other
indemnified parties which are different from or additional
26
to those available to the indemnifying party, (iii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action or (iv) the indemnifying party shall authorize the indemnified party
to employ separate counsel at the expense of the indemnifying party. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all such indemnified parties and that all such fees and expenses
shall be reimbursed as they are incurred. Such firm shall be designated in
writing by NationsBanc Montgomery Securities LLC in the case of parties
indemnified pursuant to paragraph (a) above and by the Company, in the case of
parties indemnified pursuant to paragraph (b) above. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent (not to be unreasonably withheld), but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment to the extent required by
paragraph (a) or (b) above, as applicable. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the third and fourth sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 20 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least five days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. An indemnifying party will not, without the prior written consent
of the indemnified parties, settle or 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 an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or
(b) of this Section 9 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Initial Purchaser agree to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively, "Losses") to which the Company and the Initial
Purchaser may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand and by the Initial
Purchaser on the other hand from the offering of the Notes; PROVIDED, HOWEVER,
that in no case shall the Initial Purchaser be responsible for any amount in
excess of the purchase discount or
27
commission applicable to the Notes purchased by the Initial Purchaser hereunder.
If the allocation provided by the immediately preceding sentence is unavailable
for any reason, the Company and the Initial Purchaser shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company, on the one hand and of the Initial Purchaser
on the other hand in connection with the statements or omissions which resulted
in such Losses as well as any other relevant equitable considerations. Benefits
received by the Company shall be deemed to be equal to the total net proceeds
from the offering (before deducting expenses), and benefits received by the
Initial Purchaser shall be deemed to be equal to the total purchase discounts
and commissions received by the Initial Purchaser from the Company in connection
with the purchase of the Notes hereunder. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by the Company or the Initial Purchaser. The Company and
the Initial Purchaser agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take into account of the equitable considerations
referred to above. Notwithstanding the provisions of this paragraph (d), 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. For purposes of this
Section 9, each person who controls the Initial Purchaser within the meaning of
either the Securities Act or the Exchange Act and each director, officer,
employee and agent of the Initial Purchaser shall have the same rights to
contribution as the Initial Purchaser, and each person who controls the Company
within the meaning of either the Securities Act or Exchange Act and each officer
and director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
10. TERMINATION. This Agreement shall be subject to termination
in the absolute discretion of the Initial Purchaser, by notice given to the
Company prior to delivery of and payment for the Notes, if prior to such time
any of the events described in Section 7(j) or 7(k) shall have occurred or if
the Initial Purchaser shall decline to purchase the Notes for any reason
permitted under this Agreement.
11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective
agreements, representations, warranties, indemnities and other statements of
the Company or its officers and of the Initial Purchaser set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of the Initial Purchaser, the Company or
any of the officers, directors or controlling persons referred to in Section 9
hereof, and will survive delivery of and payment for the Notes. The provisions
of Sections 8 and 9 hereof shall survive the termination or cancellation of this
Agreement.
12. NOTICES. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Initial Purchaser, will be
mailed, delivered or telecopied
28
and confirmed to it at 100 North Tryon Street, Charlotte, North Carolina 28255,
Attention: William Casperson, or, if sent to the Company, will be mailed,
delivered or telecopied and confirmed to the Company at 2250 South Tenth Street,
San Jose, California 95112, Attention: Dave Worthington, Vice President,
Finance.
13. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 9 hereof,
and no other person will have any right or obligation hereunder.
14. APPLICABLE LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of New York.
15. BUSINESS DAY. For purposes of this Agreement, "business day"
means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on
which banking institutions in The City of New York, New York are authorized or
obligated by law, executive order or regulation to close.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original, but all such
counterparts will together constitute one and the same instrument.
29
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this Agreement and your acceptance shall represent a binding agreement between
the Company and the Initial Purchaser.
Very truly yours,
BURKE INDUSTRIES, INC.
By: /s/ KEITH OSTER
-------------------------------------
Name: Keith Oster
Title: Secretary
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ DAVID APPLE
----------------------------------
Name: David Apple
Title: Associate