SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 0-16211
DENTSPLY International Inc.
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(Exact name of registrant as specified in its charter)
Delaware 39-1434669
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
570 West College Avenue, P. O. Box 872, York, PA 17405-0872
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(Address of principal executive offices) (Zip Code)
(717) 845-7511
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
( X ) Yes ( ) No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: At August 5, 2001 the
Company had 51,819,452 shares of Common Stock outstanding, with a par value
of $.01 per share.
Page 1 of 19
1
DENTSPLY INTERNATIONAL INC.
FORM 10-Q
For Quarter Ended June 30, 2001
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
Consolidated Condensed Statements of Income......................... 3
Consolidated Condensed Balance Sheets............................... 4
Consolidated Condensed Statements of Cash Flows..................... 5
Notes to Unaudited Interim Consolidated Condensed
Financial
Statements.......................................................... 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 13
Item 3 - Quantitative and Qualitative Disclosures
About Market
Risk................................................................ 16
PART II - OTHER INFORMATION
Item 1 - Legal
Proceedings........................................................... 17
Item 4 - Submission of Matters to a Vote of Security Holders.......... 18
Item 6 - Exhibits and Reports on Form 8-K............................. 18
Signatures............................................................... 19
2
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2001 2000 2001 2000
(in thousands, except per share amounts)
Net sales $ 254,635 $ 224,788 $ 500,304 $ 438,744
Cost of products sold 120,908 106,357 236,763 209,838
Gross profit 133,727 118,431 263,541 228,906
Selling, general and administrative expenses 89,391 78,700 178,784 152,435
Restructuring costs (Note 6) -- -- 5,500 --
Operating income 44,336 39,731 79,257 76,471
Other income and expenses:
Interest expense 4,296 2,679 7,877 5,679
Interest income (240) (452) (484) (841)
Other (income) expense, net (888) 169 (23,720) 192
Income before income taxes 41,168 37,335 95,584 71,441
Provision for income taxes 13,764 12,708 33,854 24,622
Net income $ 27,404 $ 24,627 $ 61,730 $ 46,819
Earnings per common share (Note 3):
Basic $ 0.53 $ 0.47 $ 1.19 $ 0.90
Diluted 0.52 0.47 1.18 0.89
Cash dividends declared per common share $ 0.06875 $ 0.06250 $ 0.13750 $ 0.12500
Weighted average common shares outstanding:
Basic 51,748 51,912 51,695 52,113
Diluted 52,618 52,378 52,471 52,459
See accompanying notes to unaudited interim consolidated condensed financial statements.
3
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
June 30, December 31,
2001 2000
(in thousands)
Assets
Current Assets:
Cash and cash equivalents $ 16,960 $ 15,433
Accounts and notes receivable-trade, net 136,452 133,643
Inventories, net (Notes 1 and 5) 154,672 133,304
Prepaid expenses and other current assets 41,871 43,074
Total Current Assets 349,955 325,454
Property, plant and equipment, net 185,515 181,341
Identifiable intangible assets, net 165,094 80,730
Costs in excess of fair value of net
assets acquired, net 410,432 264,023
Other noncurrent assets 51,827 15,067
Total Assets $ 1,162,823 $ 866,615
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 45,063 $ 45,764
Accrued liabilities 101,220 88,058
Income taxes payable 36,015 33,522
Notes payable and current portion
of long-term debt 1,480 794
Total Current Liabilities 183,778 168,138
Long-term debt 340,116 109,500
Deferred income taxes 25,257 16,820
Other noncurrent liabilities 46,642 47,226
Total Liabilities 595,793 341,684
Minority interests in consolidated subsidiaries 4,355 4,561
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $.01 par value; .25 million
shares authorized; no shares issued -- --
Common stock, $.01 par value; 100 million
shares authorized; 54.3 million shares
issued at June 30, 2001 and
December 31, 2000 543 543
Capital in excess of par value 152,945 151,899
Retained earnings 544,783 490,167
Accumulated other comprehensive loss (67,519) (49,296)
Unearned ESOP compensation (4,179) (4,938)
Treasury stock, at cost, 2.5 million shares
at June 30, 2001 and 2.6 million at December 31, 2000 (63,898) (68,005)
Total Stockholders' Equity 562,675 520,370
Total Liabilities and Stockholders' Equity $ 1,162,823 $ 866,615
See accompanying notes to unaudited interim consolidated condensed financial statements.
4
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended June 30,
---------------------------------
2001 2000
(in thousands)
Cash flows from operating activities:
Net income $ 61,730 $ 46,819
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 12,999 11,932
Amortization 13,428 9,709
Restructuring and other costs 5,500 --
Gain on sale of business (23,121) --
Other, net 1,010 (3,812)
Net cash provided by operating activities 71,546 64,648
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (201,691) 1,274
Additional consideration for prior purchased businesses (84,627) --
Capital expenditures (24,376) (13,510)
Other, net 1,085 (865)
Net cash used in investing activities (309,609) (13,101)
Cash flows from financing activities:
Proceeds from long-term borrowings, net of
deferred financing costs 283,436 79,194
Payments on long-term borrowings (52,229) (102,868)
(Decrease) increase in short-term borrowings (3,573) 1,088
Cash paid for treasury stock (875) (26,500)
Cash dividends paid (7,101) (6,541)
Other, net 5,068 2,279
Net cash provided by (used in) financing activities 224,726 (53,348)
Effect of exchange rate changes on cash and cash equivalents 14,864 1,417
Net increase (decrease) in cash and cash equivalents 1,527 (384)
Cash and cash equivalents at beginning of period 15,433 7,276
Cash and cash equivalents at end of period $ 16,960 $ 6,892
See accompanying notes to unaudited interim consolidated condensed financial statements.
5
DENTSPLY INTERNATIONAL INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
The accompanying unaudited interim consolidated condensed financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) which in the opinion of management are necessary for a fair
statement of financial position, results of operations and cash flows for the
interim periods. These interim financial statements conform to the
requirements for interim financial statements and consequently do not include
all the disclosures normally required by generally accepted accounting
principles. Disclosures included in the Company's most recent Form 10-K filed
March 20, 2001 are updated where appropriate.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated condensed financial statements include the accounts of
DENTSPLY International Inc. (the "Company") and its subsidiaries.
Inventories
Inventories are stated at the lower of cost or market. At June 30, 2001,
the cost of $14.9 million or 10% of inventories was determined by the
last-in, first-out (LIFO) method. At December 31, 2000, the cost of $14.0
million or 10% of inventories was determined by the last-in, first-out (LIFO)
method. The cost of other inventories was determined by the first-in,
first-out (FIFO) or average cost method.
Pre-tax income was $0.3 million lower in the six months ended June 30, 2001
and $0.2 million lower for the same period in 2000 as a result of using the
LIFO method compared to the first-in, first-out (FIFO) method. If the FIFO
method had been used to determine the cost of the LIFO inventories, the
amounts at which net inventories are stated would be higher than reported at
June 30, 2001 by $0.1 million and lower than reported at December 31, 2000 by
$0.2 million.
NOTE 2 - COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
Three Months Ended June 30, Six Months Ended June 30,
2001 2000 2001 2000
(in thousands)
Net income $ 27,404 $ 24,627 $ 61,730 $ 46,819
Foreign currency translation adjustments (1,907) (811) (16,787) (5,085)
Cumulative effect of change in accounting
principle for derivative and hedging
activities (SFAS 133) -- -- (503) --
Net loss on derivative financial
instruments 538 -- (933) --
Total comprehensive income $ 26,035 $ 23,816 $ 43,507 $ 41,734
6
The balances included in accumulated other comprehensive loss in the
consolidated balance sheets are as follows:
June 30, December 31,
2001 2000
(in thousands)
Foreign currency translation adjustments $ (65,412) $ (48,625)
Net loss on derivative financial
instruments (1,436) -
Minimum pension liability (671) (671)
$ (67,519) $ (49,296)
NOTE 3 - EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings per common share:
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
(in thousands, except per share amounts)
Basic EPS Computation
Numerator (Income) $27,404 $24,627 $61,730 $46,819
Denominator:
Common shares outstanding 51,748 51,912 51,695 52,113
Basic EPS $ 0.53 $ 0.47 $ 1.19 $ 0.90
Diluted EPS Computation
Numerator (Income) $27,404 $24,627 $61,730 $46,819
Denominator:
Common shares outstanding 51,748 51,912 51,695 52,113
Incremental shares from assumed exercise
of dilutive options 870 466 776 346
Total shares 52,618 52,378 52,471 52,459
Diluted EPS $ 0.52 $ 0.47 $ 1.18 $ 0.89
Options to purchase 2,600 and 84,300 shares of common stock that were
outstanding during the quarter ended June 30, 2001 and 2000, respectively,
were not included in the computation of diluted earnings per share since the
options' exercise prices were greater than the average market price of the
common shares and, therefore, the effect would be antidilutive. Antidilutive
options outstanding during the six months ended June 30, 2001 and 2000 were
36,600 and 579,200, respectively.
NOTE 4 - BUSINESS ACQUISITIONS/DIVESTITURES
In December 2000, the Company agreed to acquire all the outstanding shares
of Friadent GmbH ("Friadent") for 220 million German marks or $106 million
($104.7 million, net of cash acquired). The acquisition closed in January
2001. Headquartered in Mannheim, Germany, Friadent is a major global dental
implant manufacturer and marketer with subsidiaries in Germany, France,
Denmark, Sweden, the United States, Switzerland, Brazil, and Belgium.
7
In December 2000, the Company agreed to sell InfoSoft, LLC to
PracticeWorks, Inc. InfoSoft, LLC, a wholly owned subsidiary of the Company,
develops and sells software and related products for dental practice
management. PracticeWorks is the dental software management and dental claims
processing company which was spun-off by Infocure Corporation (NASDAQ-INCX).
The transaction closed in March 2001. In the transaction, the Company
received 6.5% convertible preferred stock in PracticeWorks, with a fair value
of $32 million, which is included in "Other noncurrent assets" on the balance
sheet. These preferred shares are convertible into 9.8% of PracticeWorks
common stock. If not previously converted, the preferred shares are
redeemable for cash after 5 years. This sale has resulted in a $23.1 million
pretax gain. The Company will measure recoverability on this investment on a
periodic basis.
In January 2001, the Company agreed to acquire the dental injectible
anesthetic assets of AstraZeneca ("AZ"), including licensing rights to the
dental trademarks, for $136.5 million and royalties on future sales of a new
anesthetic product for scaling and root planing (Oraqix(TM)) that is
currently in Stage III clinical trials. The $136.5 million purchase price is
composed of the following: an initial $96.5 million payment which was made at
closing in March 2001; a $20 million contingency payment associated with
sales of injectible dental anesthetic; a $10 million milestone payment upon
submission of an Oraqix New Drug Application (NDA) in the U.S., and Marketing
Authorization Application (MAA) in Europe; and a $10 million milestone
payment upon approval of the NDA and MAA.
In August 1996, the Company purchased a 51% interest in CeraMed Dental
("CeraMed") for $5 million with the right to acquire the remaining 49%
interest. In March 2001, the Company entered into an agreement for an early
buy out of the remaining 49% interest in CeraMed at a cost of $20 million
with a potential contingent consideration ("earn-out") provision capped at $5
million. The acquisition of the remaining 49% was made on July 1, 2001. In
accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets", the goodwill associated with this
acquisition will not be amortized. The earn-out is based on future sales of
CeraMed products during the August 1, 2001 to July 31, 2002 time frame with
any additional pay out due on September 30, 2002.
Certain assets of Tulsa Dental Products LLC were purchased in January 1996
for $75.1 million, plus $5.0 million paid in May 1999 related to earn-out
provisions in the purchase agreement based on performance of the acquired
business. The purchase agreement provided for an additional earn-out payment
based upon the operating performance of the Tulsa Dental business for one of
the three two-year periods ending December 31, 2000, December 31, 2001 or
December 31, 2002, as selected by the seller. The seller chose the two-year
period ended December 31, 2000 and the final earn-out payment of $84.6
million was made in May 2001.
In May 2001, the Company entered into an agreement to purchase Degussa
Dental Group ("Degussa Dental"), a unit of Degussa AG, for 576 million euros
or approximately $500 million. Degussa Dental is a global provider of dental
materials to the professional dental products industry, specializing in
precious metal dental alloys and ceramics. It is the world's second largest
dental company and the market leader in Germany and Europe and the only
significant non-domestic dental company in the Japanese market. Headquartered
in Hanau-Wolfgang, Germany since 1992, Degussa Dental Group has modern
production facilities throughout the world. This transaction is expected to
close late in the third quarter or early in the fourth quarter of 2001.
The acquisitions above were accounted for under the purchase method of
accounting; accordingly, the results of their operations are included in the
accompanying financial statements since the respective dates of the
acquisitions. The purchase prices plus direct acquisition costs have been
allocated on the basis of estimated fair values at the dates of acquisition,
pending final determination of the fair value of certain acquired assets and
liabilities. The preliminary purchase price allocations for Friadent and AZ
are as follows:
Friadent AZ
Current assets $ 15,594 $ --
Property, plant and equipment 3,872 6,593
Identifiable intangible assets and costs in excess of
fair value of net assets acquired 97,227 90,204
Other long-term assets 460 --
Current liabilities (12,259) --
$ 104,894 $ 96,797
8
Assuming that the acquisitions of Friadent and AZ had occurred on January
1, 2000, the results of operations would have approximated the following in
comparison to the reported results:
As Reported Pro Forma with AZ and Friadent
Six Months Ended June 30, Six Months Ended June 30,
2001 2000 2001 2000
Net sales $ 500,304 $ 438,744 $ 508,093 $ 498,517
Net income 61,730 46,819 62,158 48,406
Earnings per common share
Basic $ 1.19 $ 0.90 $ 1.20 $ 0.93
Diluted 1.18 0.89 1.18 0.92
NOTE 5 - INVENTORIES
Inventories consist of the following:
June 30, December 31,
2001 2000
(in thousands)
Finished goods $ 98,452 $ 84,436
Work-in-process 26,150 22,102
Raw materials and supplies 30,070 26,766
$ 154,672 $ 133,304
NOTE 6 - RESTRUCTURING AND OTHER COSTS
In the first quarter of 2001, the Company recorded a pre-tax charge of $5.5
million related to reorganizing certain functions within Europe, Brazil and
North America. The primary objectives of this reorganization were to
consolidate duplicative functions and to improve efficiencies within these
regions and are expected to contribute to future earnings. Included in this
charge were severance costs of $3.1 million and other costs of $2.4 million.
The restructuring plan will result in the elimination of approximately 330
administrative and manufacturing positions in Brazil and Germany.
Approximately 45 of these positions remain to be eliminated. The Company
anticipates that most aspects of this plan will be completed, and the
benefits of the restructuring will begin to be realized, by the first quarter
of 2002. The major components of this restructuring charge and the remaining
outstanding balances are as follows:
Amounts
Applied Balance
2001 During June 30,
Provision 2001 2001
(in thousands)
Severance $ 3,130 $ (873) $ 2,257
Other costs 2,370 - 2,370
$ 5,500 $ (873) $ 4,627
9
In the fourth quarter of 2000, the Company recorded a pre-tax charge of
$2.7 million related to the reorganization of its French and Latin American
businesses. The primary focus of the reorganization is consolidation of
operations in these regions in order to eliminate duplicative functions. The
Company anticipates that this plan will increase operational efficiencies and
contribute to future earnings. Included in this charge were severance costs
of $2.3 million and other costs of $0.4 million. The restructuring will
result in the elimination of approximately 40 administrative positions,
mainly in France. Approximately 25 of these positions remain to be
eliminated. The Company anticipates that most aspects of this plan will be
completed, and the benefits of the restructuring will begin to be realized,
by the end of 2001. The major components of this restructuring charge and the
remaining outstanding balances are as follows:
Amounts Amounts
Applied Applied Balance
2000 During During June 30,
Provision 2000 2001 2001
(in thousands)
Severance $ 2,299 $ (611) $ (618) $ 1,070
Other costs 403 - (22) 381
$ 2,702 $ (611) $ (640) $ 1,451
NOTE 7 - DERIVATIVES
Adoption of SFAS 133
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," was issued by
the Financial Accounting Standards Board (FASB) in June 1998. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires recognition of all derivatives as either
assets or liabilities on the balance sheet and measurement of those
instruments at fair value. This statement, as amended, was adopted effective
January 1, 2001, and as required, the Company recognized a cumulative
adjustment for the change in accounting principle. This adjustment increased
other current liabilities by $1.1 million and resulted in a cumulative loss,
reflected in current earnings of $0.3 million ($0.2 million, net of tax), and
a reduction in other comprehensive income of $0.8 million ($0.5 million, net
of tax). The cumulative loss on adoption of SFAS 133 recognized in the income
statement was recorded in "Other (income) expense, net" and was considered
immaterial for presentation as a cumulative effect of a change in accounting
principle.
Derivative Instruments and Hedging Activities
The Company's activities expose it to a variety of market risks which
primarily include the risks related to the effects of changes in foreign
currency exchange rates, interest rates and commodity prices. These financial
exposures are monitored and managed by the Company as part of its overall
risk-management program. The objective of this risk management program is to
reduce the potentially adverse effects that these market risks may have on
the Company's operating results.
A portion of the Company's borrowings and certain inventory purchases are
denominated in foreign currencies which exposes the Company to market risk
associated with exchange rate movements. The Company's policy generally is
to hedge major foreign currency transaction exposures through foreign
exchange forward contracts. These contracts are entered into with major
financial institutions thereby minimizing the risk of credit loss. In
addition, the Company's investments in foreign subsidiaries are denominated
in foreign currencies, which creates exposures to changes in exchange rates.
The Company uses non-U.S. dollar-denominated-debt as a means of hedging some
of this risk.
Substantially all of the Company's long-term debt is variable-rate, which
exposes the Company to earnings fluctuations from changing interest rates. In
order to adjust these interest rate exposures, the Company's policy is to
manage interest rates through the use of interest rate swaps when
appropriate, based upon market conditions.
The manufacturing of some of the Company's products requires a significant
volume of commodities with potentially volatile prices. In order to limit
the unanticipated earnings fluctuations from such volatility in commodity
prices, the Company selectively enters into commodity price swaps to convert
variable raw material costs to fixed costs.
10
Cash Flow Hedges
The Company enters into forward exchange contracts to hedge the foreign
currency exposure of its anticipated purchases of certain inventory from
Japan. The forward contracts that are used in this program mature in twelve
months or less. The Company generally hedges between 33% and 67% of its
anticipated purchases.
The Company uses interest rate swaps to convert a portion of its
variable-rate debt to fixed-rate debt. In January 2000, the Company entered
into an interest rate swap agreement with notional amounts totaling 50
million Swiss francs which converts a portion of the Company's variable rate
Swiss franc financing to a fixed rate of 3.4% for a period of three years. In
February 2001, the Company entered into interest rate swap agreements with
notional amounts totaling 130 million Swiss francs which converts a portion
of the Company's variable rate financing to an average fixed rate of 3.3% for
an average period of four years.
The Company selectively enters into commodity price swaps to convert
variable raw material costs to fixed. In August 2000, the Company entered
into a commodity price swap agreement with notional amounts totaling 270,000
troy ounces of silver bullion throughout calendar year 2001. The average
fixed rate of this agreement is $5.10 per troy ounce. The Company generally
hedges between 33% and 67% of its projected annual silver needs.
For the period ended June 30, 2001, the Company recognized a net loss of
$0.4 million in "Other expense (income), net" of the income statement, which
represented the total ineffectiveness of all cash flow hedges.
As of June 30, 2001, $1.0 million of deferred net losses on derivative
instruments accumulated in other comprehensive income are expected to be
reclassified to current earnings during the next twelve months. Transactions
and events that are expected to occur over the next twelve months that will
necessitate such a reclassification include: the sale of inventory that
includes previously hedged purchases made in Japanese yen; the sale of
inventory that includes previously hedged purchases of silver; and
amortization of a portion of the net deferred loss on interest rate swaps
terminated as part of a swap restructuring in February 2001, which is being
amortized over the remaining term of the underlying loan being hedged. The
maximum term over which the Company is hedging exposures to variability of
cash flows (for all forecasted transactions, excluding interest payments on
variable-rate debt) is eighteen months.
Hedges of Net Investments in Foreign Operations
The Company has numerous investments in foreign subsidiaries. The net
assets of these subsidiaries are exposed to the volatility in currency
exchange rates. Currently, the Company uses nonderivative financial
instruments (at the parent company level) to hedge some of this exposure. The
translation gains and losses related to the net assets of the foreign
subsidiaries are offset by gains and losses in the parent company's debt
obligations. At June 30, 2001, the Company had Swiss franc-denominated debt
(at the parent company level) to hedge the currency exposure related to the
net assets of its Swiss subsidiaries.
For the period ended June 30, 2001, $7.6 million of net gains related to
the Swiss franc-denominated debt were included in the Company's foreign
currency translation adjustment.
Other
As of June 30, 2001, the Company had recorded the fair value of derivative
instrument liabilities of $0.2 million in "Accrued liabilities" and $0.2
million in "Other noncurrent liabilities" on the balance sheet.
In accordance with SFAS 52, "Foreign Currency Translation", the Company
utilizes long-term intercompany loans to eliminate foreign currency
transaction exposures of certain foreign subsidiaries. Net gains or losses
related to these long-term intercompany loans, those for which settlement is
not planned or anticipated in the foreseeable future, are included in the
Company's foreign currency translation adjustment.
11
NOTE 8 - COMMITMENTS AND CONTINGENCIES
DENTSPLY and its subsidiaries are from time to time parties to lawsuits
arising out of their respective operations. The Company believes that
pending litigation to which DENTSPLY is a party will not have a material
adverse effect upon its consolidated financial position or results of
operations or liquidity.
In June 1995, the Antitrust Division of the United States Department of
Justice initiated an antitrust investigation regarding the policies and conduct
undertaken by the Company's Trubyte Division with respect to the distribution of
artificial teeth and related products. On January 5, 1999 the Department of
Justice filed a Complaint against the Company in the U.S. District Court in
Wilmington, Delaware alleging that the Company's tooth distribution practices
violate the antitrust laws and seeking an order for the Company to discontinue
its practices. Three follow on private class action suits on behalf of dentists,
laboratories and denture patients in seventeen states, respectively, who
purchased Trubyte teeth or products containing Trubyte teeth were filed and
transferred to the U.S. District Court in Wilmington, Delaware. These cases have
been assigned to the same judge who is handling the Department of Justice
action. The class action filed on behalf of the dentists has been dismissed by
the plaintiffs. The private party suits seek damages in an unspecified amount.
The Company filed Motions for Summary Judgment in all of the above cases. The
Court denied the Motion for Summary Judgment regarding the Department of Justice
action, granted the Motion on the lack of standing of the patient class action
and granted the Motion on lack of standing of the laboratory class action to
pursue damage claims. After the Court's decision, in an attempt to avoid the
effect of the Court's ruling, the attorneys for the laboratory class action
filed a new Complaint naming Dentsply and its dealers as co-conspirators with
respect to Dentsply's distribution policy. Dentsply has filed a Motion to
Dismiss this re-filed action. Four private party class actions on behalf of
indirect purchasers have been filed in California. These cases are based on
allegations similar to those in the Department of Justice case. In response to
the Company's Motion, these cases have been consolidated in one Judicial
District in Los Angeles. It is the Company's position that the conduct and
activities of the Trubyte Division do not violate the antitrust laws.
NOTE 9 - OTHER EVENTS
On January 25, 2001, a fire broke out in one of the Company's Swiss
manufacturing facilities. The fire caused severe damage to a building and to
most of the equipment it contained. The Company is in the process of
assessing all the damages and potential losses related to this fire and has
filed several insurance claims, including a claim under its business
interruption policy. The claims process is lengthy and its outcome cannot be
predicted with certainty; however, the Company anticipates that all or most
of the financial loss incurred from this fire will be recovered under its
various insurance policies.
12
DENTSPLY INTERNATIONAL INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain statements made by the Company, including without limitation,
statements containing the words "plans", "anticipates", "believes",
"expects", or words of similar import constitute forward-looking statements
which are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that
forward-looking statements involve risks and uncertainties which may
materially affect the Company's business and prospects, and should be read in
conjunction with the risk factors set forth in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000.
RESULTS OF OPERATIONS
Quarter Ended June 30, 2001 Compared to Quarter Ended June 30, 2000
For the quarter ended June 30, 2001, net sales increased $29.8 million, or
13.3%, to $254.6 million, up from $224.8 million in the same period of 2000.
Base business sales (internal sales growth exclusive of
acquisitions/divestitures and the impact of currency translation) grew 5.2%.
This growth was achieved over both large equipment and consumable (which
includes small equipment) product categories. The impact of currency
translation had a negative effect of 2.6% on the second quarter results
compared to the comparable period in 2000 due to the further strengthening of
the U.S. dollar against most global currencies while acquisitions in 2001,
net of divestiture, had a positive 10.7% impact on net sales growth.
Sales in the United States for the second quarter grew 12.1%. Base business
sales growth in the U.S., up 7.5%, was the result of increases in both
consumable and large equipment lines. Strong growth was achieved in teeth,
endodontics, orthodontics, intraoral cameras and digital x-ray systems.
Acquisitions, net of divestitures, added 4.6% to net sales in the U.S. during
the second quarter.
European sales, including the Commonwealth of Independent States ("C.I.S."),
increased 18.2% during the second quarter of 2001. European base business
sales increased 1.1%. Currency translation had a negative 5.8% effect on the
quarter in Europe. Acquisitions added 22.9% to European sales during the
quarter. While equipment base business sales in Europe were strong, the
consumable and small equipment base business sales growth in Europe was soft
due mainly to the Maillefer fire and a difficult transition into the European
central warehouse.
Asia (excluding Japan) base business sales increased 9.7% as the Asian dental
markets remained solid. Latin American base business sales declined 1.4%
during the second quarter 2001, primarily due to a recession in Brazil and
Argentina, the two key Latin American markets. In addition, a sales policy
change in pricing and terms has had a short-term impact on business in
Brazil. Sales in the rest of the world grew 16.4%: 3.3% from base business
primarily in Africa, Japan and Australia; less 4.5% from the impact of
currency translation plus 17.6% from acquisitions.
Gross profit grew 12.9% in the second quarter due to higher sales. The 52.5%
second quarter 2001 gross profit percentage was lower than the 52.7% gross
profit percentage for the second quarter of 2000. This decline was due
mainly to the negative impact of a stronger U.S. dollar in 2001 and costs
associated with acquisitions.
Selling, general and administrative (SG&A) expense increased $10.7 million,
or 13.6%. As a percentage of sales, expenses increased slightly from 35.0%
in the second quarter of 2000 to 35.1% for the same period of 2001 due to
recent acquisitions. SG&A spending, excluding acquisitions, represented
34.8% of sales during the second quarter of 2001 compared to 35.1% for the
same period in 2000. This decrease is mainly due to lower legal expenses.
Net interest expense increased $1.8 million in the second quarter of 2001 due
to higher debt levels in 2001 to finance the Friadent and AstraZeneca
acquisitions and the Tulsa earn-out, offset somewhat by strong operating cash
flow and savings in interest expense resulting from further utilization of
lower rate Swiss debt in the second quarter of 2001. Other income increased
$1.1 million in the second quarter of 2001 from favorable currency
transaction fluctuations and the preferred stock dividends due from
PracticeWorks resulting from the sale of InfoSoft, LLC ("InfoSoft") in the
first quarter of 2001.
13
The effective tax rate for operations was lowered to 33.5% in the second
quarter of 2001 compared to 34.0% in the second quarter of 2000 reflecting
savings from federal, state and foreign tax planning activities.
Net income increased $2.8 million, or 11.3% from the second quarter of 2000
and diluted earnings per common share were $0.52, an increase of 10.6% from
$0.47 in the second quarter of 2000, including a negative $.02 per common
share impact for amortization and interest associated with the Tulsa earn-out
payment made in May, 2001.
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
Net sales for the six months ended June 30, 2001 were $61.6 million, or
14.0%, above the comparable period in 2000, including 10.3% for
acquisitions. Excluding acquisitions and the InfoSoft divestiture, base
business net sales for the six months ended June 30, 2001 were up 6.1% at
2001 actual exchange rates for both periods (constant exchange rates), up
3.7% at reported exchange rates. This growth was achieved over both large
equipment and consumable (which includes small equipment) product
categories. The impact of currency had a 2.4% negative impact as the U.S.
dollar remained strong against most global currencies adversely affecting the
comparison to the prior year.
Sales in the United States for the first half grew 11.8%. Base business
growth in the U.S., up 8.0%, was achieved across both consumable and
equipment lines. Notable growth was achieved in endodontics, orthodontics,
intraoral cameras and digital x-rays systems. Acquisitions, net of
divestitures, added 3.8% to net sales in the U.S. during the first half of
2001.
European sales, including C.I.S., increased 18.7% during the first six months
of 2001. European base business sales increased 2.7%. Currency translation
had a negative 5.0% effect on the same period. Acquisitions added 21.0% to
European sales during the first six months of 2001. While equipment base
business sales in Europe were strong, the consumable and small equipment base
business sales growth in Europe was soft due mainly to the Maillefer fire and
a difficult transition into the European central warehouse.
Asia (excluding Japan) base business sales increased 12.7% as the Asian
dental markets remained solid. Latin American base business sales decreased
0.2% during the first half of 2001 primarily due to a recession in Brazil and
Argentina, the two key Latin American markets. In addition, a sales policy
change in pricing and terms has had a short-term impact business in Brazil.
Sales in the rest of the world grew 24.7%: 4.8% from base business primarily
in Africa, Japan, and Australia; less 4.9% from the impact of currency
translation plus 24.8% from acquisitions.
Gross profit grew 15.1% in the first six months of 2001 due to higher sales.
The 52.7% first half 2001 gross profit percentage was higher than the 52.5%
gross profit percentage for the first half of 2000. Gross profit margins
benefited from restructuring and operational improvements and a favorable
product mix offset somewhat by the negative impact of a strong U.S. dollar
and costs associated with acquisitions, including the amortization of
inventory step-up in 2001.
Selling, general and administrative (SG&A) expenses increased $26.3 million,
or 17.3%. As a percentage of sales, expenses increased from 34.7% in the
first six months of 2000 to 35.7% for the same period of 2001. The recent
acquisitions accounted for 0.8 percentage points of the rate increase. The
increased SG&A spending also includes the additional sales and marketing
expenses due to the North American sales conference held in February 2001
which brought together 700 Dentsply field sales people at one venue and the
bi-annual International Dental Society (IDS) meeting held in Cologne, Germany
in March, 2001.
Net interest expense increased $2.6 million in the first half of 2001 due to
higher debt levels in 2001 to finance the Friadent and AstraZeneca
acquisitions and the Tulsa earn-out, offset somewhat by strong operating cash
flow and savings in interest expense resulting from further utilization of
lower rate Swiss debt in the first quarter of 2001. Other income increased
$23.9 million in the first six months of 2001 reflecting the net gain on the
sale of SoftDent.
Net income increased $14.9 million, or 31.8% from the first half of 2000
including a $13.6 million after tax gain on the sale of InfoSoft and a $3.8
million after tax charge for restructuring recorded in the first quarter of
2001. Without the restructuring charge and the gain on the sale of InfoSoft,
net income was $51.9 million, up 10.9% from the first half of 2000, and
diluted earnings per common share were $0.99, an increase of 11.2% from $0.89
in the first half of 2001, including a negative $.02 per common share impact
from the Tulsa earn-out payment made in May 2001. This increase was due to
higher sales, higher gross profit margin, and lower income tax rate, offset
slightly by higher expenses as a percent of sales and higher interest expense
in the first half of 2001.
14
Quarter Ending September 30, 2001
In the third quarter of 2001, the Company plans to expense two $5 million R&D
milestone payments associated with the regulatory filings for ORAQIX , a
revolutionary gel based dental anesthetic. These expenditures are part of
the AstraZeneca dental anesthetic acquisition payments. We expect these
payments will be made late in the fourth quarter of 2001, however, the
expense will be recognized in the 3rd quarter of this year when the
regulatory filings are made. This charge will result in a one-time $0.17 per
share negative impact, which reflects only a small income tax benefit. The
Company also expects to generate a pre-tax gain of approximately $8.5 to $9.5
million in the third quarter related to the restructuring of its UK pension
arrangements. This is expected to have a one-time earnings-per-share benefit
of approximately $0.10 to $0.11 in the third quarter and a corresponding cash
benefit in the third quarter or fourth quarter of 2001.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2001, cash flows from operating activities
were $71.5 million compared to $64.6 million for the six months ended June
30, 2000. The increase of $6.9 million results primarily from higher
earnings, increases in accrued liabilities and deferred income taxes offset
by an increase in inventory.
Investing activities for the six months ended June 30, 2001 include capital
expenditures of $24.4 million.
In December 2000, the Board of Directors authorized a stock buyback program
for 2001 to purchase up to 1.0 million shares of common stock on the open
market or in negotiated transactions. During the first half of 2001, the
Company repurchased 25,000 shares of its common stock for $0.9 million. The
Company does not plan to make any additional purchases of its common stock
under this program in 2001.
The Company's current ratio was 1.9 with working capital of $166.2 million at
June 30, 2001. This compares with a current ratio of 1.9 and working capital
of $157.3 million at December 31, 2000.
The Company had acquisition activity during the six months ended June 30,
2001 that has resulted or will result in significant cash outlays. In January
2001, the Company completed the acquisition of Friadent GmbH ("Friadent") for
220 million German marks or $106 million ($104.7, net of cash acquired). In
March 2001, the Company completed the acquisition of the dental injectible
anesthetic assets of AstraZeneca ("AZ"), including licensing rights to the
dental trademarks, for $96.5 million, with potential additional payments of
$40 million to be made at future dates. Additionally, in March 2001, the
Company entered into an agreement for an early buy out of the remaining 49%
interest in CeraMed Dental at a cost of $20 million with a potential earn-out
provision capped at $5 million. The $20 million payment was made on July 1,
2001 and the earn-out is based on future sales. In May 2001, the Company also
made an earn-out payment of $84.6 million related to its 1996 purchase of
Tulsa Dental Products LLC. The earn-out is based on provisions in the
purchase agreement related to the operating performance of the acquired
business. In May 2001, the Company entered into an agreement to purchase
Degussa Dental Group ("Degussa Dental"), a unit of Degussa AG, for 576
million euros or approximately $500 million. This transaction is expected to
close late in the third quarter or early in the fourth quarter of 2001. These
transactions are discussed in Note 4 of the Notes to Unaudited Interim
Consolidated Condensed Financial Statements.
In order to fund these transactions, the Company completed a $100 million
five year average life private placement of debt, denominated in Swiss francs
at an average interest rate of 4.5% with a major insurance company in March
2001. In May 2001 the Company also replaced and expanded its revolving credit
agreements to $500 million from its previous level of $300 million.
Additionally, the Company intends to fund the Degussa Dental transaction
primarily through a long-term eurobond debt offering which is expected to be
finalized late in the third quarter of 2001.
The Company's long-term debt increased $230.6 million from December 31, 2000
to $340.1 million due to the acquisitions that closed through June 30, 2001.
The resulting long-term debt to total capitalization at June 30, 2001 was
37.7% compared to 17.4% at December 31, 2000. The Company expects on an
ongoing basis, to be able to finance cash requirements, including capital
expenditures, stock repurchases, debt service, and potential future
acquisitions, from the funds generated from operations and amounts available
under its existing credit facilities.
15
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities," was issued by the
Financial Accounting Standards Board (FASB) in June 1998. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires recognition of all derivatives as either
assets or liabilities on the balance sheet and measurement of those
instruments at fair value. This statement, as amended, was adopted effective
January 1, 2001, and as required, the Company recognized a cumulative
adjustment for the change in accounting principle. This adjustment increased
other current liabilities by $1.1 million and resulted in a cumulative loss,
reflected in current earnings of $0.3 million ($0.2 million, net of tax), and
a reduction in other comprehensive income of $0.8 million ($0.5 million, net
of tax). The Company does not expect this statement to have a significant
impact on future net income as its derivative instruments are held primarily
for hedging purposes, and the Company considers the resulting hedges to be
highly effective under SFAS 133.
In June 2001 FASB issued Statement of Financial Accounting Standards No. 141
("SFAS 141"), "Business Combinations" and Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets". SFAS
141 addresses financial accounting and reporting for business combinations.
Specifically, effective for business combinations occurring after July 1,
2001, it eliminates the use of the pooling method of accounting and requires
all business combinations to be accounted for under the purchase method. SFAS
142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets. The primary change related to this new standard is
that the amortization of goodwill and intangible assets with indefinite
useful lives will be discontinued and instead an annual impairment approach
will be applied. Except for such intangibles acquired after July 1, 2001 (in
which case, amortization will not be recognized at all), the Company will
discontinue amortization on these intangible assets effective January 1,
2002. The Company expects this change in accounting to have a positive impact
on earnings per share of approximately $0.20 to $0.25 beginning in 2002.
EURO CURRENCY CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union (the "participating countries") established fixed conversion rates
between their legacy currencies and the newly established Euro currency.
The legacy currencies will remain legal tender in the participating countries
between January 1, 1999 and January 1, 2002 (the "transition period").
Starting January 1, 2002 the European Central Bank will issue
Euro-denominated bills and coins for use in cash transactions. On or before
July 1, 2002, the legacy currencies of participating countries will no longer
be legal tender for any transactions.
The Company's various operating units which are affected by the Euro
conversion have adopted the Euro as the functional currency effective January
1, 2001. At this time, the Company does not expect the reasonably
foreseeable consequences of the Euro conversion to have material adverse
effects on the Company's business, operations or financial condition.
IMPACT OF INFLATION
The Company has generally offset the impact of inflation on wages and the
cost of purchased materials by reducing operating costs and increasing
selling prices to the extent permitted by market conditions.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
There have been no significant material changes to the market risks as
disclosed in the Company's Annual Report on Form 10-K filed for the year
ending December 31, 2000.
16
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings
DENTSPLY and its subsidiaries are from time to time parties to lawsuits
arising out of their respective operations. The Company believes that
pending litigation to which DENTSPLY is a party will not have a material
adverse effect upon its consolidated financial position or results of
operations or liquidity.
In June 1995, the Antitrust Division of the United States Department of
Justice initiated an antitrust investigation regarding the policies and conduct
undertaken by the Company's Trubyte Division with respect to the distribution of
artificial teeth and related products. On January 5, 1999 the Department of
Justice filed a Complaint against the Company in the U.S. District Court in
Wilmington, Delaware alleging that the Company's tooth distribution practices
violate the antitrust laws and seeking an order for the Company to discontinue
its practices. Three follow on private class action suits on behalf of dentists,
laboratories and denture patients in seventeen states, respectively, who
purchased Trubyte teeth or products containing Trubyte teeth were filed and
transferred to the U.S. District Court in Wilmington, Delaware. These cases have
been assigned to the same judge who is handling the Department of Justice
action. The class action filed on behalf of the dentists has been dismissed by
the plaintiffs. The private party suits seek damages in an unspecified amount.
The Company filed Motions for Summary Judgment in all of the above cases. The
Court denied the Motion for Summary Judgment regarding the Department of Justice
action, granted the Motion on the lack of standing of the patient class action
and granted the Motion on lack of standing of the laboratory class action to
pursue damage claims. After the Court's decision, in an attempt to avoid the
effect of the Court's ruling, the attorneys for the laboratory class action
filed a new Complaint naming Dentsply and its dealers as co-conspirators with
respect to Dentsply's distribution policy. Dentsply has filed a Motion to
Dismiss this re-filed action. Four private party class actions on behalf of
indirect purchasers have been filed in California. These cases are based on
allegations similar to those in the Department of Justice case. In response to
the Company's Motion, these cases have been consolidated in one Judicial
District in Los Angeles. It is the Company's position that the conduct and
activities of the Trubyte Division do not violate the antitrust laws.
17
Item 4 - Submission of Matters to a Vote of Security Holders
(a) On May 23, 2001, the Company held its 2001 Annual Meeting of
stockholders.
(b) Not applicable.
(c) The following matters were voted upon at the Annual Meeting, with the
results indicated:
1. Election of Class III Directors:
Votes Broker
Nominee Votes For Withheld Non-Votes
Michael J. Coleman 35,332,705 11,649,904 N/A
John C. Miles II 41,352,401 5,630,208 N/A
W. Keith Smith 46,164,416 818,193 N/A
2. Proposal to ratify the appointment of PricewaterhouseCoopers LLP,
independent accountants, to audit the books and accounts of the
Company for the year ending December 31, 2001:
Votes For:46,640,345 Votes Against: 289,751
Abstentions: 52,513 Broker Non-Votes: N/A
(d) Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
3.2 By-Laws, as amended
10.1 Degussa Dental Group Sale and Purchase Agreement, dated May 28/29,
2001 between Degussa AG (Seller) and Dentsply Hanau GmbH & Co. KG,
Dentsply Research & Development Corporation and Dentsply EU
S.a.r.l. (Purchasers and subsidiaries of the Company).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 2001.
18
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DENTSPLY INTERNATIONAL INC.
August 14, 2001 /s/ John C. Miles II
Date John C. Miles II
Chairman and
Chief Executive Officer
August 14, 2001 /s/ William R. Jellison
Date William R. Jellison
Senior Vice President and
Chief Financial Officer
19
DENTSPLY International Inc.
BY LAWS
BY-LAWS INDEX
ARTICLE I. STOCKHOLDERS' MEETINGS
SECTION 1. Annual Meetings 1
SECTION 2. Special Meetings 1
SECTION 3. Place of Meeting 1
SECTION 4. Notice of Meeting 1
SECTION 5. Fixing of Record Date 1
SECTION 6. Quorum 2
SECTION 7. Proxies 2
SECTION 8. Voting of Shares 2
SECTION 9. List of Stockholders 3
SECTION 10. Waiver of Notice by Stockholders 3
SECTION 11. Advance Notice of Stockholder-Proposed 3
Business at Annual Meetings
SECTION 12. Procedure for Nomination of Directors 3
ARTICLE II. BOARD OF DIRECTORS 4
SECTION 1. General Powers 4
SECTION 2. Number of Directors, Tenure and 4
Qualifications
SECTION 3. Regular Meetings 5
SECTION 4. Special Meetings 5
SECTION 5. Notice 5
SECTION 6. Quorum 6
SECTION 7. Manner of Acting 6
SECTION 8. Vacancies 6
SECTION 9. Compensation 6
SECTION 10. Presumption of Assent 6
SECTION 11. Committees 6
SECTION 12. Removal of Directors 7
SECTION 13. Informal Action 7
SECTION 14. Conferences 7
ARTICLE III. OFFICERS 7
SECTION 1. Number 7
SECTION 2. Election and Term of Office 7
SECTION 3. Removal 7
SECTION 4. Chairman of the Board 8
SECTION 5. Vice Chairman of the Board 8
SECTION 6. Chief Executive Officer 8
SECTION 7. President 8
SECTION 8. Senior Vice President and Vice 8
Presidents
SECTION 9. Secretary and Assistant Secretaries 8
SECTION 10. Treasurer and Assistant Treasurer 9
SECTION 11. Salaries 9
SECTION 12. Representation in Other Companies 9
ARTICLE IV. CERTIFICATES FOR SHARES AND THEIR TRANSFER 9
SECTION 1. Certificates for Shares 9
SECTION 2. Transfer of Shares 9
ARTICLE V. INDEMNIFICATION OF DIRECTORS, OFFICERS, 10
EMPLOYEES AND AGENTS
SECTION 1. Indemnification Generally 10
SECTION 2. Indemnification in Actions By or In the 10
Right Of the Corporation
SECTION 3. Success on the Merits; Indemnification 11
Against Expenses
SECTION 4. Determination that Indemnification is 11
Proper
SECTION 5. Insurance; Indemnification Agreements 11
SECTION 6. Advancement of Expenses 11
SECTION 7. Rights Not Exclusive 11
SECTION 8. Severability 12
SECTION 9. Modification 12
BY-LAWS
OF
DENTSPLY INTERNATIONAL INC.
(Formerly GENDEX Corporation)
ARTICLE I. STOCKHOLDERS' MEETINGS
SECTION 1. Annual Meetings. The Board of Directors shall,
within seventy-five (75) days following the close of the
corporation's fiscal year, establish a date, time and place for
the annual meeting of the stockholders, for the purpose of
electing directors and for the transaction of such other business
as may properly come before the meeting.
SECTION 2. Special Meetings. Except as otherwise required
by law and subject to the rights of the holders of any class or
series of capital stock having a preference over the common stock
as to dividends or upon liquidation, special meetings of
stockholders of the corporation may be called only by the
Chairman of the Board, the Chief Executive Officer or the
President pursuant to a resolution adopted by the Board of
Directors.
SECTION 3. Place of Meeting. The Board of Directors may
designate any place, either within or without the State of
Delaware, as the place of meeting for any annual meeting, or for
any special meeting called pursuant to Article I, Section 2,
above. A waiver of notice signed by all stockholders entitled to
vote at a meeting may designate any place, either within or
without the State of Delaware, as the place for the holding of
such meeting. If no designation is made, or if a special meeting
shall be otherwise called, the place of meeting shall be the
principal office of the corporation.
SECTION 4. Notice of Meeting. Written notice stating the
place, day and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called,
shall be delivered not less than ten (10) nor more than sixty
(60) days before the date of the meeting either personally or by
mail, by or at the discretion of the Chief Executive Officer, the
President or the officer or persons calling the meeting. If
mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the stockholder
at his address as it appears on the stock record books of the
corporation, with postage thereon prepaid.
SECTION 5. Fixing of Record Date.
(a) For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of
Directors of the corporation may fix, in advance, a date as
the record date for any such determination of stockholders,
such date in any case to be not more than sixty (60) nor
less than ten (10)
1
days prior to the date of any proposed meeting of
stockholders. In no event shall the stock transfer books be
closed. When a determination of stockholders entitled to
vote at any meeting of stockholders has been made as
provided in this Section, such determination shall be
applied to any adjournment thereof.
(b) For the purpose of determining stockholders
entitled to receive payment of any dividend or other
distribution or allotment of any rights, or in order to make
a determination of stockholders for any other lawful
purpose, the Board of Directors of the corporation may fix a
date as the record date for any such determination of
stockholders, which record date shall not precede the date
upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty (60) days
prior to such action. In no event shall the stock transfer
books be closed.
SECTION 6. Quorum. A majority of the outstanding shares of
the corporation entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders.
Provided that a meeting has been duly convened in accordance
herewith, a majority of the shares represented at the meeting at
the time of adjournment, even if such shares constitute at such
time less than a majority of the outstanding shares entitled to
vote, may adjourn the meeting from time to time without further
notice. At any adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which
might have been transacted at the meeting as originally
notified. Any meeting (a) at which all of the outstanding shares
are present in person or represented by proxy and at which none
of such shares attend for the purpose of objecting, at the
beginning of the meeting, to the transaction of any business
thereat because the meeting was not lawfully called or convened,
or (b) at which all of the outstanding stock has waived notice,
or (c) for which notice shall have been duly given as provided
herein, shall be deemed a properly constituted meeting of the
stockholders.
SECTION 7. Proxies. At all meetings of stockholders, a
stockholder entitled to vote may vote by proxy appointed in
writing by the stockholder or by his duly authorized attorney in
fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. An instrument
appointing a proxy shall, unless the contrary is stated thereon,
be valid only at the meeting for which it has been given or any
adjournment thereof.
SECTION 8. Voting of Shares. At each meeting of
stockholders, every stockholder entitled to vote thereat shall be
entitled to vote in person or by a duly authorized proxy, which
proxy may be appointed by an instrument in writing executed by
such stockholder or his duly authorized attorney or through
electronic means, if applicable, such as the internet. Subject
to the provisions of applicable law and the Company's Certificate
of Incorporation, each holder of common stock shall be entitled
to one (1) vote for each share of stock standing registered in
his name at the close of business on the day fixed by the Board
of Directors as the record date for the determination of the
stockholders entitled to notice of and vote at such meeting.
Shares standing in the name of another corporation may be voted
by any officer of such corporation or any proxy appointed by any
officer of such corporation in the absence of express notice of
such corporation given in writing to the Secretary of this
corporation in connection with the particular meeting, that such
officer has no authority to vote such shares.
2
SECTION 9. List of Stockholders. A complete list of the
stockholders entitled to vote at the ensuing meeting, arranged in
alphabetical order and showing the address of each stockholder
and the number of shares registered in the name of each
stockholder, shall be prepared by the Secretary, or other officer
of the corporation having charge of said stock ledger. Such list
shall be open to the examination of any stockholder during
ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place
where said meeting is to be held, and the list shall be produced
and kept at the time and place of the meeting during the whole
time thereof, and shall be subject to the inspection of any
stockholder who may be present.
SECTION 10. Waiver of Notice by Stockholders. Whenever any
notice whatever is required to be given to any stockholder of the
corporation under the provisions of these By-Laws or under the
provisions of the Certificate of Incorporation or under the
provisions of any statute, a waiver thereof in writing, signed at
any time, whether before or after the time of meeting, by the
stockholder entitled to such notice, shall be deemed equivalent
to the giving of such notice.
SECTION 11. Advance Notice of Stockholder-Proposed Business
at Annual Meetings. At an annual meeting of stockholders, only
such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an
annual meeting, business must be either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the
direction of the Board, (b) otherwise properly brought before the
meeting by or at the direction of the Board, or (c) otherwise
properly brought before the meeting by a stockholder. In
addition to any other applicable requirements for business to be
properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the
principal executive offices of the corporation, not less than
sixty (60) days prior to the date that the materials regarding
the prior years annual meeting were mailed to stockholders. A
stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (ii) the name and record
address of the stockholder proposing such business, (iii) the
class and number of shares of the corporation which are
beneficially owned by the stockholder, and (iv) any material
interest of the stockholder in such business.
Notwithstanding anything in these By-Laws to the contrary,
no business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Section 11.
The chairman of an annual meeting shall, if the facts
warrant, determine that business was not properly brought before
the meeting in accordance with the provisions of this Section 11,
and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting
shall not be transacted.
SECTION 12. Procedure for Nomination of Directors. Only
persons nominated in accordance with the following procedures
shall be eligible for election as directors, except as
3
may otherwise be provided by the terms of the corporation's
Certificate of Incorporation with respect to the rights of
holders of any class or series of preferred stock to elect
directors under specified circumstances. Nominations of persons
for election to the Board of Directors of the corporation may be
made at a meeting of stockholders by or at the direction of the
Board of Directors, by any nominating committee or person
appointed by the Board, or by any stockholder of the corporation
entitled to vote for election of directors at the meeting who
complies with the notice procedures set forth in this Section
12. Nominations other than those made by or at the direction of
the Board of Directors or any nominating committee or person
appointed by the Board shall be made pursuant to timely notice in
proper written form to the Secretary of the corporation. To be
timely, a stockholder's request to nominate a person for
director, together with the written consent of such person to
serve as a director, must be received by the Secretary of the
corporation not less than sixty (60) days prior to the date fixed
for the meeting. To be in proper written form, such
stockholder's notice shall set forth in writing: (a) as to each
person whom the stockholder proposes to nominate for election or
re-election as a director (i) the name, age, business address and
residence address for such person, (ii) the principal occupation
or employment of such person, (iii) the class and number of
shares of stock of the corporation which are beneficially owned
by such person and (iv) such other information relating to such
person as is required to be disclosed in solicitations of proxies
for election of directors, or as otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended; and (b) as to the stockholder giving the notice
(i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of
shares of stock of the corporation which are beneficially owned
by such stockholder. The corporation may require any proposed
nominee to furnish such other information as may reasonably be
required by the corporation to determine the eligibility of such
proposed nominee to serve as a director of the corporation. No
persons shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures
set forth herein and in the corporation's Certificate of
Incorporation. The chairman of any meeting shall, if the facts
so warrant, determine that a nomination was not made in
accordance with the procedures prescribed by the corporation's
Certificate of Incorporation and By-Laws, and if he should so
determine, he shall so declare to the meeting and the defective
nomination(s) shall be disregarded.
ARTICLE II. BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
corporation shall be managed by its Board of Directors. The
Board of Directors may adopt, amend or repeal by-laws adopted by
the Board or by the stockholders.
SECTION 2. Number of Directors, Tenure and Qualifications.
The number of members of the Board of Directors shall be not less
than three (3) nor more than twelve (12), as determined from time
to time by the Board of Directors. The directors need not be
stockholders of the corporation. The directors shall be divided
into three (3) classes, designated Class I, Class II and Class
III. Each class shall consist, as nearly as may be possible, of
one-third (1/3) of the total number of directors constituting the
entire Board of Directors. Effective immediately upon the filing
of the Certificate of Incorporation of the corporation dated June
11, 1993, Class I directors shall be elected for a term ending
upon the next succeeding annual meeting of
4
stockholders, Class II directors for a term ending upon the
second succeeding annual meeting of stockholders and Class III
directors for a term ending upon the third succeeding annual
meeting of stockholders. At each succeeding annual meeting of
stockholders beginning with the annual meeting immediately
succeeding the filing of the Certificate of Incorporation,
successors to the class of directors whose term expires at such
annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible, and any
additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class,
but in no case will a decrease in the number of directors shorten
the term of any incumbent director. A director shall hold office
until the annual meeting for the year in which his or her term
expires and until his or her successor shall be elected and shall
qualify, subject, however, to prior death, resignation,
incapacitation or removal from office, and except as otherwise
required by law. In the event such election is not held at the
annual meeting of stockholders, it shall be held at any
adjournment thereof or a special meeting.
SECTION 3. Regular Meetings. Regular meetings of the Board
of Directors shall be held without any other notice than this
By-Law immediately after, and at the same place as, the annual
meeting of stockholders, and each adjourned session thereof. The
Board of Directors may designate the time and place, either
within or without the State of Delaware, for the holding of
additional regular meetings without other notice than such
designation.
SECTION 4. Special Meetings. Special meetings of the Board
of Directors may be called by or at the request of the Chairman
of the Board, the Chief Executive Officer, the President or by
members of the Board of Directors constituting no less than
three-fourths (3/4) of the total number of directors then in
office. The person or persons authorized to call special
meetings of the Board of Directors may fix any place either
within or without the State of Delaware, as the place for holding
any special meeting of the Board of Directors called by them.
SECTION 5. Notice. Notice of any special meeting shall be
given at least five (5) days previously thereto by written notice
delivered or mailed to each director at his last known address,
or at least forty-eight (48) hours previously thereto by personal
delivery or by facsimile to a telephone number provided to the
corporation. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail so addressed,
with postage thereon prepaid. If notice is given by facsimile,
such notice shall be deemed to be delivered when transmitted with
receipt confirmed. Whenever any notice whatever is required to be
given to any director of the corporation under the provisions of
these By-Laws or under the provisions of the Certificate of
Incorporation or under the provisions of any statute, a waiver
thereof in writing, signed at any time, whether before or after
the time of meeting, by the director entitled to such notice,
shall be deemed equivalent to the giving of such notice. The
attendance of a director at a meeting shall constitute a waiver
of notice of such meeting except where a director attends a
meeting and objects thereat to the transaction of any business
because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular
or special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting.
5
SECTION 6. Quorum. Two-Thirds (2/3) of the directors shall
constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
SECTION 7. Manner of Acting. The act of the majority of
the directors then in office shall be the act of the Board of
Directors, Unless the act of a greater number is required by
these By-laws or by law.
SECTION 8. Vacancies. Except as otherwise required by law,
any vacancy on the Board of Directors that results from an
increase in the number of directors shall be filled only by a
majority of the Board of Directors then in office, provided that
a quorum is present, and any other vacancy occurring on the Board
of Directors shall be filled by a majority of the directors then
in office, even if less than a quorum, or by a sole remaining
director. Any director elected to fill a vacancy not resulting
from an increase in the number of directors shall have the same
remaining term as that of his or her predecessor. The
resignation of a director shall be effective upon receipt by the
corporation, unless some subsequent time is fixed in the
resignation, and then from that time. Acceptance of such
resignation by the corporation shall not be required.
SECTION 9. Compensation. The Board of Directors, by
affirmative vote of a majority of the directors, and irrespective
of any personal interest of any of its members, may establish
reasonable compensation of all directors for services to the
corporation as directors, officers or otherwise, or may delegate
such authority to an appropriate committee.
SECTION 10. Presumption of Assent. A director of the
corporation who is present at a meeting of the Board of Directors
or a committee thereof at which action on any corporate matter is
taken shall be presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting
or unless he shall file his written dissent to such action with
the person acting as the secretary of the meeting before the
adjournment thereof. Such right to dissent shall not apply to a
director who voted in favor of such action.
SECTION 11. Committees. The Board of Directors by
resolution may designate one (1) or more committees, each
committee to consist of one (1) or more directors elected by the
Board of Directors, which to the extent provided in such
resolution, as initially adopted, and as thereafter supplemented
or amended by further resolution adopted by a like vote, shall
have and may exercise, when the Board of Directors is not in
session, the powers of the Board of Directors in the management
of the business and affairs of the Corporation, except action
with respect to amendment of the Certificate of Incorporation or
By-Laws, adoption of an agreement of merger or consolidation
(other than the adoption of a Certificate of Ownership and Merger
in accordance with Section 253 of the General Corporation Law of
the State of Delaware, as such law may be amended or
supplemented), recommendation to the stockholders of the sale,
lease or exchange of all or substantially all of the
Corporation's property or assets, recommendation to the
stockholders of the dissolution or the revocation of a
dissolution of the Corporation, election of officers or the
filling of vacancies on the Board of Directors or on committees
created pursuant to this Section or declaration of dividends.
The Board of Directors may elect one (1) or more of its members
as alternate members of any such committee who may take the place
of any absent or disqualified member or members at any meeting of
such committee, upon request by the Chairman of the Board, the
Chief Executive Officer or the President or upon request by the
6
chairman of such meeting. Each such committee may fix its own
rules governing the conduct of its activities and shall make such
reports to the Board of Directors of its activities as the Board
of Directors may request.
SECTION 12. Removal of Directors. Exclusive of directors,
if any, elected by the holders of one (1) or more classes of
preferred stock, no director of the corporation may be removed
from office, except for cause and by the affirmative vote of
two-thirds (2/3) of the outstanding shares of capital stock of
the corporation entitled to vote at a meeting of the stockholders
duly called for such purpose. As used in this Article II, the
meaning of "cause" shall be limited to malfeasance arising from
the performance of a director's duty which has a materially
adverse effect on the business of the corporation.
SECTION 13. Informal Action. Any action required or
permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken at any meeting of the Board of
Directors or any committee thereof if prior to such action a
written consent thereto is signed by all members of the Board or
of the committee, as the case may be, and such written consent is
filed with the minutes of the proceedings of the Board or the
committee.
SECTION 14. Conferences. Members of the Board of Directors
or any committee designated by the Board may participate in a
meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section14 shall
constitute presence in person at such meeting.
ARTICLE III. OFFICERS
SECTION 1. Number. The officers of the corporation shall
consist of a Chairman of the Board and a Chief Executive
Officer. The Board of Directors may appoint as officers a Vice
Chairman of the Board, President, such number of Senior Vice
Presidents and Vice Presidents, a Secretary, a Treasurer, one (1)
or more Assistant Treasurers, one (1) or more Assistant
Secretaries, and such other officers as are created by the Board
from time to time. The same person may hold two (2) or more of
such offices.
SECTION 2. Election and Term of Office. The Chairman of
the Board and the Vice Chairman of the Board shall be elected by
the directors from among their own number; other officers need
not be directors. In addition to the powers conferred upon them
by these By-Laws, all officers elected or appointed by the Board
of Directors shall have such authority and shall perform such
duties as from time to time may be prescribed by the Board of
Directors by resolution.
SECTION 3. Removal. Any officer or agent elected or
appointed by the Board of Directors may be removed by the Board
of Directors, whenever in its judgment the best interests of the
corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person
so removed. Election or appointment shall not of itself create
contract rights.
7
SECTION 4. Chairman of the Board. The Chairman of the
Board shall preside at all meetings of the Board of Directors and
meetings of the stockholders. He shall also perform such other
duties as from time to time may be assigned to him by the Board
of Directors.
SECTION 5. Vice Chairman of the Board. In the absence of
the Chairman of the Board because of death or physical disability
which prevents the Chairman of the Board from performing his
duties, or in the event of his inability or refusal to act, the
Vice Chairman of the Board shall perform the duties of the
Chairman of the Board and, when so acting, have the powers of and
be subject to all of the restrictions upon the Chairman of the
Board.
SECTION 6. Chief Executive Officer. The Chief Executive
Officer shall be the principal executive officer of the
corporation and shall have the general charge of and control over
the business, affairs and personnel of the corporation, subject
to the authority of the Board of Directors. The Chief Executive
Officer may, together with the Secretary, sign all certificates
for shares of the capital stock of the corporation and shall
perform such other duties as shall be delegated to him by the
Board of Directors. Except as may be specified by the Board of
Directors, the Chief Executive Officer shall have the power to
enter into contracts and make commitments on behalf of the
corporation and shall have the right to execute deeds, mortgages,
bonds, contracts and other instruments necessary or proper to be
executed in connection with the corporation's regular business
and may authorize the President, and any other officer of the
corporation, to sign, execute and acknowledge such documents and
instruments in his place and stead.
SECTION 7. President. The President shall be the chief
operating officer of the corporation, and shall report to the
Chief Executive Officer. The President may, together with the
Secretary, sign all certificates for shares of the capital stock
of the corporation and may, together with the Secretary, execute
on behalf of the corporation any contract, except in cases where
the signing and execution thereof shall be expressly delegated by
the Board of Directors or the Chief Executive Officer to some
other officer or agent, and shall perform such duties as are
assigned to him by the Board of Directors or the Chief Executive
Officer.
SECTION 8. Senior Vice President and Vice Presidents. Each
Senior Vice President or Vice President shall perform such duties
and have such authority as from time to time may be assigned to
him by the Board of Directors, the Chief Executive Officer or the
President.
SECTION 9. Secretary and Assistant Secretaries. The
Secretary shall have custody of the seal of the corporation and
of all books, records and papers of the corporation, except such
as shall be in the charge of the Treasurer or some other person
authorized to have custody and be in possession thereof by
resolution of the Board of Directors. The Secretary shall record
the proceedings of the meetings of the stockholders and of the
Board of Directors in books kept by him for that purpose and may,
at the direction of the Board of Directors, give any notice
required by statute or by these By-Laws of all such meetings.
The Secretary shall, together with the Chief Executive Officer or
the President, sign certificates for shares of the capital stock
of the corporation. Any Assistant Secretaries elected by the
Board of Directors, in order of their seniority, shall, in the
absence or disability of the Secretary, perform the duties and
exercise the
8
powers of the Secretary as aforesaid. The Secretary or any
Assistant Secretary may, together with the Chief Executive
Officer, the President or any other authorized officer, execute
on behalf of the corporation any contract which has been approved
by the Board of Directors, and shall perform such other duties as
the Board of Directors, the Chief Executive Officer or the
President shall prescribe.
SECTION 10. Treasurer and Assistant Treasurer. The
Treasurer shall keep accounts of all moneys of the corporation
received and disbursed, and shall deposit all monies and
valuables of the corporation in its name and to its credit in
such banks and depositories as the Board of Directors shall
designate. Any Assistant Treasurers elected by the Board of
Directors, in order of their seniority, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer, and shall perform such other duties as
the Board of Directors, the Chief Executive Officer or the
President shall prescribe.
SECTION 11. Salaries. The salaries of the officers shall
be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary by reason
of the fact that he is also a director of the corporation.
SECTION 12. Representation in Other Companies. Unless
otherwise ordered by the Board of Directors, the Chief Executive
Officer, the President or a Vice President designated by the
President shall have full power and authority on behalf of the
corporation to attend and to act and to vote at any meetings of
security holders of corporations in which the corporation may
hold securities, and at such meetings shall possess and may
exercise any and all rights and powers incident to the ownership
of such securities, and which as the owner thereof the
corporation might have possessed and exercised, if present. The
Board of Directors by resolution from time to time may confer
like powers upon any other person or persons.
ARTICLE IV. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates
representing shares of the corporation shall be in such form as
shall be determined by the Board of Directors. Such certificates
shall be signed by the Chief Executive Officer or the President
and by the Secretary. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be
canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been
surrendered and canceled, except that in case of a lost,
destroyed or mutilated certificate a new one may be issued
therefor upon such terms and indemnity to the corporation as the
Board of Directors may prescribe.
SECTION 2.Transfer of Shares. Prior to due presentment of a
certificate for shares for registration of transfer the
corporation may treat the registered owner of such shares as the
person exclusively entitled to vote, to receive notifications and
otherwise to exercise all the rights and powers of an owner.
Where a certificate for shares is presented to the corporation
with a request to register for transfer, the corporation shall
not be liable to the owner or any other
9
person suffering loss as a result of such registration of
transfer if (a) there were on or with the certificate the
necessary endorsements, and (b) the corporation had no duty to
inquire into adverse claims or has discharged any such duty. The
corporation may require reasonable assurance that said
endorsements are genuine and effective and in compliance with
such other regulations as may be prescribed under the authority
of the Board of Directors.
ARTICLE V. INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS
SECTION 1. Indemnification Generally. The corporation
shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the corporation), by reason of the fact that he or
she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, or is alleged to have violated the Employee
Retirement Income Security Act of 1974, as amended, against
expenses (including attorneys' fees), judgments, fines,
penalties, and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon
plea of nolo contendere or its equivalent shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or
not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had reasonable
cause to believe that his or her conduct was unlawful.
SECTION 2. Indemnification in Actions By or In the Right Of
the Corporation. The corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection with
the defense and settlement of such action or suit if he or she
acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the corporation
and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to
the extent that the Delaware Court of Chancery or the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the
Delaware Court of Chancery or such other court shall deem proper.
10
SECTION 3. Success on the Merits; Indemnification Against
Expenses. To the extent that a director, officer, employee or
agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in Section 1 or Section 2 of this Article V, or in defense of
any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
SECTION 4. Determination that Indemnification is Proper.
Any indemnification under Section 1 or Section 2 of this Article
V, unless ordered by a court, shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is
proper in the circumstances under the standard of conduct set
forth in such Section 1 or Section 2 of this Article V, as the
case may be. Such determination shall be made:
(a) By the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to such
action, suit or proceeding;
(b) If such a quorum is not obtainable, or, even if
obtainable if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion;
or
(c) By the stockholders.
SECTION 5. Insurance; Indemnification Agreements. The
corporation may, but shall not be required to, supplement the
right of indemnification under this Article V by any lawful
means, including, without limitation by reason of enumeration,
(i) the purchase and maintenance of insurance on behalf of any
one or more of such indemnities, whether or not the corporation
would be obligated to indemnify such person under this Article V
or otherwise, and (ii) individual or group indemnification
agreements with any one or more of such indemnities.
SECTION 6. Advancement of Expenses. Expenses (including
attorneys' fees) incurred by an indemnitee in defending any
civil, criminal, administrative or investigative action, suit or
proceeding shall be paid by the corporation in advance of the
final disposition of such action; suit or proceeding upon receipt
of an undertaking by or on behalf of the indemnitee to repay such
amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation as to such amounts.
SECTION 7. Rights Not Exclusive. The indemnification
provided by this Article V shall be not deemed exclusive of any
other right to which an indemnified person may be entitled under
Section 145 of the General Corporation Law of the State of
Delaware (or any successor provision) or otherwise under
applicable law, or under any agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or
her official capacity and as to action in another capacity while
holding such office and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators
of such a person.
11
SECTION 8. Severability. To the extent that any court of
competent jurisdiction shall determine that the indemnification
provided under this Article V shall be invalid as applied to a
particular claim, issue or matter, the provisions hereof shall be
deemed amended to allow indemnification to the maximum extent
permitted by law.
SECTION 9. Modification. This Article V shall be deemed to
be a contract between the corporation and each previous, current
or future director, officer, employee or agent. The provisions
of this Article V shall be applicable to all actions, claims,
suits or proceedings, commenced after the adoption hereof,
whether arising from any action taken or failure to act before or
after such adoption. No amendment, modification or repeal of
this Article V shall diminish the rights provided hereby or
diminish the right to indemnification with respect to any claim,
issue or matter in any then pending or subsequent proceeding
which is based in any material respect from any alleged action or
failure to act prior to such amendment, modification or repeal.
12
EXHIBIT 10.1
A.Prot.
2001/154
SaleAndPurchAgt A Prot 2001 154 Cu VER1
dated May 28/29, 2001
of the Notary Stephan Cueni
at Basel, Switzerland
-----------------------------------------------
SALE AND PURCHASE AGREEMENT
-----------------------------------------------
regarding the
sale and purchase of the
Dental Business
of the Degussa Group
1
Table of Contents
Exhibits / Schedules..........................................3
Definitions...................................................4
A. CURRENT STATUS............................................. 9
1. Current Status........................................... 9
B. SALE, PURCHASE AND ASSIGNMENT, PURCHASE PRICE..............13
2. Sale, Purchase and Assignment of the German Limited
Partnership Interest, the Foreign Shares and the Brazilian
Local Management Shares......................................13
3. Sale, Purchase and Assignment of the Japanese
Shareholder's Loan; Interim Financing Facility...............14
4. Purchase Price...........................................15
C. EFFECTIVE DATE ACCOUNTS, SIGNING DATE, EFFECTIVE DATE,
CLOSING DATE AND CLOSING.......................................18
5. Effective Date Accounts..................................18
6. Signing Date, Effective Date, Closing Date and Closing...20
D. REPRESENTATIONS AND WARRANTIES, REMEDIES AND INDEMNITIES...22
7. Representations and Warranties of Sellers................22
8. Representations and Warranties of Purchasers
and Guarantor 31
9. Remedies.................................................33
10. Environmental Indemnity..................................36
11. Tax Indemnity............................................39
12. Expiration of Claims; Limitation of Claims...............41
E. COVENANTS, NON-COMPETE UNDERTAKING.........................42
13. Covenants / Purchasers' Indemnity........................42
14. Non-Compete Undertaking..................................45
F. MISCELLEANOUS..............................................46
15. Restriction of Announcement, Cooperation and
Confidentiality..............................................46
16. Notices..................................................48
17. Guarantor's Guarantee 49
18. Miscellaneous............................................50
2
Exhibits / Schedules
Exhibit 1.1 Current Status
Exhibit 1.5.1.3 Probem shareholders
Exhibit 1.5.3 List of Elephant Subsidiaries
Exhibit 1.5.4 Sankin shareholders
Exhibit 2.5 Brazilian Share Transfer Instruments
Exhibit 2.7.1 Consent of the partners' meeting of DD KG
Exhibit 2.7.2 Consent of board of directors of Sankin
Exhibit 2.7.3 Waiver of right of first refusal by Mr.
Niemeyer
Exhibit 2.7.4 Consent of the shareholder's meeting of DD
Austria
Exhibit 2.7.5 Consent of the shareholders' meeting of DHZ
Exhibit 4.1.2 List of Consolidated Companies
Exhibit 4.1.4 Sample calculation of Working Capital as
per December 31, 2000
Exhibit 4.3 Allocation of Purchase Price
Exhibit 6.6.3
(1)-(4) Foreign Share transfer agreements
Exhibit 6.6.4 List of the board members
Exhibit 6.6.6 Name and trademark agreement between
Degussa and DD KG
Exhibit 7.1.16 List of Historic Consolidated Companies
Exhibit 8.6 Purchasers' management and advisors
Exhibit 10.2.2 Real Estate
Exhibit 13.3 Guarantees, comfort letters and other
securities
Exhibit 14.1 Permitted Activities
Exhibit 15.1 Guarantor's letter dated May 18, 2001
Schedule 7.1.5 List of Material Agreements
Schedule 7.1.6 Compliance with all Material Agreements
Schedule 7.1.7 Material Intellectual Property Rights
Schedule 7.1.8 Intellectual Property Proceedings
Schedule 7.1.9 Insurance
Schedule 7.1.10 Material Assets
Schedule 7.1.11 Permits
Schedule 7.1.12 Litigation
Schedule 7.1.14 List of certain collective bargaining
agreements
Schedule 7.1.15 Pensions
Schedule 7.1.17 Compliance with laws
Schedule 7.1.18 Material adverse changes, conduct of
business
Schedule 7.1.20.1 Properties
Schedule 7.1.20.2 Maintenance of Properties
Schedule 7.1.20.3 Not registered encumbrances
Schedule 7.1.20.6 Leases and subleases
3
Definitions
Administrative Charges as defined in Section 7.1.20-4
Affiliates as defined in Section 6.5.5
Austrian Financial Statements as defined in Section 7.1.16
Austrian Share as defined in Section 1.5.6
Base Amount as defined in Section 4.1.1
Best Knowledge as defined in Section 7.3
Bios GmbH as defined in Section 1.3
Brazilian Local Management Shares as defined in Section 1.5.1.5
Brazilian Shares as defined in Section 1.5.1
Brazilian Subsidiaries as defined in Section 1.5.1.4
Brazilian Share Transfer as defined in Section 2.5
Instruments
Business as defined in Recital (E)
Business Days as defined in Section 18.8
Cash as defined in Section 4.1.3
Cash Management Agreements as defined in Section 1.8
Closing as defined in Section 6.5
Closing Conditions as defined in Section 6.2
Closing Date as defined in Section 6.1.3
Closing Events as defined in Section 6.6
Companies as defined in Section 1.6
Company as defined in Section 1.6
Competing Business as defined in Section 14.2
Consolidated Companies as defined in Section 4.1.2
Consolidated Financial Statements as defined in Section 7.1.16
DD Amazonia as defined in Section 1.5.1.1
DD Austria as defined in Section 1.5.6
DD GmbH as defined in Section 1.2
DD KG as defined in Section 1.3
DD Ltda. as defined in Section 1.5.1
Defradental as defined in Section 1.5.5
Degpar as defined in Section 1.5.1.2
Degussa shall mean Degussa AG
Degussa Guarantees as defined in Section 13.3
Degussa-IP Rights as defined in Section 15.2
Degussa-Ney as defined in Section 1.5.2
De-minimis Claims as defined in Section 12.3
DHZ shall mean DH Zweite
Vermogensverwaltungs-GmbH
Disclosure Schedules as defined in Section 7.2
4
Ducera GmbH as defined in Section 1.3
Dutch Business as defined in Section 7.1.5
Dutch Cash Management Agreement as defined in Section 1.8
Dutch Shares as defined in Section 1.5.3
Effective Date as defined in Section 6.1.2
Effective Date Accounts as defined in Section 5.1
Elephant as defined in Section 1.5.3
Elephant Subsidiaries as defined in Section 1.5.3
Environmental Laws as defined in Section 10.2.3
Environmental Liabilities as defined in Section 10.2.1
Environmental Matters as defined in Section 10.2.5
Environmental Threshold Amount as defined in Section 12.3.2
EURIBOR as defined in Section 4.2
Existing Confidential Information as defined in Section 15.3
Existing Environmental Condition as defined in Section 10.2.2
Expert as defined in Section 5.4
Facility Amount as defined in Section 4.2
Financial Debt as defined in Section 4.1.2
Financial Statements as defined in Section 7.1.16
Foreign Companies as defined in Section 1.6
Foreign Shares as defined in Section 1.6
German Business as defined in Section 7.1.5
German Cash Management Agreement as defined in Section 1.8
German Limited Partnership as defined in Section 1.3
Interest
German Share as defined in Section 1.2
Guarantor shall mean Dentsply
International Inc.
Hazardous Materials as defined in Section 10.2.4
Historic Consolidated Companies as defined in Section 7.1.16
HSR Filing as defined in Section 6.2.1
Interim Financing Facility as defined in Section 3.3
Italian Third Party Shareholder as defined in Section 1.5.5
Italian Shares as defined in Section 1.5.5
Japanese Business as defined in Section 7.1.5
Japanese Shareholder's Loan as defined in Section 1.7
Japanese Shares as defined in Section 1.5.4
Material Adverse Effect as defined in Section 7.1.5
Material Agreements as defined in Section 7.1.5
Material Assets as defined in Section 7.1.10
Material Intellectual Property as defined in Section 7.1.7
Rights
Mr. Niemeyer as defined in Section 1.5.1
Object of Sale as defined in Section 4.1
5
Objections as defined in Section 5.4
Partner's Accounts as defined in Section 2.2
Party / Parties shall mean individually or
collectively Degussa, DHZ,
Purchasers and the Guarantor
Permitted Activities as defined in Section 14.1
Permits as defined in Section 7.1.11
Preliminary Purchase Price as defined in Section 4.2
Probem as defined in Section 1.5.1.3
Properties as defined in Section 7.1.20
Proprietary Information as defined in Section 15.3
Purchase Price as defined in Section 4.1
Purchase Price Adjustment as defined in Section 4.4
Purchaser 1 shall mean Dentsply Hanau GmbH
& Co. KG
Purchaser 2 shall mean Dentsply Research
and Development Corporation
Purchaser 3 shall mean Dentsply EU S.a.r.l.
Purchaser Claim as defined in Section 9.2
Purchasers shall mean collectively
Dentsply Hanau GmbH & Co KG,
Dentsply Research and
Development Corporation and
Dentsply EU S.a.r.l.
Purchasers' Auditor as defined in Section 5.2
Real Estate as defined in Section 10.2.2
Revised Effective Date Accounts as defined in Section 5.3
Sankin as defined in Section 1.5.4
Scheduled Closing Date as defined in Section 6.5
Sellers shall mean collectively Degussa
AG and DH Zweite
Vermogensverwaltungs-GmbH
Sellers' Auditor as defined in Section 5.1
Signing Date as defined in Section 6.1.1
Taxes as defined in Section 11.1
Tax Threshold Amount as defined in Section 12.3.3
Threshold Amount as defined in Section 12.3.1
Third Party Claim as defined in Section 9.5
US Business as defined in Section 7.1.5
US Cash Management Agreement as defined in Section 1.8
US GAAP as defined in Section 5.1
US GAAS as defined in Section 13.7
6
US Shares as defined in Section 1.5.2
Working Capital as defined in Section 4.1.4
7
RECITALS
(A) WHEREAS, Degussa is a stock corporation under German law
(Aktiengesellschaft), having its domicile in Dusseldorf,
Germany, and being registered with the commercial register
maintained at the lower court of Dusseldorf under docket
no. HRB 39635.
(B) WHEREAS, DHZ is a limited liability company under German
law (Gesellschaft mit beschrankter Haftung), having its
domicile in Hanau, Germany, and being registered with the
commercial register maintained at the lower court of Hanau
under docket no. HRB 6861.
(C) WHEREAS, Purchaser 1 is a German Limited Partnership,
having its domicle at Hanau Wolfgang; Purchaser 2 is a
stock corporation under Delaware, USA law, having its
domicile at Milford, Delaware, USA; Purchaser 3 is a
Luxembourg Limited Liability Company, having its domicile
at Luxembourg, Grand-Duchy of Luxembourg.
(D) WHEREAS, Guarantor is a stock corporation under Delaware,
USA law, having its domicile at York, Pennsylvania, USA.
(E) WHEREAS, Degussa is, amongst others, engaged in the
development, production, marketing and distribution of
products and systems, equipment and consumables for
conservative, restorative and orthodontic dental treatment
(herein collectively "Business") through (i) Degussa
Dental GmbH & Co. KG and its German subsidiaries on the
one hand and through (ii) the foreign, direct and
indirect, subsidiaries of DHZ on the other hand.
(F) WHEREAS, Degussa, after a strategic review of its business
portfolio, has decided to concentrate on its special
chemicals business and to dispose of the Business.
(G) WHEREAS, Sellers intend to dispose of the Business by
selling and transferring the Business to the Purchasers
subject to the terms and conditions of this Agreement and
Purchasers wish to acquire the Business subject to such
terms and conditions.
NOW, THEREFORE, the Parties agree as follows:
8
A. CURRENT STATUS
1. Current Status
1.1 The present structure of the directly and indirectly held
subsidiaries of Degussa engaged in the Business is
attached as Exhibit 1.1.
1.2 Degussa Dental Verwaltungs-GmbH is a limited liability
company (Gesellschaft mit beschrankter Haftung) having its
domicile in Hanau, Germany, and is registered with the
commercial register maintained at the lower court of Hanau
under docket no. HRB 6844 (herein "DD GmbH"). Degussa is
the sole shareholder of DD GmbH holding the only share
(Geschaftsanteil) issued by DD GmbH in the nominal amount
of Euro 25,000.00 (herein "German Share") representing all
of the stated nominal capital (Stammkapital) of DD GmbH in
the nominal amount of Euro 25,000.00.
1.3 Degussa Dental GmbH & Co. KG is a limited partnership
(Kommanditgesellschaft) having its domicile in Hanau,
Germany, and is registered with the commercial register
maintained at the lower court of Hanau under docket no.
HRA 5530 (herein "DD KG"). Degussa is the sole limited
partner (Kommanditist) of DD KG, holding a registered
limited partnership interest (Kommanditeinlage as well as
Hafteinlage) in DD KG in the nominal amount of Euro
25,565,000.00 (herein "German Limited Partnership
Interest"). The sole general partner (Komplementar) in DD
KG is DD GmbH which does not hold a capital interest
(Kapitalanteil) in the fixed capital (Festkapital) of DD
KG. DD KG in turn holds all shares of Bios Dental GmbH, a
limited liability company (Gesellschaft mit beschrankter
Haftung) having its domicile in Bohmte, Germany, and being
registered in the commercial register maintained at the
lower court of Osnabruck under docket no. HRB 0054 (herein
"Bios GmbH") and all shares of Ducera Dental Verw. GmbH, a
limited liability company (same as above) having its
domicile in Rosbach, Germany and being registered in the
commercial register maintained at the lower court of
Friedberg under docket no. HRB 746 (herein "Ducera GmbH").
1.4 By notarial deed of the notary public Dr. Joachim Treeck,
Frankfurt am Main (no. 106 of the roll of deeds for 2000)
dated June 29, 2000, Degussa contributed its German
activities relating to the Business to DD KG.
1.5 DHZ holds direct participations in the foreign companies
Degussa Dental Ltda., Degussa-Ney Dental Inc., Elephant
Dental B.V., Sankin Kogyo K.K., Defradental S.p.A. and
Degussa Dental Austria GmbH as follows:
9
1.5.1Degussa Dental Ltda. is a limited liability company
formed and validly existing under the laws of Brazil
having its domicile in Sao Paulo, Brazil and it is
registered with the Corporate Taxpayer's Registry of
the Brazilian Ministry of Finance (CNPJ/MF) under no.
03.757.350/0001-95 (herein "DD Ltda."). DHZ is the
majority shareholder of DD Ltda. holding 14,821,009
shares issued by DD Ltda. in the nominal amount of R$
1.00 each (herein collectively "Brazilian Shares"),
representing about 99.99% of the nominal stated
capital of DD Ltda. in the nominal amount of
R$ 14,821,010.00. The remaining share in the nominal
amount of R$ 1.00 is held by Mr. Ernesto Helmuth
Niemeyer Filho, managing director of DD Ltda. (herein
"Mr. Niemeyer").
1.5.1.1 DD Ltda. holds 9,998 shares in the nominal amount of R$
1.00 each, being all shares except for two (2) shares, of
Degussa Dental da Amazonia Ltda., a limited liability
company formed and validly existing under the laws of
Brazil having its domicile in Manaus, State of Amazonas,
Brazil, and being registered with the Corporate Taxpayer's
Registry of the Brazilian Ministry of Finance (CNPJ/MF)
under no. 04.032.335/0001-42 (herein "DD Amazonia"). Each
Mr. Niemeyer and Mr. Joao Aparecido de Beni, members of
the management of DD Amazonia, hold one (1) share of DD
Amazonia in the nominal amount of R$ 1.00.
1.5.1.2 DD Ltda. holds all shares, except for one (1) share, of
Degpar - Participacoes e Empreendimentos S.A., a joint
stock corporation formed and validly existing under the
laws of Brazil having its domicile in Sao Paulo, Brazil,
and being registered with the Corporate Taxpayer's
Registry of the Brazilian Ministry of Finance (CNPJ/MF)
under no. 02.074.038/0001-34 (herein "Degpar"). The one
(1) share in Degpar not held by DD Ltda. is held by Mr.
Niemeyer.
1.5.1.3 Degpar holds 60% of the nominal stated capital, of Probem
Laboratorio de Prudutos Farmaceuticos e Odontologicos
S.A., a joint stock corporation formed and validly
existing under the laws of Brazil having its domicile in
Catanduva, Brazil, and being registered with the Corporate
Taxpayer's Registry of the Brazilian Ministry of Finance
(CNPJ/MF) under no. 45.841.137/0001-07 (herein "Probem").
The remaining shares of Probem are held by the
shareholders identified on Exhibit 1.5.1.3. who are not
affiliated with Sellers.
10
1.5.1.4 DD Amazonia and Probem are herein collectively referred to
as "Brazilian Subsidiaries". For the avoidance of doubt,
Degpar shall not be referred to as Brazilian Subsidiary.
1.5.1.5 The shares held by Mr. Niemeyer of DD Ltda., DD Amazonia
and Degpar and the share held by Mr. Beni of DD Amazonia
are herein collectively referred to as "Brazilian Local
Management Shares".
1.5.2Degussa-Ney Dental Inc., is a corporation formed and
validly existing under the laws of Delaware, USA, and
having its domicile at 65 West Dudley Town Road,
Bloomfield, CT 06002-1316, USA (herein
"Degussa-Ney"). DHZ is the sole shareholder of
Degussa-Ney holding 100 no par value shares of common
stock issued by Degussa-Ney (herein collectively "US
Shares").
1.5.3Elephant Dental B.V., is a limited liability company
formed and validly existing under Dutch law having
its domicile in Hoorn, The Netherlands, with business
address at 1628 PM Hoorn, Venlengde Lageweg 10, The
Netherlands, registered with the Chamber of Commerce
for West-Friesland en Waterland, The Netherlands,
under no. 36006373 (herein "Elephant"). DHZ is the
sole shareholder of Elephant holding 30,000 shares
issued by Elephant in the nominal amount of NLG
100.00 each (herein collectively "Dutch Shares"),
representing the entire stated capital of Elephant in
the nominal amount of NLG 3,000,000.00. Elephant
holds 100% of the stated share capital of the
companies listed in Exhibit 1.5.3 (herein
collectively "Elephant Subsidiaries").
1.5.4 Sankin Kogyo K.K. is a joint stock company
formed and validly existing under Japanese law having
its domicile in Ohtawara City, Tochigi Prefecture,
with business address at 14-9, Yushima 3-chome,
Bunkyo-ku, Tokyo 113-0034, Japan (herein "Sankin").
DHZ holds 1,261,102 shares of common stock issued by
Sankin in the nominal amount of JPY 500.00 each
(herein collectively "Japanese Shares"), representing
94.4% of the capital of Sankin in the amount of JPY
680,809,000.00. The remaining shares are held by
various shareholders not affiliated with Degussa as
identified in Exhibit 1.5.4.
1.5.5Defradental S.p.A. is a stock corporation and validly
existing under Italian law having its domicile in
Verona, Italy (herein "Defradental"), with business
address at Via Catania, 3, Verona, Italy, and it is
registered in C.C.I.A.A. di Verona al n. 256943 and
in Registro delle Imprese di Verona
11
at no. 208412/96. DHZ holds 1,065,539 shares issued
by Defradental in the nominal amount of Euro 1.00
each (herein "Italian Shares"), representing 45% of
the nominal stated capital of Defradental in the
nominal amount of Euro 2,367,420.00. To the knowledge
of Sellers, the remaining shares are held by Fraccari
S.p.A. with domicile in Verona, Italy (herein
"Italian Third Party Shareholder").
1.5.6Degussa Dental Austria GmbH is a limited liability
company formed and validly existing under the laws of
Austria having its domicile in Vienna, Austria, with
business address at Liesinger-Flur-Gasse 2C, 1235
Vienna, Austria, and being registered with the
commercial register in Vienna, Austria, under FN
207061 b (herein "DD Austria"). DHZ holds one share
issued by DD Austria in the nominal amount of Euro
500,000.00 (herein "Austrian Share"), representing
100% of the nominal stated capital of DD Austria in
the nominal amount of Euro 500,000.00.
1.6 DD Ltda., Degussa-Ney, Elephant, Sankin and DD Austria are
herein collectively referred to as the "Foreign
Companies". For the avoidance of doubt, Defradental shall
not be referred to as Foreign Company. DD GmbH, DD KG,
Bios GmbH, Ducera GmbH, the Foreign Companies, the
Brazilian Subsidiaries and the Elephant Subsidiaries are
herein collectively referred to as the "Companies" and
individually as "Company". The Brazilian Shares, the US
Shares, the Dutch Shares, the Japanese Shares, the
Austrian Share and the Italian Shares are herein
collectively referred to as the "Foreign Shares".
1.7 A Shareholder's loan has been granted and drawn as of the
Signing Date (as defined in Section 6.1.1 below) in the
amount JPY 250,000,000.00 to Sankin by Degussa pursuant to
a certain credit agreement dated December 6, 2000 (herein
"Japanese Shareholder's Loan"). There exist no shareholder
loans other than those identified in this Section 1.7 on
the Effective Date and the Closing Date.
1.8 Degussa has entered into a cash management agreement
relating to the cash pooling of funds of DD KG, Bios GmbH
and other German affiliates of Degussa (herein "German
Cash Management Agreement"). Furthermore, Degussa has
entered into a cash management agreement relating to the
cash pooling of funds of Elephant and other Dutch
affiliates of Degussa (herein "Dutch Cash Management
Agreement"). Finally, Degussa-Ney has entered into a cash
management agreement with Degussa Corporation, a US
subsidiary of Degussa (herein "US Cash Management
Agreement"). The German Cash Management Agreement, the
Dutch Cash Management Agreement and the US Cash Management
Agreement shall herein collectively referred to as "Cash
Management Agreements". Degussa shall terminate and, with
respect to the US Cash Management Agreement,
12
procure termination, of the Cash Management Agreements
with respect to the Companies being party to such
agreements in writing with economic effect as of the
Effective Date. Upon termination of the Cash Management
Agreements any outstanding balances thereunder owing from
or owing to the Companies shall be settled by the parties
to the Cash Management Agreements on, or prior to the
Closing Date.
B. SALE, PURCHASE AND ASSIGNMENT, PURCHASE PRICE
2. Sale, Purchase and Assignment of the German Limited
Partnership Interest, the Foreign Shares and the Brazilian
Local Management Shares
2.1 Degussa hereby agrees, with commercial effect
(wirtschaftlicher Wirkung) as of the Effective Date (as
defined in Section 6.1.2 below) to cause DD GmbH on the
Scheduled Closing Date to withdraw and discontinue as a
partner in DD KG.
2.2 Degussa hereby sells with commercial effect as of the
Effective Date and hereby assigns with effect as of the
Closing Date (as defined in Section 6.1.3 below) to
Purchaser 1 (i) the German Limited Partnership Interest
with all rights and obligations pertaining thereto, and
(ii) all partner's accounts of DD KG
(Gesellschafterkonten) (herein collectively "Partner's
Accounts"), such Partner<180>s Accounts being comprised of (a)
the capital account (Festkapitalkonto, Kapitalkonto I),
(b) the partner's clearing account
(Gesellschafter-Verrechnungskonto, Kapitalkonto II), (c)
the loss carry forward account (Verlustvortragskonto), and
(d) the reserve account (Rucklagenkonto). Purchaser 1
hereby purchases from Degussa the German Limited
Partnership Interest and the Partner's Accounts and hereby
accepts the assignment of the German Limited Partnership
Interest and the Partner's Accounts in accordance with the
foregoing sentence.
2.3 DHZ hereby sells with commercial effect as of the
Effective Date to Purchaser 2 and undertakes to assign on
the Scheduled Closing Date to Purchaser 2 the US Shares,
Brazilian Shares and the Japanese Shares with all rights
and obligations including any dividend rights pertaining
thereto with effect as of the Closing Date. Purchaser 2
hereby purchases from DHZ the US Shares, Brazilian Shares
and the Japanese Shares and hereby undertakes to accept
the assignment on the Scheduled Closing Date as provided
for under Section 6.6 below in accordance with the
foregoing sentence.
2.4 DHZ hereby sells with commercial effect as of the
Effective Date to Purchaser 3 and undertakes to assign on
the Scheduled Closing Date to Purchaser 3 the Dutch
13
Shares and the Italian Shares with all rights and
obligations including any dividend rights pertaining
thereto with effect as of the Closing Date. Purchaser 3
hereby purchases from DHZ the Dutch Shares and Italian
Shares and hereby undertakes to accept the assignment on
the Scheduled Closing Date as provided for under Section
6.6 below in accordance with the foregoing sentence.
2.5 Seller shall procure that Mr. Niemeyer and Mr. Beni each
sell with commercial effect as of the Effective Date and
assign on the Scheduled Closing Date the Brazilian Local
Management Shares to Purchaser 2, or any of its Affiliates
designated by Purchaser 2 prior to the Scheduled Closing
Date, by executing the instruments set out in the form as
set forth in Exhibit 2.5 in the Portugese language (herein
"Brazilian Share Transfer Instruments").
2.6 DHZ hereby sells with commercial effect as of the
Effective Date and hereby assigns subject to all of the
Closing Conditions (as defined in Section 6.2 below)
having been fulfilled and all of the Closing Events (as
defined in Section 6.6 below) having taken place or having
been duly waived with effect as of the Closing Date to
Purchaser 3 the Austrian Share. Purchaser 3 hereby
purchases and accepts the assignment of the Austrian Share
in accordance with the forgoing sentence.
2.7 The following consents all of which comply with and
satisfy all local legal and contractual requirements have
been given on, or prior to, the Closing Date to the sale,
assignment and transfer of the German Limited Partnership
Interest and the Foreign Shares:
2.7.1 Consent of the partners' meeting of DD KG as
attached in Exhibit 2.7.1;
2.7.2 Consent of the board of directors of Sankin as
attached in Exhibit 2.7.2;
2.7.3 Waiver of Mr. Niemeyer of his right of first
refusal with respect to the transfer of shares in
DD Ltda. as attached in Exhibit 2.7.3;
2.7.4 Consent of the shareholder's meeting of DD Austria
as attached in Exhibit 2.7.4;
2.7.5 Consent of the shareholder's meeting of DHZ as
attached in Exhibit 2.7.5.
3. Sale, Purchase and Assignment of the Japanese
Shareholder's Loan; Interim Financing Facility
14
3.1 Degussa hereby sells with commercial effect as of the
Effective Date and hereby assigns, subject to Section 3.2
below, with effect as of the Closing Date to Purchaser 2
the Japanese Shareholder's Loan. Purchaser 2 hereby
purchases, in partial consideration of the Purchase Price,
from Degussa the Japanese Shareholder's Loan and accepts
the assignment in accordance with the foregoing sentence.
3.2 The assignment of the Japanese Shareholder's Loan is
subject to all of the Closing Conditions (as defined in
Section 6.2 below) having been fulfilled and all of the
Closing Events (as defined in Section 6.6 below) having
taken place or having been duly waived.
3.3 To ensure financing of the Companies after termination of
the Cash Management Agreements as set out in Section 1.8
above, Degussa shall provide to the Companies interim
financing facilities for the period between the Effective
Date and the Closing Date in amounts reasonably required
for funding the Business in accordance with past practice
and projected financing needs of the Business during the
aforementioned period (herein "Interim Financing
Facility"). The Interim Financing Facility shall be
redeemed at the Closing Date in accordance with Section
4.2 below.
4. Purchase Price
4.1 The purchase price for (i) the German Limited Partnership
Interest, (ii) the Partner's Accounts, (iii) the Foreign
Shares, (iv) the Brazilian Local Management Shares, and
(v) the Japanese Shareholder's Loan (herein collectively
"Object of Sale") shall be an amount calculated as follows:
4.1.1 A fixed amount of Euro 576,000,000 (in words: Euro
five hundred seventy six million) (herein "Base
Amount");
minus
4.1.2 the consolidated nominal amount of any interest
bearing debt obligations of the Consolidated
Companies listed in Exhibit 4.1.2 (herein
"Consolidated Companies") to banks, financial or
other similar institutions, including any amounts
owed by the Consolidated Companies under the
respective Cash Management Agreements prior to
their termination (herein "Financial Debt"), each
existing as per the Effective Date, excluding for
the avoidance of doubt (a) the Japanese
Shareholder's Loan, (b) any unfunded pension
liabilities of the Consolidated Companies and (c)
the Fa
15
cility Amount (as defined in Section 4.2 below);
plus
4.1.3 the consolidated amount of cash and cash
equivalents (within the meaning of Section 266 (2)
(B) (III) (3) and (IV) German Commercial Code (HGB)
of the Consolidated Companies including any amounts
to be paid to the Consolidated Companies under the
respective Cash Management Agreements prior to
their termination (herein "Cash"), each existing as
per the Effective Date;
plus
4.1.4 the consolidated amount, if any, by which the
balance of (i) the amount of the inventory
(excluding the palladium stock) within the meaning
of Section 266 (2) (B) (I) German Commercial Code
(HGB) (Vorrate) plus the trade accounts receivables
within the meaning of Section 266 (2) (B) (II) (1)
German Commercial Code (HGB) (Forderungen aus
Lieferungen und Leistungen) including inter-company
trade accounts receivables, and (ii) the amount of
the trade accounts payable within the meaning of
Section 266 (3) (C) (IV) (4) German Commercial Code
(HGB) (Verbindlichkeiten aus Lieferungen und
Leistungen) including inter-company trade accounts
payable, for the Historic Consolidated Companies
including DD Austria (herein "Working Capital")
each existing as per the Effective Date, exceeds *
* * * * * * * * * * * *; a sample calculation of
the Working Capital as per December 31, 2000 being
attached hereto as Exhibit 4.1.4 and it being
understood that for such purposes DD Austria was,
or shall be, respectively included on the basis of
the Austrian Financial Statements (excluding the
palladium stock);
minus
4.1.5 the amount, if any, by which the Working Capital
existing as per the Effective Date falls short of *
* * * * * * * * * * * *;
minus
4.1.6 the amount of * * * * * * * * * * * * * only in the
event that the waiver of the Italian Third Party
Shareholder of its right of first refusal with
respect to the transfer of the shares in
Defradental shall not have been obtained or shall
not be deemed to have been obtained prior to the
date on which the Effective Date Accounts become
binding on the Parties in accordance
16
with Section 5 below;
plus interest at the rate of 6.5% p.a. since the Effective
Date (herein "Purchase Price").
4.2 On the Scheduled Closing Date, Purchasers shall pay to
Sellers (i) an amount of Euro 548,000,000 (in words: Euro
five hundred forty eight million) (herein "Preliminary
Purchase Price") and (ii) for the account of the
Companies, the aggregate amount owed to Degussa by the
Companies under the Interim Financing Facility including
interest thereon at the rate of 6.5% p.a. accrued from the
calendar day subsequent to Effective Date (inclusive)
until the Closing Date (exclusive) (herein "Facility
Amount"). "EURIBOR" for purposes of this Agreement shall
mean the interest rate for Euro deposits with interest
periods of three (3) months, as quoted on the Bridge
Telerate Screen 248 at 11 a.m. C.E.T. two (2) banking days
in Frankfurt am Main prior to Effective Date. The
Preliminary Purchase Price and the Facility Amount shall
be paid by Purchasers free of costs and charges in
immediately available funds by wire transfer into the
account of Sellers set forth in Section 4.6 below.
4.3 The Parties agree that the Preliminary Purchase Price, and
any subsequent Purchase Price Adjustment (as provided for
in Section 4.4 below) shall be allocated to the Object of
Sale as set out in Exhibit 4.3.
4.4 If on the basis of the Effective Date Accounts prepared in
accordance with the provisions set forth in Section 5.1
below, the Purchase Price exceeds the Preliminary Purchase
Price, Purchasers shall pay to Sellers an amount equal to
the amount by which the Purchase Price is higher than the
Preliminary Purchase Price and, if, on the basis of the
Effective Date Accounts, the Preliminary Purchase Price
exceeds the Purchase Price, Sellers shall pay to
Purchasers an amount equal to the amount by which the
Preliminary Purchase Price is higher than the Purchase
Price. Any such amount to be paid by either Purchasers or
Sellers (herein "Purchase Price Adjustment") shall be paid
as follows:
4.4.1 Any Purchase Price Adjustment owed by Purchasers
shall be paid by Purchasers free of costs and
charges in immediately available funds by wire
transfer ten (10) banking days in Frankfurt am Main
after the Effective Date Accounts have become final
and binding upon the Parties in accordance with
Section 5 below to the account of Degussa set forth
in Section 4.6 below.
4.4.2 Any Purchase Price Adjustment owed by Sellers shall
be paid by Sellers free of costs and charges in
immediately available funds by wire transfer
17
ten (10) banking days in Frankfurt am Main after
the Effective Date Accounts have become final and
binding upon the Parties in accordance with Section
5 below to the account of Purchaser 1 set forth in
Section 4.7 below.
4.5 Except as provided otherwise in this Agreement, Purchasers
and Sellers owe the other party interest (Verzugszinsen)
on any amounts becoming due and payable to Sellers or
Purchasers, as the case may be, under this Agreement as
from the respective payment dates, to, but not including,
the day of payment at the rate of 700 basis points over
EURIBOR.
4.6 All payments owed by Purchasers to Sellers under this
Agreement shall be paid by Purchasers by wire transfer to
the bank account of Degussa kept with Degussa Bank GmbH,
Frankfurt am Main, sort code (Bankleitzahl) 500 107 00,
account number 390053, SWIFT: DEGUDEFF.
4.7 All payments owed by Sellers to Purchasers under this
Agreement shall be paid by Sellers by wire transfer to
Purchaser 1's bank account the details of which shall be
communicated to Sellers by Purchasers, if and when
requested by Sellers.
C. EFFECTIVE DATE ACCOUNTS, SIGNING DATE, EFFECTIVE DATE,
CLOSING DATE AND CLOSING
5. Effective Date Accounts
5.1 The Financial Debt, the Cash and the Working Capital, each
existing as of the Effective Date, as well as any Purchase
Price Adjustment resulting therefrom, shall be determined
on the basis of pro-forma consolidated accounts as of the
Effective Date for the Consolidated Companies which shall
be prepared by DD KG in co-operation with Degussa and
reviewed by KPMG Deutsche Treuhand Aktiengesellschaft
Wirtschaftsprufungsgesellschaft, Frankfurt am Main (herein
"Sellers' Auditor") in accordance with US generally
accepted principles of accounting and preparation of
annual accounts (herein "US GAAP"), subject to utilizing
and continuing the same capitalization, election rights,
valuation and consolidation principles as used in
preparation of the Financial Statements (as defined in
Section 7.1.16 below) on the basis of Degussa's accounting
and consolidation standards, a complete copy of which was
delivered to Purchasers prior to the Signing Date (herein
"Effective Date Accounts").
5.2 Sellers shall until the Closing Date and Purchasers shall
after the Closing Date instruct the management of each of
the Consolidated Companies to effectively assist
18
Sellers' Auditor in reviewing the Effective Date Accounts,
in particular, by providing all information and
documentation requested by Sellers. The Effective Date
Accounts prepared by DD KG in co-operation with Degussa
and reviewed by Sellers' Auditor shall be delivered to
PriceWaterhouseCoopers, Philadelphia (herein "Purchasers'
Auditor") no later than ninety (90) days after the
Effective Date. Purchasers' Auditor shall receive all
necessary assistance and shall be given reasonable access
to the management of the Consolidated Companies, and to
all relevant documentation, necessary for reviewing the
Effective Date Accounts, including the working papers of
Sellers' Auditor, subject, however to Sellers' Auditor's
approval which Sellers shall use best efforts to obtain
prior to the Closing Date.
5.3 The Effective Date Accounts submitted by Sellers shall be
final and binding upon the Parties, and the calculation of
the Financial Debt, the Cash and the Working Capital shall
be based on the Effective Date Accounts, unless Purchasers
provide Sellers within forty five (45) days after the
receipt of the Effective Date Accounts with a written
report asserting that the Effective Date Accounts received
from Sellers do not meet the provisions of this Agreement
by way of stating specific objections to that effect.
Such written report shall be submitted to Sellers within
the forty-five (45) days' period mentioned before which
shall take into account the changes that are necessary in
Purchasers' Auditor's view (herein "Revised Effective Date
Accounts"). If no objections are raised by Sellers within
four (4) weeks following the delivery of the Revised
Effective Date Accounts by Purchasers' Auditor, then the
Revised Effective Date Accounts shall be final and binding
on the Parties.
5.4 If Sellers timely raise objections (herein "Objections")
to the Revised Effective Date Accounts and Sellers and
Purchasers cannot agree on changes to the Revised
Effective Date Accounts within four (4) weeks following
the delivery of the Objections each of Sellers and
Purchasers shall be entitled to refer such dispute for
decision to an independent international leading firm of
public accountants (big five) other than Sellers' Auditor
and Purchasers' Auditor (herein "Expert") which shall
determine the correct amount of the Financial Debt, the
Cash and the Working Capital, if and to the extent such
positions are in dispute between Sellers and Purchasers.
If the Parties cannot agree within two (2) weeks on who
shall be the expert, the Institute of Chartered
Accountants in Germany (Institut der Wirtschaftsprufer in
Deutschland e.V.), Dusseldorf, shall appoint the Expert.
The Expert shall decide as expert arbitrator
(Schiedsgutachter) on the issues in dispute in accordance
with the principles set out in Section 5.1 above. The
Expert shall give Sellers and Purchasers adequate
opportunity to present their views in writing and at a
hearing or hearings to be held in the presence of Sellers
and Purchasers and their respective advisors. The Parties
shall instruct the Expert to deliver its written opinion
to them no later than four weeks after the remaining
differences are
19
referred to it. The Expert shall give reasons for its
decision in writing on all issues which are in dispute
between Sellers and Purchasers. The costs and expenses
incurred by the Expert shall be borne equally by Sellers
on the one hand and Purchasers on the other hand. The
Effective Date Accounts as determined by the Expert shall
be final and binding on the Parties subject to Section 319
German Civil Code (BGB). Each Party shall give the Expert
full access to information required for its decision.
6. Signing Date, Effective Date, Closing Date and Closing
6.1 Signing Date, Effective Date and Closing Date shall each
have the following meaning in this Agreement:
6.1.1 "Signing Date" shall be the day on which this
Agreement has been duly executed before a notary
public.
6.1.2 "Effective Date" shall be the first calendar day
0:00 hours of the month in which the Closing of
this transaction as contemplated under Section 6.5
shall occur.
6.1.3 "Closing Date" shall be the day on which the
Closing Events shall take place.
6.2 This Agreement shall be closed (erfullt) pursuant to
Section 6.5 below only, if the following conditions are
fulfilled (herein collectively "Closing Conditions"):
6.2.1 The merger control approvals under (i) ss.ss. 35 et
seq. German Antitrust Act (GWB), and (ii) the Dutch
1975 Merger Code granted by the Dutch Committee for
Merger Affaires, and (iii) the Austrian Cartel Act,
(iv) the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, and (v) Title VII, Chapter I, Articles
54-56 of Law No. 8884 Brazilian Antitrust Act
(unless Purchasers determine that the Brazilian
Antitrust Act is not applicable to the Closing)
have been obtained or if for other reasons the
transactions provided for in this Agreement may be
consummated under the above merger law regimes
(e.g. lapse of waiting periods) or Closing is
permitted before clearance is received or waiting
periods are lapsed.
6.2.2 No enforceable judgment, injunction, order or decree by
any court or governmental authority in Germany or
the USA has prohibited the consummation of the
transactions contemplated in this Agreement as of
the day the condition pursuant to Section 6.2.1 is
fulfilled and no action is
20
pending in such respect.
6.3 The Parties undertake to use all reasonable endeavors and
to render to each other all reasonably necessary support
and cooperation to ensure that the Closing Conditions are
fulfilled as soon as possible after the Signing Date. In
particular, though each Party remains responsible for
preparing and making its own required filings, Purchasers
shall take the lead on such filings and Sellers and
Purchasers shall cooperate with one another in preparing
and making the merger control filings listed under Section
6.2.1 above and in furnishing information regarded as
necessary by one of the Parties and/or required in
connection therewith. The Parties shall provide any such
information promptly and shall inform each other in
writing without undue delay as soon as any or all of the
Closing Conditions shall have been fulfilled. Purchasers
shall undertake or cause to be undertaken all steps to
remove any impediments, restrictions, or conditions that
may affect the Closing Conditions, including, but not
limited to, Purchasers' selling or divesting of tangible
or intangible assets or business operations necessary to
receive the approval or clearance of competition or
antitrust authorities in all jurisdictions referred to in
Section 6.2, or to remove any decision, order, decree,
complaint, injunction, or other impediment or restriction
which impedes or threatens to impede the Closing of this
transaction.
6.4 In the event that not all Closing Conditions have been
fulfilled within 6 (six) months after the Signing Date,
each Party may withdraw from this Agreement (Rucktritt) by
giving written notice to the other Parties, unless at that
time the Party withdraws from this Agreement the Closing
Conditions have been fulfilled.
6.5 Closing (herein "Closing") shall occur within five (5)
Business Days (as defined in Section 18.8 below) after all
of the Closing Conditions have been fulfilled (herein
"Scheduled Closing Date"), but in no event prior to July
1, 2001. Sellers shall notify Purchasers of the Facility
Amount payable to Sellers within two (2) Business Days
after the receipt by Sellers of the communication that all
Closing Conditions have been fulfilled.
6.6 This Agreement shall be closed on the Scheduled Closing
Date, or any other day as agreed between the Parties,
unless a Party shall have withdrawn from this Agreement
pursuant to Section 6.4 above. On the Scheduled Closing
Date the Parties shall take, or cause to be taken, at the
offices of Mayer, Brown & Platt-Gaedertz, Frankfurt, or
such other place as agreed between the Parties the
following actions (except for those having been duly
waived) (herein "Closing Events"):
6.6.1 Payment of the Preliminary Purchase Price and the
Facility Amount into the account of Sellers as set
forth in Section 4.6 above;
21
6.6.2 Execution and delivery of a stock power to transfer
the US Shares to Purchaser 2 and execution and
delivery by Degussa and DD GmbH of a duly certified
application to the commercial register for
registration of the termination of DD KG by
succession to title (Gesamtrechtsnachfolge durch
Anwachsung) by operation of law;
6.6.3 Execution of the share transfer agreements
regarding the Foreign Shares in the form as set
forth in Exhibits 6.6.3 (1)-(4);
6.6.4 Submission by Sellers of signed resignation letters
of the board members representing Sellers which are
listed in Exhibit 6.6.4 and board resolutions
discharging such board members of their duties as
of the Effective Date of their respective
resignations;
6.6.5 Delivery by Purchaser 2 of (i) evidence
satisfactory to Sellers that the Degussa Guarantees
(as defined in Section 13.3) provided by Degussa
and its affiliates within the meaning of Section 15
German Stock Corporation Act (AktG) (herein
"Affiliates") other than the Companies in favor of
the Business have been replaced or (ii) a bank
guarantee in the aggregate amount of the
outstanding Degussa Guarantees; in each case in
accordance with Section 13.3 below;
6.6.6 Execution of a name and trademark agreement between
Degussa and DD KG in the form as set forth in
Exhibit 6.6.6;
6.6.7 Execution of the Brazilian Share Transfer
Instruments.
D. REPRESENTATIONS AND WARRANTIES, REMEDIES AND INDEMNITIES
7. Representations and Warranties of Sellers
7.1 Sellers hereby represent (sichern zu) and warrant
(garantieren) by way of a separate promise of guarantee
pursuant to Section 305 of the Civil Code (BGB) as of the
Signing Date and the Effective Date, unless expressly
specified otherwise:
7.1.1 Enforceability, No Conflict. As of the Signing Date
and Closing Date, Degussa is a stock corporation
(Aktiengesellschaft) and DHZ is a limited liability
company (Gesellschaft mit beschrankter Haftung),
duly incorpo
22
rated and validly existing under German law. As per
the Closing Date, this Agreement constitutes the
legal, valid, and binding obligation of Sellers,
enforceable under German laws against Sellers in
accordance with its terms, except as the
enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium,
or other similar laws relating to or affecting the
rights of creditors generally and except that the
remedy of specific performance and injunctive
relief and other forms of equitable relief may be
subject to equitable defenses and to the discretion
of the court before which any proceeding therefor
may be brought. As per the Signing Date and Closing
Date, each of Sellers has the absolute and
unrestricted right, power, authority, and capacity
to execute this Agreement and to perform its
obligations under this Agreement, which actions
have been duly authorized and approved by all
necessary corporate action of Sellers. Except for
the merger control approvals required pursuant to
Section 6.2 above, Sellers are not required to give
any notice to any person or obtain any consent from
any third party or governmental authorization in
connection with the execution of this Agreement by
Sellers. Neither the execution of this Agreement
nor the consummation or performance of any of the
transactions contemplated thereby will as per the
Closing Date directly or indirectly (with or
without notice or lapse of time), contravene or
conflict of (i) any governmental authorization,
legal requirement or order to which Sellers are
bound or subject; (ii) any provision of Sellers'
organizational documents, or any resolution adopted
by the respective boards of directors or
shareholders of Sellers.
7.1.2 Existence of Companies; Ownership of Shares, German
Limited Partnership Interest and the Brazilian
Local Management Shares. Each of the Companies is,
as of the Signing Date and Closing Date, duly
incorporated and validly existing under the laws of
its jurisdiction. As of the Closing Date, the
German Share, the Partnership Interests, the
Foreign Shares and the Brazilian Local Management
Shares (i) exist in the amounts set out herein,
(ii) are fully paid-up and have not been repaid,
and (iii) the ownership and all rights pertaining
to the German Share, the German Limited Partnership
and the Foreign Shares are owned as described in
Section 1 of this Agreement and are free and clear
of any third party rights and have not been
pledged, assigned, charged or used as a security
and, except for a right of first refusal granted to
Dental Farma regarding the shares held by DD Ltda.
in Probem, there exist no rights of preemption,
purchase options or call options of third parties.
7.1.3 Bankruptcy or Judicial Composition Proceedings. As
of the Closing
23
Date, no bankruptcy or judicial composition
proceedings concerning Sellers or the Companies
have been applied for, and to the Best Knowledge of
Sellers no circumstances exist which would require
the application for any bankruptcy or judicial
composition proceedings and to the Best Knowledge
of Sellers no circumstances exist pursuant to any
applicable bankruptcy laws which could justify the
avoidance of this Agreement.
7.1.4 Affiliates, Enterprise Agreements. As of the
Closing Date, except as disclosed in Section 1
above, DD GmbH, DD KG and DHZ have no affiliated
companies within the meaning of Section 15 German
Stock Corporation Act (AktG) nor do they maintain
any direct company relationship with any third
party, in particular hold no participation or
sub-participation in any other company and there
exist no enterprise agreements within the meaning
of Sections 291 and 292 German Stock Corporation
Act (AktG).
7.1.5 Material Agreements. Except for the agreements and
commitments listed or disclosed on Schedule 7.1.5
the Companies are not a party to the following
agreements and commitments which have not yet been
completely fulfilled and the existence of which, or
the termination of which, could have a Material
Adverse Effect (as defined below) (herein
collectively "Material Agreements")
(i) loan and credit agreements, or other agreements
or instruments evidencing indebtedness of any
of the Companies in excess of Euro 1,000,000.00
or securing such indebtedness such as pledges,
guarantees, securities (Burgschaften) or
letters of comfort (Patronatserklarungen) and
that will continue in effect or with respect to
which any of the Companies will have any
liabilities after the Closing Date;
(ii)non-compete, restrictive covenants or other
agreements that restrict any of the Companies
from operating the Business as conducted on the
Signing Date except for vertical restrictions
under customary distributorship, agency,
license agreements and alike agreements all of
which are in compliance with applicable
national or EU law;
(iii) research and development agreements
involving an amount in excess of Euro
100,000.00 p.a.;
24
(iv)trademark, patent and know how license
agreements which involve an amount in excess of
Euro 100,000.00 p.a.;
(v) agreements relating to toll manufacturing of
any product involving an amount in excess of
Euro 500,000.00 p.a.;
(vi)agreements relating to the acquisition or sale
of interest including assets, in other
companies or businesses;
(vii) lease agreements relating to Real Estate
(as defined in Section 10.2.2 below) which,
individually, provide for annual payments of
Euro 500,000.00 or more;
(viii) contracts or other agreements relating to
construction or acquisition of fixed assets or
other capital expenditures involving an amount
in excess of Euro 200,000.00 p.a.;
(ix)contracts and other agreements to purchase,
sell, lease or otherwise dispose of any assets
owned by the Companies other than in the
ordinary course of business involving an amount
in excess of Euro 500,000.00;
(x) contracts providing for a payment obligation in
excess of Euro 250,000.00 p.a. that would
terminate or could be terminated as a result of
the consummation of the transaction
contemplated under this Agreement;
(xi)liabilities to employees arising from employee
inventions (Arbeitnehmererfindungen and the
like) in excess of Euro 100,000.00 per person
per invention; and
(xii) contracts or commitments giving any party
with rights thereunder the right to terminate,
modify, accelerate or otherwise change the
existing rights or obligations of a
Consolidated Company.
For the purpose of this Agreement, "Material
Adverse Effect" means any change or effect that is
materially adverse to the financial condition,
results of operations, business operations or
assets of either (i) the Business of any of the
Companies as conducted in Germany (herein "German
Business") taken as a whole or (ii) the Business of
the Companies as conducted in the Netherlands
(herein "Dutch Business") taken as a
25
whole or (iii) the Business of the Companies as
conducted in the United States (herein "US
Business") taken as a whole or (iv) the Business of
the Companies as conducted in Japan (herein
"Japanese Business") taken as a whole.
7.1.6 Compliance with Material Agreements. Except as
disclosed in Schedule 7.1.6, , each of the
Companies have complied with their obligations
under the Material Agreements, except for any
default or breach which would not cause a Material
Adverse Effect. To the Best Knowledge of Sellers,
none of the Material Agreements has been terminated
by any Party, nor has any party given written
notice about its intention to terminate a Material
Agreement. To the Best Knowledge of Sellers, the
Material Agreements are valid and in full force as
of the Signing Date.
7.1.7 Material Intellectual Property Rights. The
Companies own and to the Best Knowledge of Sellers,
lawfully use all such patents, design models, and
trade marks which are material to carry on the
German Business, or the Dutch Business, or the US
Business or the Japanese Business, each as
conducted as of the Signing Date and each taken as
a whole (except for licenses of, and similar rights
in, application software) (herein collectively
"Material Intellectual Property Rights"). Schedule
7.1.7 contains a true and complete list of all
Material Intellectual Property Rights owned and/or
used by the Business indicating (i) the nature and
owner of the Material Intellectual Property Rights
and (ii) if applicable, the jurisdiction in which
such Material Intellectual Property Rights have
been registered and registration information.
7.1.8 Proceedings Relating to Material Intellectual
Property Rights and Products related to
Intellectual Property. Except as disclosed in
Schedule 7.1.8, the (i) Material Intellectual
Property Rights are not subject to any pending or
threatened proceedings for opposition,
cancellation, revocation or rectification, (ii) to
the Best Knowledge of Sellers the use of the
Material Intellectual Property Rights does not
infringe any rights of third parties, and (iii)
are, subject to customary expiry, duly administered
and renewed. To the Best Knowledge of Sellers, the
products and services currently offered for sale or
sold by the Business do not infringe any
intellectual property rights of third parties.
7.1.9 Insurance. The Companies maintain in full force and
effect for their own benefit policies of insurance
until the Closing Date against fire, water, theft
and other usually insured business risks which are
listed in Schedule 7.1.9. In addition, Schedule
7.1.9 contains the correct and complete
26
description of the Companies' product liability
loss history for the last five (5) years prior to
the Signing Date exceeding in each individual case
Euro 50,000.00.
7.1.10 Material Assets. Except as disclosed in Schedule
7.1.10, the Companies own, or hold lawful
possession of, all fixed assets (Anlagevermogen)
and inventories (Vorrate) (i) necessary and
material for carrying out the Business in
substantially the same fashion and manner as of the
Signing Date and (ii) which are reflected in the
Financial Statements (as defined in Section 7.1.16
below) or which have been acquired after December
31, 2000, except for such assets which were sold,
abandoned or otherwise disposed of in the ordinary
course of business since December 31, 2000 (herein
collectively "Material Assets"). The Material
Assets are not charged with any rights of third
parties including the transfer for security
purposes (Sicherungsubereignungen) except for (i)
customary rights of retention of title
(handelsubliche Eigentumsvorbehalte), liens,
pledges or other security rights in favor of
suppliers, mechanics, workers, carriers and the
like; (ii) security of rights granted to banks and
other financial institutions in respect of debt
reflected in the Financial Statements or in the
Effective Date Accounts; (iii) statutory security
rights in favor of tax authorities or other
governmental entities. The Material Assets are in a
useable condition in order to continue the Business
substantially in the same fashion as conducted as
of the Signing Date. Neither the execution of this
Agreement nor the consummation or performance of
any of the transactions contemplated thereby shall
result in the creation of any lien security
interest, charge or encumbrance upon the Material
Assets of the Consolidated Companies. The palladium
stock as per the Effective Date shall * * * * * * *
* * * * * *.
7.1.11 Permits. To the Best Knowledge of Sellers, the
Companies are in possession of all material
governmental approvals, licenses and permits
necessary to operate the business of each Company
as it is conducted as of the Effective Date and
which are material for the German Business, or the
Dutch Business, or the Japanese Business, or the US
Business each taken as a whole (herein collectively
"Permits") except as disclosed in Schedule 7.1.11.
To the Best Knowledge of Sellers no circumstances
exist which would reasonably be expected to result
in a revocation or limitation of the Permits or
which would reasonably be expected to lead to the
imposition of conditions to the Permits which would
cause a Material Adverse Effect.
7.1.12 Litigation. The Companies are not involved in court
or administrative
27
proceedings, including arbitration proceedings,
either as plaintiff or defendant having a
litigation value (Streitwert) exceeding Euro
250,000.00 in the individual case except as
disclosed in Schedule 7.1.12. There are no product
liability claims pending or to the Best Knowledge
of Sellers threatened against the Companies with a
litigation value exceeding Euro 250,000.00 in the
individual case.
7.1.13 Tax Returns, Notices. All tax returns required to
be filed by the Companies on or before the
Effective Date have been filed and the Companies
have paid all amounts due and owing with respect to
such tax returns.
7.1.14 Collective Bargaining Agreements. Schedule 7.1.14
includes all individual or collective employment
agreements (i.e. agreements which are entered into
between a Company and a group of employees or a
representative body of employees of a company,
unless such agreements repeat mandatory statutory
law only) which contain (i) benefit or incentive
plans relating to a change of control of a Company;
(ii) limitations to terminate employment
agreements, including providing for severance
payments; and/or (iii) obligations of a company to
make specific investments or to guarantee a certain
number of employees.
7.1.15 Pensions. All obligations, whether arising by
operation of law, by agreement or past custom, for
due payments and due and payable contributions with
respect to direct or indirect pension and
retirement benefits to the employees and former
employees of the Companies pertaining to periods
prior to the Effective Date have been paid, or
shall be paid, or have been sufficiently accrued
for in the Financial Statements except as set forth
in Schedule 7.1.15, and as it regards DD KG in
accordance with German generally accepted
accounting principles.
7.1.16 Financial Statements. The pro-forma consolidated
financial statements of the Companies listed in
Exhibit 7.1.16 (herein collectively "Historic
Consolidated Companies") for the fiscal year ended
on December 31, 2000 (herein "Consolidated
Financial Statements") as examined and audited by
Sellers' Auditor, have been prepared in accordance
with US GAAP. The Consolidated Financial Statements
present a true and fair view of the assets and the
financial condition of the Historic Consolidated
Companies as per December 31, 2000. The
Consolidated Financial Statements are based on
accounts which have been prepared by the Historic
Consolidated Companies, in accordance with local
GAAP, on the basis of Sellers' accounting and
consolidation standards which are referred to in
Section 5.1. The part of the spin-off balance sheet
relating to
28
the assets and liabilities to be spun off by
Degussa-Huls CEE GmbH as per December 31, 2000 into
DD Austria (herein "Austrian Financial Statements")
as examined and audited by Sellers' Auditor, has
been prepared in accordance with Austrian GAAP on
the basis of Sellers' accounting and consolidation
standards which are referred to in Section 5.1. The
Austrian Financial Statements present a true and
fair view of the assets and the financial
condition of DD Austria as per December 31, 2000 as
it had been in existence at such date. The
Consolidated Financial Statements and the Austrian
Financial Statements are herein collectively
referred to as "Financial Statements".
7.1.17 Compliance With Laws. Except as disclosed in
Schedule 7.1.17 the Business is conducted, and will
be conducted from the date of the Financial
Statements until the Closing Date in the ordinary
course and substantially in compliance with all
applicable laws and Permits except where the
failure so to comply would not have a Material
Adverse Effect. To the Best Knowledge of Sellers,
all products of the Companies fulfill the current
technical, biological, clinical and medical
standards known and reasonably applied in Germany
and as the case may be the US. Products sold by the
Companies prior to the Closing Date and returned to
the Companies shall not exceed in the aggregate,
based on the sales price of such products, 0.25% of
the gross sales during the sixty (60) day period
immediately preceding the Closing Date.
7.1.18 Material Adverse Changes after Signing Date,
Conduct of Business. Except as disclosed in
Schedule 7.1.18, and apart from general
developments in the marketplace, during the period
from January 1, 2001 until the Closing Date
7.1.18.1no material adverse changes in the assets,
liabilities, financial conditions or the
results of operations of the Companies
taken as a whole have occurred with a
financial impact on the Companies taken as
a whole exceeding Euro 2,000,000.00 (in
words: Euro two million); and
7.1.18.2the Companies have continued to conduct
their respective business operations in all
material respects in the ordinary course of
business in a manner consistent with past
practice except for transactions reflected
in this Agreement.
7.1.19 Investment Grants. No investment grants or
subsidies exceeding an
29
amount of Euro 50,000.00 shall be repayable as a
consequence of the performance of this Agreement or
any events or circumstances which were in existence
on or before the Closing Date.
7.1.20 Properties. With respect to the real property
formerly and/or presently owned or leased by the
Companies (herein "Properties") effective as of the
Effective Date and the Closing Date:
7.1.20.1Schedule 7.1.20.1 completely lists the
Properties of which the Company is the
owner. The Companies have good title to all
of the Properties listed in Schedule
7.1.20.1. The Companies' occupation and use
of the Properties listed in Schedule
7.1.20.1 and the Companies' conduct therein
of the Business do not violate any law,
rule, regulation or zoning or use ordinance
of any governmental agency or authority
resulting in a Material Adverse Effect.
The Properties which are owned or leased as
per the Signing Date comprise all the real
properties used for the operation of the
Business as conducted as of the date of the
Financial Statements and as prior to the
Effective Date.
7.1.20.2 Except as listed in Schedule
7.1.20.2, the buildings are properly
maintained until the Closing Date and the
structures and buildings on the Properties
have no defects which would materially
impair a normal continuation of the
operations of the business of the Companies.
7.1.20.3 The properties are free of any liens,
encumbrances or claims of any kind except
for the encumbrances registered in the
applicable land register as of the Signing
Date or as shown in Schedule 7.1.20.3.
7.1.20.4 Except as reflected in the Financial
Statements there will be no taxes or other
administrative dues and fees outstanding
for payment, including development charges
(herein "Administrative Charges") with
respect to the Properties. All
Administrative Charges which are allocable
to the time prior to the Effective Date -
irrespective of the fact when they will
become due - shall be reflected in the
Financial Statements.
7.1.20.5 The principal means of access to the
Properties is over public roads, which are
maintained at the public expense, or is se
30
cured by rights of way over private
property registered in the land registry
and are not subject to the rights of
termination by any third party. The
Properties making up the site of the
Companies enjoy the main services of water,
drainage, electricity and gas.
7.1.20.6 Schedule 7.1.20.6 lists and describes
briefly all real property leased or
subleased to the Companies. Sellers have
delivered or made available to Purchasers
correct and complete copies of the leases
and subleases listed in Schedule 7.1.20.6.
To the Best Knowledge of Sellers each such
lease and sublease is in full force and
effect against the lessee or sublessee
thereunder in all material respects.
7.1.21 Purchasers shall have no obligation or liability to
pay on behalf of Sellers any fees or commissions to
any broker, finder or agent with respect to the
transaction contemplated hereunder.
7.2 All Schedules referred to in Section 7.1 are collectively
referred to as the "Disclosure Schedules". No further
representations and warranties are given other than those
made or given by Sellers in this Agreement.
7.3 For the purpose of this Agreement, "Best Knowledge" of
Sellers shall mean the actual knowledge of any of the
members of the Executive Board (Vorstand) of Degussa, the
Management Board (Geschaftsfuhrung) of DHZ or Mr. Gerd
Schulte, Mr. Rudolf Lehner or Mr. Rainer Krau(beta) after due
inquiry of the current management of the Companies in
relation to the representations and warranties contained
in Section 7.1 above.
8. Representations and Warranties of Purchasers and Guarantor
Purchasers and Guarantor each represents and warrants as
of the Signing Date and the Effective Date:
8.1 Enforceability, No Conflict. This Agreement constitutes
the legal, valid and binding obligation of Purchasers and
Guarantor, enforceable against Purchasers and Guarantor in
accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating
to or affecting the rights of creditors generally and
except that the remedy of specific performance and
injunction relief and other forms of equitable relief may
be subject to equitable defenses and to the discretion of
the court
31
before which any proceeding therefor may be brought. The
Purchasers and Guarantor have the absolute and
unrestricted right, power, authority, and capacity to
execute this Agreement and to perform its obligations
under this Agreement, which actions have been duly
authorized and approved by all necessary corporate action
of Purchasers and Guarantor. Except for the merger control
approvals required pursuant to Section 6.2 above,
Purchasers and Guarantor are not required to give any
notice to any person or obtain any consent or governmental
authorization in connection with the execution of this
Agreement by Purchasers and Guarantor. Neither the
execution of this Agreement nor the consummation or
performance of any of the transactions contemplated
thereby will directly or indirectly violate the
certificate of incorporation or by-laws or any contract of
Purchasers and Guarantor or violate any applicable law,
rule, regulation, judgment, injunction, order or decree in
Germany or any other country where the Purchasers and
Guarantor are domiciled.
8.2 Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of
Purchasers and Guarantor, as of the Signing Date,
threatened against or affecting Purchasers and Guarantor
before any court or arbitrator or governmental body,
agency or official which in any manner challenges or seeks
to prevent, enjoin, alter or materially delay the
transaction contemplated hereunder.
8.3 Financial Capability. Purchasers have sufficient
immediately available funds or binding and unconditional
and irrevocable financing commitments to pay the Purchase
Price for the Business pursuant to Section 4.1 above.
8.4 Finders' Fees. Sellers shall have no obligation or
liability to pay on behalf of Purchasers any fees or
commissions to any broker, finder or agent with respect to
the transaction contemplated hereunder.
8.5 Acquisition at Own Account. Purchasers are acquiring the
Business for investment at Purchasers' own account, and
neither as a nominee nor agent nor with a view to the
resale or distribution of any part thereof within six (6)
months after the Closing Date, and Purchasers have no
present intention of selling, granting any participation
in, or otherwise distributing the Business. Purchasers
have not entered into any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with
respect to the Business or any part thereof.
8.6 No Knowledge of Breach. To Purchasers' and Guarantors'
knowledge, there exists no breach of any representation
and warranty made by Sellers in this Agreement, which
would give rise to a claim under Section 9 of this
Agreement. For the purpose of this Section 8 Purchasers'
and Guarantors' knowledge shall mean the actual
32
knowledge of the management of Purchasers and Guarantor
and individuals who have assisted Purchasers in connection
with its due diligence investigation and the negotiation
and the execution of this Agreement, as identified on
Exhibit 8.6.
9. Remedies
9.1 In the event of any breach or non-fulfillment by Sellers
of any of the covenants, representations or warranties
contained in this Agreement, Sellers shall be liable as
joint and several debtors (Gesamtschuldner) for putting
Purchasers, or at the election of Sellers, if it is
possible, the respective Company into the same position
that it would have been in if the representations and
warranties contained in Section 7.1 above had been true
and correct or had not been breached (Naturalrestitution),
or, at the election of Sellers, to pay damages for
non-performance (kleiner Schadenersatz). Sellers shall be
liable for any consequential damages (Folgeschaden) and
lost profits (entgangener Gewinn) provided that such
damages or lost profits were adequately caused (adaquat
kausal verursacht) by such breach of the representation or
warranty. Sellers shall not account for any internal costs
and expenses incurred by the Companies or Purchasers. If
and to the extent a Purchaser Claim (as defined in Section
9.2 below), other than a claim as to ownership of shares
relates to damages or losses incurred (i) by Sankin,
Sellers<180> obligation under Section 9.1 shall be limited to
94 % of the amount of actual damage or loss or (ii) by
Defradental, Sellers' obligation under Section 9.1 shall
be limited to 45 % of the amount of actual damage or loss
or (iii) by Probem, Sellers' obligation under Section 9.1
shall be limited to 60 % of the amount of actual damage or
loss.
9.2 In the event of any breach or non-fulfillment by Sellers
of any representations or warranties contained in this
Agreement (herein "Purchaser Claim"), Purchasers shall
give Sellers notice of such breach or non-fulfillment,
with such notice stating the nature thereof and the amount
involved, to the extent that such amount has been
determined at the time when such notice is given promptly
after discovery of such breach or non-fulfillment. The
failure to give such notice shall not preclude or bar such
claims but shall reduce such claims to the extent of
prejudice to the Sellers. Without prejudice to the
validity of the Purchaser Claim or alleged claim in
question, Purchasers shall allow, within thirty (30) days
of Purchasers' notice and shall cause the Companies to
allow, Sellers and their accountants and their
professional advisors to investigate the matter or
circumstance alleged to give rise to such Purchaser Claim,
and whether and to what extent any amount is payable in
respect of such Purchaser Claim and, for such purpose,
Purchasers shall give and shall cause the Companies to
give, subject to their being paid their reasonable
out-of-pocket costs and expenses, such information and
assistance, including access to Purchasers' and the
Companies' premises and personnel and including the right
to
33
examine and copy or photograph any assets, accounts,
documents and records, as Sellers or their accountants or
professional advisors may reasonably request.
9.3 Sellers shall not be liable for, and Purchasers shall not
be entitled to bring, any Purchaser Claim or any other
claim under or in connection with this Agreement, if and
only to the extent that:
9.3.1 the matter to which the Purchaser Claim relates has
been taken into account in the Financial Statements
by way of a provision (Ruckstellung), or
depreciation (Abschreibung), or exceptional
depreciation (au(beta)erplanma(beta)ige Abschreibung), or
depreciation to reflect lower market values
(Abschreibung auf den niedrigeren beizulegenden
Wert);
9.3.2 the matter to which the Purchaser Claim relates has
been taken into account in the Effective Date
Accounts for the determination of the Working
Capital;
9.3.3 the amount of the Purchaser Claim is recovered from
a third party or an insurance policy in force on
the Effective Date;
9.3.4 the Purchaser Claim results from a failure of
Purchaser or the Companies to mitigate damages
pursuant to Section 254 German Civil Code (BGB);
9.3.5 the matter which gives rise to the Purchaser Claim
, was known by any of the Purchasers or Guarantor
as of the Signing Date; in this regard, Purchasers
acknowledge the receipt of (i) the Information
Memorandum prepared by UBS Warburg AG, Frankfurt,
dated
March 12, 2001, including the two (2) correction
statements referring thereto (ii) the final draft
financial due diligence report Volume 1a- Summary
prepared by PricewaterhouseCoopers GmbH
Wirtschaftsprufungsgesellschaft, Frankfurt, dated
March 28, 2001, and (iii) the final draft
environmental due diligence report prepared by
ENVIRON Germany GmbH, Essen, dated March 2001;
9.3.6 the Purchaser Claim results from or is increased by
the passing of, or any change in, after the
Effective Date, any law, statute, ordinance, rule,
regulation, common law rule or administrative
practice of any government, governmental
department, agency or regulatory body including
(without prejudice to the generality of the
foregoing) any increase in the rates of Taxes (as
defined in Section 11.1 below) or any imposition of
Taxes or any withdrawal or relief from Taxes not
actually (or prospectively) known to Sellers or in
effect at the Effective Date;
34
9.3.7 the procedures set forth in Sections 9.5 and/or
11.4 were not observed by Purchasers or the
Companies and Sellers were prejudiced thereby.
9.4 Sellers shall not be liable for any Purchaser Claim, if
and to the extent either Purchasers or the Companies have
caused (verursacht oder mitverursacht) such Purchaser
Claim after the Effective Date.
9.5 If the Companies or any of Purchasers is sued or
threatened to be sued by a third party, including without
limitation any government agencies, or if the Companies or
Purchasers are subjected to any audit or examination by
any tax authority (herein "Third Party Claim"), which may
give rise to a Purchaser Claim or a claim under Section 11
below, Purchasers shall give Sellers prompt notice of such
Third Party Claim. Purchasers, at Sellers expense, shall
ensure that Sellers shall be provided with all materials,
information and assistance relevant in relation to the
Third Party Claim, be given reasonable opportunity to
comment or discuss with Purchasers any measures which
Sellers propose to take or to omit in connection with a
Third Party Claim, and in particular Sellers shall be
given an opportunity to comment on, participate in, and
review any reports and all relevant tax and social
security audits or other measures and receive without
undue delay copies of all relevant orders (Bescheide) of
any authority. No admission of liability shall be made by
or on behalf of the Purchasers or the Companies and the
Third Party Claim shall not be compromised, disposed of or
settled without the prior written consent of the Sellers
which consent shall not be unreasonably withheld. Further,
Sellers shall be entitled at their own discretion to take
such action (or cause the Purchasers or the Companies to
take such reasonable action) as they shall deem necessary
to avoid, dispute, deny, defend, resist, appeal,
compromise or contest such Third Party Claim (including
making counter claims or other claims against third
parties) in the name of and on behalf of the Purchasers or
the Companies concerned and the Purchasers will give and
cause the Companies to give, subject to them being paid
all reasonable out-of-pocket costs and expenses, all such
information and assistance, as described above, including
access to premises and personnel and including the right
to examine and copy or photograph any assets, accounts,
documents and records for the purpose of avoiding,
disputing, denying, defending, resisting, appealing,
compromising or contesting any such claim or liability as
Sellers or their professional advisors may reasonably
request. Sellers agree to use all such information
confidentially and only for such purpose. All costs and
expenses reasonably incurred by Sellers in defending such
Third Party Claim shall be borne by Sellers.
9.6 The Parties are in agreement that the remedies which the
Purchasers, or any of the Companies, may have against
Sellers for breach of obligations set forth in this
35
Agreement are solely governed by this Agreement, and the
remedies provided for by this Agreement shall be the
exclusive remedies available to Purchasers, or any of the
Companies. Apart from the rights of Purchasers under
Section 6.4 above, this Section 9 and Sections 10 and 11
below (i) any right of Purchasers to withdraw (Wandlung)
or rescind (Rucktritt) from this Agreement or to require
the winding up of the transaction contemplated hereunder
(e.g. by way of gro(beta)er Schadenersatz), and (ii) any claims
for breach of pre-contractual obligations (culpa in
contrahendo), or ancillary obligations (positive
Forderungsverletzung), except claims for willful deceit
(arglistige Tauschung), are hereby expressly excluded and
waived by Purchasers.
10. Environmental Indemnity
10.1 Sellers shall, subject to the provisions contained in this
Section 10, as joint and several debtors indemnify, defend
and hold harmless Purchasers from and against all
Environmental Liabilities (as defined in Section 10.2.1
below) resulting from (i) a final (bestandskraftig) and
enforceable (vollziehbar) order, decree or demand issued
by any governmental authority (Behorde), or (ii) an
imminent danger to the well-being or health (unmittelbare
Gefahr fur Leib oder Leben), or (iii) a final court
judgment rendered in connection with a private party or
governmental claim, in each case relating to an Existing
Environmental Condition (as defined in Section 10.2.2
below). Section 9.1 fourth sentence shall apply
accordingly.
10.2 Environmental Liabilities, Existing Environmental
Condition, Environmental Laws, Hazardous Materials and
Environmental Matters shall each have the following
meaning:
10.2.1 "Environmental Liabilities" means the amount of all
losses, costs and expenses including reasonable
legal fees, expenses and disbursements in
connection with (i) an investigation (Ma(beta)nahmen der
Gefahrerkundung, Untersuchungsma(beta)nahmen) in
connection with the identification of or in
anticipation of a remediation of an Existing
Environmental Condition, (ii) a clean up
(Sanierung) within the meaning of applicable
Environmental Laws of an Existing Environmental
Condition, (iii) protective containment measures
(Schutz-, Sicherungs und Beschrankungs-ma(beta)nahmen)
within the meaning of applicable Environmental
Laws, relating in each case to an Existing
Environmental Condition, or (iv) measures to
eliminate, reduce or otherwise remedy an imminent
danger to the well-being or the health (Ma(beta)nahmen
zur Abwehr von unmittelbaren Gefahren fur Leib
oder Leben) resulting from an Existing Environ
36
mental Condition.
10.2.2 "Existing Environmental Condition" means (i) the
pollution or contamination of the soil, ground or
air within the meaning of any applicable
Environmental Laws of the Real Estate currently or
previously owned or used by the Companies, the
currently used or owned Real Estate being
identified in Exhibit 10.2.2 (herein "Real
Estate"), (ii) the contamination of the groundwater
beneath the Real Estate, (iii) the disposal of any
Hazardous Materials used, generated or stored by
the Companies at any on site or offsite location,
provided, however, in each case such Existing
Environmental Condition existed at, or prior to,
the Closing Date, or (iv) any violation of the
applicable Environmental Law arising out of the
operations of the Business prior to Closing Date.
10.2.3 "Environmental Laws" mean all applicable laws,
ordinances, rules, regulations relating to
Environmental Matters and being applicable anytime
prior to and as of the Closing Date in (i) Germany
as it regards the German operations, (ii) the
United States as it regards the US operations,
(iii) Brazil as it regards the Brazilian
operations, (iv) Japan as it regards the Japanese
operations, (v) Italy as it regards the Italian
operations, (vi) The Netherlands as it regards the
Dutch operations, and (vii) Austria as it regards
the Austrian operations.
10.2.4 "Hazardous Materials" mean any pollutants,
contaminants or toxic substances that are defined
as such in the Environmental Laws or give rise to
actions by competent authorities under
Environmental laws.
10.2.5 "Environmental Matters" mean any matter relating to
pollution or contamination or protection of the
soil, ground water, surface water, land surface or
ground air.
10.3 Sellers' obligation to indemnify and hold harmless
Purchasers pursuant to Section 10.1 above shall apply
only, if and to the extent that the costs and expenses in
relation to the relevant Environmental Liability are
incurred by Purchasers prior to the fourth (4th)
anniversary of the Effective Date and have been notified
to Sellers in writing prior to such date. Provided that
the Environmental Threshold Amount (as defined in Section
12.3.2 below) is exceeded, any Environmental Liabilities
exceeding the Environmental Threshold Amount up to an
amount of Euro 1,000,000.00 (in words: Euro one million)
shall be shared between Sellers on the one hand and
Purchasers on the other hand on a 80:20 split. Any
Environmental Liability exceeding the Environmental
Threshold Amount plus the amount of Euro
37
1,000,000.00 (in words: Euro one million) shall be borne
by Sellers in accordance with the terms of this Agreement.
Further, the obligation to indemnify and hold harmless
Purchasers shall be excluded, if and to the extent the
respective Environmental Liability:
10.3.1 is incurred as a result of investigations,
preparatory or exploratory measures or
notifications after the Closing Date which
Purchasers were not obliged to carry out under the
applicable laws, ordinances, rules, regulations
under the respective jurisdiction which (i) relate
directly to Environmental Matters, and (ii) are
applicable at the time when the respective
Environmental Liability was incurred it being
understood however, that any environmental audits
conducted in accordance with Purchasers normal
practice as applied to its other properties shall
not exclude Sellers' indemnification obligation
hereunder and pursuant to Section 10.1 above;
10.3.2 is incurred as a consequence after the Closing
Date of (i) grossly negligent omissions to take
actions required to be taken by the Companies under
the applicable laws, ordinances, rules, regulations
under the respective jurisdiction relating directly
to Environmental Matters and being applicable at
the time when the respective Environmental
Liability was incurred, or (ii) activities outside
of the ordinary course of business of the Companies
(as conducted as of the Effective Date) after the
Closing Date, or (iii) any grossly negligent act or
omission of an employee or other representative of,
or service provider to, the Companies after the
Closing Date;
10.3.3 results from any failure to take reasonable
measures to minimize risks (dem jeweiligen Stand
der Technik entsprechende Ma(beta)nahmen der
Gefahrenabwehr) or to apply reasonable
environmental and safety standards (dem jeweiligen
Stand der Technik entsprechende Umwelt- und
Sicherheitsstandards) which, in each case, should
have been reasonably taken by a prudent businessman
after the Closing Date;
10.3.4 results from the coming into force of, or the
change in, any Environmental Laws after the Closing
Date except to the extent such results relate to
actions taken by the Companies prior to the Closing
Date;
10.3.5 the procedures set forth in Section 10.4 have not
been complied with, but only to the extent Sellers
were prejudiced for the non-compliance with such
procedures.
Apart from the foregoing, Section 9.3 shall apply
accordingly.
38
10.4 If any of Purchasers becomes aware of any circumstances
which might give rise to an Environmental Liability of
Sellers under Section 10.1 above, then Purchasers shall
inform Sellers in writing thereof without undue delay and
any measures within the meaning of Section 10.2.1 (i)-(iv)
shall be conducted solely in consultation with Sellers.
Sellers shall be given access at their own expense to the
Real Estate and the books and records of Purchasers (or
any of its successors, as the case may be) to the extent
that such access is reasonably necessary to assess any
Environmental Liability being incurred. Purchasers shall
ensure that for as long as Sellers may be held liable
under Section 10.1, copies of all documents relating to
the Real Estate which, as of the Closing Date are in the
possession of the Companies will be kept available for
inspection by Sellers at the premises of the Companies
upon Sellers' reasonable request. Section 9.5 shall apply
accordingly.
11. Tax Indemnity
11.1 Sellers shall as joint and several debtors indemnify,
defend and hold harmless Purchasers or, at the discretion
of Purchasers, the Companies, against any taxes customs
obligations, obligations relating to levies and any social
security obligations, including interest and penalties
thereon (herein collectively "Taxes") imposed under the
applicable laws and relating to the Companies for periods
ending on or before the Effective Date, to the extent such
Taxes (i) have not been reserved for in the Financial
Statements, and (ii) have become non-appealable. Section
9.1 fourth sentence shall apply accordingly.
11.2 In relation to tax accruals, tax releases, tax benefits
and changes in the accounting practices the following
shall apply:
11.2.1 Accruals made for Taxes of the Companies in the
Financial Statements may be applied and credited
against any claim by the Purchasers under Section
11.1 irrespective of whether such accrual or
reserve was made for the Tax giving rise to such
claim, provided that the total amount of the Taxes
is not in excess of the total amount of the
accruals made for Taxes of the Companies in the
Financial Statements.
11.2.2 If the Companies or their Affiliates are entitled
to or receive any benefits by refund, set-off or
reduction of Taxes as the result of an adjustment
or payment giving rise to a claim for
indemnification of Taxes, then the corresponding
benefit shall reduce the claim for indemnification
of any such Tax. This shall in particular but
without limitation apply to any Tax benefits after
the Effective Date resulting from the lengthening
of any amorti
39
zation or depreciation periods, higher depreciation
allowances or carry forwards of losses or
deductions.
11.2.3 Sellers shall not be responsible for any Tax
liabilities attributable to periods ending on or
before the Effective Date resulting from any change
in the accounting and taxation principles or
practices of the Companies (including methods of
submitting taxation returns) introduced after the
Closing Date, except if required under mandatory
law.
11.3 Any additional profit and loss allocations resulting from
any tax audit relating to taxable periods ending on or
before the Effective Date shall not entitle Sellers to any
additional profit distribution nor the Purchasers or
Sellers to any Purchase Price Adjustment, however, the Tax
indemnity of Section 11.1 shall remain unaffected.
11.4 Purchasers shall keep Sellers fully informed regarding the
commencement of any tax audit or other proceeding which
may give rise to a claim under Section 11.1 above, and
Sellers may take such actions as provided in Section 9.5.
and Section 9.2 shall apply mutatis mutandis.
11.5 Sellers shall be entitled to any refunds of Taxes received
by the Companies attributable to any taxable period ending
on or before the Effective Date.
11.6 In relation to the preparation of tax returns the
following shall apply:
11.6.1 Sellers shall file (or cause the Companies to file)
all tax returns which (i) are due to be filed by or
on behalf of the Companies on or before the Closing
Date, or (ii) are filed on a consolidated, combined
or unitary basis and which include the Companies
for taxable periods ending on or before the Closing
Date. Purchasers shall file (or cause the Companies
to file) all tax returns other than those referred
to in the preceding sentence.
11.6.2 Sellers shall be provided a copy of any tax return
to be filed by Purchasers or a Company after the
Closing Date relating to a taxable period beginning
before the Effective Date when such return is
completed by Purchasers.
11.6.3 With respect to any tax return to be filed by
Sellers which includes any periods ending after the
Effective Date, after review and approval by
Purchasers, which approval may not be unreasonably
withheld, Purchasers shall pay Sellers no later
than ten (10) days prior to the due date of such
tax return an amount equal to its Tax liability for
such periods de
40
termined on a "stand alone" basis.
11.7 The Parties agree to fully cooperate with each other in
connection with any matter relating to Taxes including the
preparation of any tax return, conduct of any audit,
investigation or contest. Such cooperation shall include,
without limitation, providing or making available all
relevant books, records and documentation and the
assistance of officers and employees. The Purchasers agree
to retain all books, records and documentation relating to
the Companies that may be relevant in connection with any
audit or investigation for which the Sellers may be
responsible hereunder until the expiration of any
applicable statute of limitation. Further, the Purchasers
shall cause the Companies to furnish to Sellers all such
information as may be necessary or helpful for Sellers to
prepare any tax return to be filed after the Closing Date,
provided that Sellers shall reimburse Purchasers' costs
which are more than de minimis for furnishing such
information.
12. Expiration of Claims; Limitation of Claims
12.1 All claims of Purchasers arising under this Agreement are
time-barred within twenty four (24) months after the
Signing Date, except for:
12.1.1 all claims of Purchasers arising under Section 10
above (Environmental Indemnity) which shall be time
barred on the fourth (4th) anniversary of the
Effective Date;
12.1.2 all claims of Purchasers arising under Section 11
above (Tax Indemnity) which shall be time barred
for each Tax six (6) months after the date of the
final, non-appealable assessment concerning the
respective Tax;
12.1.3 all claims of Purchasers in respect of liabilities
for defects of title arising from a breach in
respect of Section 7.1.2 above which shall be time
barred on the tenth (10th) anniversary of the
Effective Date;
12.1.4 Claims based on fraud, which shall have no time limit.
12.2 The aforesaid limitations periods for any claims of
Purchasers shall be interrupted pursuant to Section 208
German Civil Code (BGB) by any timely demand for
fulfillment pursuant to Section 9.2, Section 10.4 or
Section 11.1 above, as the case may be, provided that
Purchasers commence judicial proceedings within six (6)
months after the expiration of the relevant period set
forth in Section 12.1 above, or through timely notice of
acknowledgment of claim (Anerkenntnis).
41
12.3 Sellers' aggregate liability under Sections 7, 9, 10 and
11 shall not exceed
Euro 40,000,000.00 (in words: Euro forty million). No
liability shall attach to Sellers
12.3.1 under Section 7 and Section 9 unless and until the
aggregate of all claims (excluding any De-minimis
Claims) exceed Euro 5,000,000.00 (in words: Euro
five million) (herein "Threshold Amount");
12.3.2 under Section 10 unless and until the aggregate of
all claims (excluding any De-minimis Claims) exceed
Euro 1,000,000.00 (in words: Euro one million)
(herein "Environmental Threshold Amount");
12.3.3 under Section 11 unless and until the aggregate of
all claims (excluding any De-minimis Claims) exceed
Euro 1,000,000.00 (in words: Euro one million)
(herein "Tax Threshold Amount").
Purchasers shall not be entitled to pursue any claim and
no liability shall attach to Sellers under this Agreement
in regard to any claims of less than Euro 50,000.00 (in
words: Euro fifty thousand) (herein "De-minimis Claims").
If either (i) the Threshold Amount, or (ii) the
Environmental Threshold Amount, or (iii) the Tax Threshold
Amount is exceeded, Purchasers shall be entitled to the
payment of damages pursuant to this Agreement only in the
exceeding amount (Freibetrag). The limitations provided
for in this Section 12.3 shall not apply to any claims
against Sellers under Section 7.1.1 and 7.1.2.
E. COVENANTS, NON-COMPETE UNDERTAKING
13. Covenants / Purchasers' Indemnity
13.1 Sellers shall ensure that the Business will be managed in
the ordinary course between the Signing Date and the
Closing Date consistent with past practice prior to the
Signing Date.
13.2 For the period between the Signing Date and the Closing
Date, Sellers shall ensure that the Companies shall (i)
preserve their customer and employee relationships, (ii)
preserve the assets of the Business in good working
condition, reasonable wear and tear excepted, (iii) keep
the existing amounts of insurance for the Business in
place, (iv) maintain accounting procedures and its books
and records consistent with past practice, (v) not make
any dividend payments or other distributions of
42
such kind to Sellers or their Affiliates, (vi) maintain
and protect all of its Material Intellectual Property,
(vii) comply with applicable legal requirements and
contractual obligations (viii) continue to conduct its
operations at all locations at which operations are
presently conducted, in the ordinary and usual course of
business consistent with past practices, (ix) permit
Purchasers and their employees, agents and accounting and
legal representatives to have access to the records,
personnel and facilities of the Companies. Further, for
the period between the Signing Date and the Closing Date,
Sellers shall ensure that the Companies will not without
the consent of Purchasers, except in the ordinary course
of business and consistent with past practice (i) permit
any of the Material Assets (as defined in Section 7.1.10
above) to be subjected to any mortgage, pledge, lien,
security, interest, encumbrance, restriction, or charge of
any kind, except for those arising by operation of law,
(ii) make any material capital expenditure (i.e. exceeding
an amount of Euro 500,000.00) or commitment therefor or
enter into any material contract, agreement or commitment
with onerous terms which are not consistent with past
practices, (iii) grant any increase in wages, salaries,
bonus or other remuneration of any employee, (iv) cancel
or waive any claims or rights which may have a Material
Adverse Effect, (v) authorize or issue any shares of
capital stock of the Companies or any options or warrants
with respect thereto, or declare or pay any dividends or
make any distributions upon or acquire or redeem any of
its equity securities, (vi) agree, whether or not in
writing, to do any of the foregoing.
13.3 With effect as of the Closing Date, Purchaser 2 (i) hereby
assumes at the terms set out hereinafter the guarantees,
comfort letters and other guarantees of any kind (all of
which are listed in Exhibit 13.3) (herein collectively
"Degussa Guarantees") which Degussa or any of their
Affiliates (other than the Companies) have provided in
favor of the Companies with respect to the Business, to
banks, other financial institutions, suppliers, customers
or other third parties, and (ii) shall indemnify and hold
harmless Degussa and all such Affiliates from all
obligations and liabilities arising after the Closing Date
out of or in connection with the Degussa Guarantees.
Purchaser 2 shall further, prior to or on the Closing
Date, either (i) replace the Degussa Guarantees and any
additional guarantees, comfort letters and other
guarantees of any kind which may be provided in favor of
any Company with respect to the Business after the Signing
Date (provided that Degussa shall notify Purchaser 2
thereof at least ten (10) business days before the Closing
Date), so that Degussa and the Affiliates are fully
released from such Degussa Guarantees as of the Closing
Date; or (ii) provide, on or prior to the Closing Date, an
unconditional bank guarantee (issued by a first class
German bank) payable upon first demand for each of the
relevant Degussa Guarantees in an aggregate amount equal
to the aggregate amount of the outstanding obligations
secured by such Degussa Guarantee as notified to
Purchasers by Degussa at least ten (10) business days
before the Closing Date.
43
13.4 If after the Closing Date Sellers are held liable for any
liability arising in connection with the conduct of the
Business by a third party, including but not limited in
connection with any Environmental Matter, then Purchasers
and Guarantor, jointly and severally shall indemnify and
hold harmless Sellers in respect of the relevant
liability, unless and to the extent Purchasers have the
right to claim indemnification from Sellers in respect of
the relevant liability under the terms of this Agreement.
Purchasers and Guarantor, jointly and severally shall in
particular indemnify and hold harmless Sellers, and their
respective Affiliates, officers, directors, shareholders,
employees and agents against any and all liability, loss,
damage or injury, together with all reasonable
out-of-pocket costs and expenses relating thereto,
including reasonable legal fees, expenses and
disbursements, arising out of, connected with, or
resulting from any such third party claim. Section 9.5
shall apply mutatis mutandis.
13.5 Purchasers shall see to it that each of the Companies
shall support and assist Degussa, at Degussa's expense, in
connection with any litigation or any other proceedings
brought or initiated against Degussa in connection with
the Business sold and transferred to Purchasers under this
Agreement.
13.6 Degussa represents and warrants (garantiert) by way of a
separate promise of guarantee pursuant to Section 305
German Civil Code that as of the Closing Date (i) an
irrevocable offer by Degussa Pensionskasse in favor of DD
KG to waive its hereditary building right (Erbbaurecht)
relating to the real estate in Hanau-Wolfgang, Germany, on
which the administration building of DD KG is located, in
consideration of a total purchase price not exceeding
DM 20,000,000.00 (in words: Deutsche Mark twenty million)
validly exists and (ii) any necessary official permits for
such waiver of the hereditary building right had been
obtained including the consent of Degussa Pensionskasse
according to Section 70 of the Act on State Supervision of
Insurance Companies (Versicherungsaufsichtsgesetz).
13.7 Sellers shall co-operate on a reasonable basis at
Purchasers' cost, including instructing Sellers' Auditors
in connection with the procurement by Purchasers with
pro-forma consolidated financial statements of the
Business for the fiscal years ended on December 31, 1998
and December 31, 1999 and the period ending in 2001 on the
Closing Date which are reconciled or are prepared in
accordance with US GAAP and US Generally Accepted Auditing
Standards (herein "US GAAS").
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14. Non-Compete Undertaking
14.1 Sellers agree not to engage, directly or indirectly, as a
proprietor, shareholder, partner, employee, independent
contractor or otherwise in any business which would
compete in any way with the Business as defined herein,
except for the activities described in Exhibit 14.1
(herein "Permitted Activities") for three (3) years from
the Closing Date. Sellers further agree not to solicit
directly or indirectly outside of the Permitted Activities
for a period of three (3) years from the Closing Date or
otherwise contact any present or past customers of the
Business, for themselves or any other person, firm or
corporation, for the purpose of obtaining business in
competition with the Business as it exists on the Closing
Date other than Permitted Activities. It is hereby agreed
that the covenant not to compete of this Section 14.1
applies mutatis mutandis to any disclosure by the Sellers
of confidential information relating to the Business or
the Companies except if and to the extent the information
is or becomes public knowledge, is disclosed to Sellers in
good faith from another source, is discovered by Sellers
otherwise than by disclosure from the Companies or is
required to be disclosed by Sellers to a governmental
authority.
14.2 Nothing in Section 14.1 above shall prohibit (i) Sellers
from acquiring ownership of an equity interest not greater
than ten percent (10%) of any class of securities or the
voting rights in a publicly held company engaged in a
business in competition with the Business, or (ii) Sellers
from offering employment to any employee of any customer
of the Business, or (iii) from engaging in the Permitted
Activities. Nothing in Section 14.1 shall prevent Sellers
from acquiring, directly or indirectly, shares in or the
undertaking or assets of any company which carries on a
business which competes with the Business as carried out
on the Closing Date (herein "Competing Business"), if
Sellers shall cease to carry on or have such interest in
the Competing Business or the company carrying on the same
within one (1) year from completion of the relevant
acquisition disposed of. But nothing in Section 14.1 above
shall require the Sellers to cease to carry on the
Competing Business or to dispose of the same or such
interest within one (1) year as provided, if such
Competing Business or interest is acquired by the Sellers
as part of a larger acquisition and the value properly
attributable to the Competing Business did not at the date
of acquisition amount to more than twenty percent (20%) of
the value of such larger acquisition taken as a whole.
14.3 Without waiving the Purchasers' rights to monetary
damages, all Parties acknowledge that the breach of the
obligations contained in Section 14.1 above would result
in substantial but indeterminable harm, that the
restraints imposed are reasonable, that there is no
adequate remedy at law for a breach of such obligations,
and
45
therefore, that injunctive relief, specific performance or
other equitable remedies are appropriate to enforce the
obligations undertaken in Section 14.1. In the event that
a court finds that the terms of this covenant not to
compete are so broad as to be unlawful and unenforceable,
the Parties further agree that a reformation of the terms
of Section 14.1 may be appropriate in order to protect the
value of the Business being conveyed pursuant to this
Agreement as a going concern, and the value of the
non-competition covenant, and to provide for the
enforceability of the obligations contained in Section
14.1 to the fullest extent permitted by law.
F. MISCELLEANOUS
15. Restriction of Announcement, Cooperation and
Confidentiality
15.1 Each of the Parties undertakes that upon execution of this
Agreement the parties will make an announcement in
connection with this Agreement through prior consultation
with the other Parties, provided that the provisions of
the letter of Guarantor dated May 18, 2001, a copy of
which is attached hereto as Exhibit 15.1, shall remain
unaffected.
15.2 Sellers shall procure immediately after the Closing Date
the transfer of all patents, trademarks, utility models,
copyrights and any applications therefor or similar such
rights owned and /or registered in the name of Degussa or
other Degussa group companies not being subject of this
Agreement, which are pertaining to the Business (herein
"Degussa-IP Rights"). Degussa shall give all necessary
declarations or shall procure that the registered owners
of such Degussa-IP Rights give such declarations in order
to effect the transfers of such Degussa-IP Rights to the
Purchasers or any other corporate entity named by
Purchasers. Subsequent to the Signing Date, Sellers shall
provide Purchasers with such information and access to
Sellers' facilities and records relating to the Business
for transition planning and preparation and with such
assistance as may reasonably be requested by Purchasers,
including but not limited to a list of the Managing
Directors and, to the Best of Sellers Knowledge, the
procurated officers of the Companies, the location of bank
accounts and lock boxes and a list of authorized
signatories on behalf of the Companies. Such assistance
shall include (i) making employees available on a mutually
convenient basis to provide additional information and
explanation of any material provided hereunder and (ii)
providing all information necessary for all filings and
submissions to governmental authorities reasonably
necessary to complete the transaction contemplated
hereunder.
15.3 For the purpose of this Agreement, confidential or
proprietary information (herein
46
"Proprietary Information") shall mean the confidential
business information relating to the Business existing
through the Closing Date (herein "Existing Confidential
Information") and the information created, transferred,
recorded or employed as part of, or otherwise resulting
from the activities undertaken pursuant to this Agreement
or the Schedules and Exhibits hereto which constitutes the
confidential, proprietary or trade secret information of
the disclosing Party. Such information may be of, but not
limited to, a business, organizational, technical,
financial, marketing, operational, regulatory or sales
nature and shall include, without limitation, any and all
source codes and information relating to services, methods
of operation, price lists, customer lists, technology,
designs, specifications or other proprietary information
of the business or affairs of a Party or its Affiliate.
Proprietary Information may either be in a written form,
with notices of its proprietary nature affixed, or in an
oral form, reduced to writing and affixed with appropriate
notice of proprietary nature within seven days of oral
presentation, and distributed to both Parties for the
matter of record, but indicated as such at the time of
presentation in an oral fashion.
15.4 The Parties understand and agree that all Proprietary
Information shall be treated as confidential. The
receiving Party shall use the same degree of care as it
uses with regard to its own Proprietary Information to
prevent disclosure, use or publication of the disclosing
Party's Proprietary Information. Proprietary Information
of the originating Party shall be held confidential by the
receiving Party above unless it is or has been:
15.4.1 obtained legally and freely from a third party
without restriction as to the disclosure of such
information;
15.4.2 independently developed by the receiving Party at a
prior time or in a separate and distinct manner
without benefit of any of the Proprietary
Information of the disclosing Party, and documented
to be as such;
15.4.3 made available by the disclosing Party for general
release independent of the receiving Party;
15.4.4 made public as required by law, applicable
regulations or court proceedings or stock exchange
requirements; or
15.4.5 within the public domain or later becomes part of
the public domain as a result of acts by someone
other than the receiving Party and through no fault
or wrongful act of the receiving Party.
47
15.5 A receiving Party may disclose Proprietary Information of
a disclosing Party to directors, officers, and employees
of the receiving Party or agents of the receiving Party
including their respective brokers, lenders, insurance
carriers or prospective purchasers who have specifically
agreed in writing to nondisclosure of the terms and
conditions hereof. Any disclosure hereof required by legal
process shall only be made after providing the disclosing
Party with notice thereof in order to permit the
disclosing Party to seek an appropriate protective order
or exemption. Violation by a Party or its agents of the
foregoing provisions shall entitle the disclosing Party,
at its option, to obtain injunctive relief without showing
of irreparable harm or injury and without bond. The
provisions of this Section will be effective for a period
of three (3) years after the Closing Date.
15.6 The provisions of Section 15.4 and Section 15.5 shall
apply only to Sellers with respect to the Existing
Confidential Information.
16. Notices
All notices and other communications hereunder shall be
made in writing and shall be delivered or sent by
registered mail or courier to the addresses below or to
such other addresses which may be specified by any Party
to the other Parties in the future in writing:
If to the Sellers, to:
Degussa AG
General Counsel
Bennigsenplatz 1
D-40474 Dusseldorf
Germany
with a copy to:
Baker & McKenzie
Dr. Hans-Jorg Ziegenhain
Neuer Zollhof 3
D-40221 Dusseldorf
Germany
48
If to the Purchasers, to:
relevant Purchaser
c/o DENTSPLY International Inc.
570 West College Avenue
York, PA 17404, USA
Attention: Secretary
with a copy to:
Mayer, Brown & Platt-Gaedertz
Mr. Werner Lutzke
Bockenheimer Landstrasse 98-100
D - 60323 Frankfurt am Main
Germany
If to the Guarantor, to:
DENTSPLY International Inc.
570 West College Avenue
York, PA 17404
Attention: Secretary
with a copy to:
Mayer, Brown & Platt-Gaedertz
Mr. Werner Lutzke
Bockenheimer Landstrasse 98-100
D - 60323 Frankfurt am Main
Germany
17. Guarantor's Guarantee
Guarantor hereby unconditionally and irrevocably
guarantees to Sellers the due and punctual performance of
the payment of the Purchase Price, including for the
avoidance of doubt the payment of any Purchase Price
Adjustment. The Guarantor hereby waives any rights which
it may have to require the Sellers to proceed first
against or claim payment from Purchasers to the extent
that as between Sellers and the Guarantor the latter shall
be liable as principal debtor as if it had entered into
49
the undertaking to pay the Purchase Price, including for
the avoidance of doubt the Purchase Price Adjustment,
jointly and severally with Purchasers.
18. Miscellaneous
18.1 If and to the extent a conflict arises between the
contents of this Agreement and any agreement entered into
in connection with this Agreement (including, but not
limited to, local share transfer agreements as provided
for in Section 6.6.2 and 6.6.3 above), the terms of this
Agreement shall prevail.
18.2 All expenses, costs, fees and charges in connection with
the transactions contemplated under this Agreement
including without limitation, legal services, shall be
borne by the Party commissioning the respective expenses,
costs, fees and charges. All notarial fees incurred by the
notarization of this Agreement as well as all fees charged
by the cartel authorities in connection with the merger
clearances required under this Agreement shall be borne by
Purchasers. Purchasers shall be responsible for the
payment of any sales, transfer or stamp taxes, or other
similar charges, payable by reason of the transactions
contemplated by this Agreement.
18.3 All Exhibits and Schedules (including, in particular, the
Disclosure Schedules) to this Agreement constitute an
integral part of this Agreement.
18.4 This Agreement and the Exhibits and Schedules referred to
under Section 18.3 above comprise the entire agreement
between the Parties concerning the subject matter hereof
and supersede and replace all oral and written
declarations of intention made by the Parties in
connection with the contractual negotiations. Changes or
amendments to this Agreement (including this Section 18.4)
must be made in writing by the Parties or in notarial
form, if required.
18.5 In this Agreement the headings are inserted for
convenience only and shall not affect the interpretation
of this Agreement; where a German term has been inserted
in quotation marks and/or italics it alone (and not the
English term to which it relates) shall be authoritative
for the purpose of the interpretation of the relevant
English term in this Agreement.
18.6 No Party shall be entitled to assign any rights or claims
under this Agreement without the written consent of the
other Parties, unless otherwise specified, except that
Purchasers may assign its rights under this Agreement,
including its rights to purchase the shares, to a
wholly-owned subsidiary pursuant to an assumption
agreement reasonably acceptable to Sellers.
50
18.7 Interest payable under any provision of this Agreement
shall be calculated on the basis of actual days elapsed
divided by 360 and shall exclude the day of payment.
18.8 "Business Days" (Werktage) referred to in this Agreement
shall be any day other than Sunday or public holidays in
Frankfurt am Main.
18.9 This Agreement shall not grant any rights to, and is not
intended to operate for, the benefit of third parties
unless otherwise explicitly provided for herein.
18.10 No Party, except as provided otherwise herein, shall be
entitled (i) to set-off
(aufrechnen) any rights and claims it may have against any
rights or claims any other Party may have under this
Agreement, or (ii) to refuse to perform any obligation it
may have under this Agreement on the grounds that it has a
right of retention (Zuruckbehaltungsrecht) unless the
rights or claims of the relevant Party claiming a right of
set-off (Aufrechnung) or retention (Zuruckbehaltung) have
been acknowledged (anerkannt) in writing by the relevant
other Party/Parties or have been confirmed by final
decision of a competent court (Gericht) or arbitration
court (Schiedsgericht).
18.11 Any currency conversions shall be determined using
prevailing exchange rates prevailing two banking days in
Frankfurt am Main prior to the date on which the
respective payments become due and payable. The European
Central Bank fixing rates shall be used which are
published both by electronic market information providers
(e.g. Reuters page ECB37) and on the ECB's website
www.ecb.int shortly after 2.15 p.m. CET. When such rates
are not available on such date, Reuters world spot rates
(mid rate on page FX=) taken as close as possible to 2.15
p.m. CET shall be used.
18.12 This Agreement shall be governed by, and be construed in
accordance with, the laws of the Federal Republic of
Germany, without regard to principles of conflicts of
laws. All disputes arising in connection with this
Agreement or its validity shall be finally settled by
three arbitrators in accordance with the Arbitration Rules
of the German Institution of Arbitration e.V. (DIS)
without recourse to the ordinary courts of law. The venue
of the arbitration shall be Frankfurt am Main. The
language of the arbitral proceedings shall be English.
18.13 In the event that one or more provisions of this Agreement
shall, or shall be deemed to, be invalid or unenforceable,
the validity and enforceability of the other provisions of
this Agreement shall not be affected thereby. In such
case, the Parties hereto agree to recognize and give
effect to such valid and enforceable provision or
provisions which correspond as closely as possible with
the commercial intent of
51
the Parties. The same shall apply in the event that this
Agreement contains any gaps (Vertragslucken).
18.14 This Agreement is subject to the condition precedent that
Degussa shall not notify the undersigned notary in writing
by fax by Tuesday May 29, 2001 24:00 hours that the
supervisory board (Aufsichtsrat) of Degussa has not
approved this Agreement. The undersigned notary shall
confirm to the Parties without undue delay whether or not
he has received such notice from Degussa. The original of
the notification from Degussa containing notarised
signature and notarial confirmation of power shall be sent
to the undersigned notary immediately by courier service.
(continued on next page)
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